The Legislature should review all corporate tax breaks

Yesterday, the Wisconsin legislature closed a huge corporate tax loop hole. In unanimously passing the “Newark” bill, SB 122, the legislature saved residential property owners millions of dollars and reversed, at least temporarily, its three decade romance with corporate property tax exemptions!

Governor Doyle is expected to sign the bill next week.

Under the 2004 Newark court ruling, hundreds of millions of dollars of industrial property that use recycled material to create new products would have been exempted from paying property taxes. The exception was initially granted to the Newark Group, a Milwaukee paperboard manufacturer. Other manufacturers quickly began to line up at the trough seeking over $145,000,000 in exemptions. Besides major paper industry facilities, a cheese plant and chemical factory requested the exemption. Because the ruling applied to any producer using recycled materials to make a new product, entire industries could have come off the tax rolls. The new law effectively ends this corporate run on the public bank!

Exempting property from taxes, shifts the tax burden to the property left on the rolls. Simply put- Wisconsin's already over taxed homeowners, predominantly hard working people and retirees, would have seen their property taxes go up even more because of the Newark ruling!

Since the early 1970’s the Wisconsin legislature under pressure from the Wisconsin Manufacturers and Commerce (WMC) has passed property tax exemptions and other corporate tax breaks. It began when the legislature exempted manufacturing machinery and equipment as a way to stimulate economic growth and job creation. The idea was companies would buy advanced manufacturing equipment if the cost was reduced by exempting it from property taxes. But manufacturing companies don’t buy new equipment because it is marginally cheaper. They buy it when they need to increase productivity or total production. So tax breaks grew, but not manufacturing jobs! Obscenely, homeowners were subsidizing corporate Wisconsin.

By the early 1990’s exemptions were costing the state over a billion dollars annually! And the legislature under pressure from the WMC added even more-exempting computer equipment in the late ‘90’s at a cost of over $100 million annually. The legislature’s love affair with tax breaks even led it to contemplate exempting TYME machines!

Forward Wisconsin, the state’s marketing and business recruitment arm, brags on it web site: ” Wisconsin's business-friendly attitude is reflected in positive business tax changes that have been made in every biennial legislative session since the early 1970s… Wisconsin business taxes are low - lower than those in 35 other states.”

And despite all this, Wisconsin’s rates of economic growth and wages, another thing Forward Wisconsin brags about, are below the national average,

As the business community has reduced its public investments, the burden for paying for schools, roads, tech colleges, public safety, the University of Wisconsin system and other public goods has been shifted to homeowners!

According to the Legislative Fiscal Bureau, residential property carried 51% of the state’s total property tax burden in 1970, but 71% in 2005. In contrast, manufacturing property comprised 18% of the burden in 1970 but only 3.6% by 2005. Under the guise of tax breaks the legislature had presided over a massive shift in the tax burden. Corporate Wisconsin walked and homeowners were left with the bill!

The legislature’s action killing the Newark exemption yesterday was a welcomed break from their past practice. It should now review the entire menu of existing corporate tax exemptions to determine which are effective in promoting economic growth and job creation and which are indefensible corporate welfare. Wisconsin’s wage earners and tax payers are waiting!