How to Change the State Tax Burden
New report proposes reducing property and income taxes by broadening the sales tax.
Want to write your own tax code? A recent report offers Wisconsin taxpayers a cut-and-paste opportunity to do just that.
And, it could offer Republican Gov. Scott Walker – if he’s re-elected on Nov. 4 – political cover to make tax-code reform the signature issue of the 2015-17 session of the Legislature, if it’s again run by his fellow Republicans. Signing attention-getting tax reform into law would also broaden Walker’s appeal as a potential GOP candidate for President in 2016.
The simple premise of the right-leaning Wisconsin Policy Research Institute report: “Wisconsin doesn’t just suffer from high taxes. It suffers from the wrong tax mix,” says WPRI President Mike Nichols. “While our sales taxes are lower than those in two-thirds of other states, our income and property tax burdens are significantly higher. There is a clear need for Wisconsin to step back on firm ground and consider a new tax mix that lowers more harmful income and property taxes and broadens the sales tax law.”
More interesting is the mix-and-match chance the report offers to design a new tax code, based on its list of 25 goods and services now exempt from the 5 percent state sales tax and how much money extending the sales tax to each of them would raise annually. You can do that by applying the new revenue you get when you end a specific tax break to the specific tax you want lowered. It’s not Common Core math.
-Want to abolish the personal property tax, something a Republican-led special legislative committee hopes to find a way to do? Then you must find $269 million a year to replace the personal property tax that now goes to local governments. Now, comb through WPRI’s list of now-exempt goods and services to raise that $269 million.
For example, applying the sales tax to legal services would bring in almost $120 million per year; taxing vehicle trade-ins, another $97.1 million, and taxing accounting work would bring $51 million more. Bingo! You raised almost $269 million to replace the personal property tax.
-Want to wean technical colleges off the property tax? Then you must find up to $615 million, according to the non-profit Wisconsin Taxpayers Alliance.
Hmm. Back to that list of tax-exempt goods and services. Charging the 5 percent sales tax on food would raise $536 million a year, but it could also make everyone in the state so mad they would overlook the cut in their property tax bills. Charging the sales tax on food would also hit low- and middle-income residents the hardest, although the WPRI study said income tax credits that offset what they pay for food would be fairly easy to devise.
Is there some other way to replace that $615 million that technical colleges now raise in property taxes? If you don’t want to charge the 5 percent sales tax on food, here are tax exemptions you could cancel that total about $615 million: Tax legal services, +$120 million; fuel/electricity used by homes, +$117.6 million; vehicle trade-ins, +$97.1 million; architecture/engineering services, +$83.8 million; accounting services, +$51 million; commissions paid real estate brokers, +$23.9 million; water sold through mains, +$23.9 million; beauty and barber services, +$23.1 million; veterinary services, +$21.2 million; bottled water, +$19.5 million; funeral services, caskets and burial vaults and finally, +$17.4 million and health clubs, +$17 million.
-Want to eliminate the income tax on corporations to spur economic development? Then use the WPRI study numbers to find $962 million and get back to me.
And, if you need the equivalent of pocket change in the couch, here are some small sales tax exemptions and how much ending them would raise: interior design, +$1.9 million; tax-preparation services, +$2.1 million, and disinfecting/extermination services, +$3.3 million. Why are exterminators exempt from sales taxes? That’s one thing the report didn’t explain.