Cutting taxes questioned as best way to create more jobs

CAPITOL NEWSLETTER
Matt Pommer • Wisconsin Newspaper Association

Wisconsin is among seven states that saw their economies contract during the last three months of 2015, according to the Federal Reserve Bank of Philadelphia.

Five of the states – North Dakota, Wyoming, Mississippi, Louisiana, and Alaska – were hurt by plunging oil and natural gas prices.

Statistics for Wisconsin and Illinois were impacted by a sluggish manufacturing sector, according to reports. Hours worked in manufacturing and employment levels are two of the factors in the study.

The Fed’s findings are not a surprise to Wisconsin officials. The non-partisan Legislative Fiscal Bureau recently reported that tax collections were running below levels developed earlier for the state’s biennial budget.

In the wake of those numbers Gov. Scott Walker has limited new legislative spending. Wisconsin Taxpayers Alliance President Todd Berry is warning that the numbers might get worse.

Wisconsin’s economy has long been tied to manufacturing. Some studies have indicated we have had the fourth highest manufacturing levels among the 50 states.

The Walker administration has focused on helping the manufacturing sector with tax credits that dramatically lower how much large manufacturing firms are required to pay in corporate taxes. The governor also has sought to convince firms to move into Wisconsin.

The personal income tax, something that impacts corporate leaders, has been reduced and the old alternative minimum tax has been scrapped.

But a new study by the Washington, D.C.-based Center on Budget and Policy Priorities is asking whether the focus on reducing income taxes or trying to lure firms to the state is the cor- rect approach for state governments. Its authors, Michael Mazerov and Michael Leachman, suggest another alternative. It cites new Census and Labor Department studies.

“States should focus on producing more home-grown entrepreneurs and on helping start up and young fast growing firms already located in the state – not in cutting (income) taxes and trying to lure businesses from other states,” they wrote.

The new firms are more likely to produce jobs than older mature companies. Those starting new businesses are more concerned about property taxes than income taxes, they suggested.

“Older firms actually lost jobs on average,” they wrote. “Any new jobs they created were more than offset by jobs they eliminated or closures.”

Cutting corporate and top personal income taxes have little impact on the fast-growing start-up companies “because they generally have little taxable income.”

State income-tax reductions have other impacts. They take money away from schools, universities, and other public investments essential to producing the talented work force that entrepreneurs require, wrote Leachman and Mazerov.

Policy makers should reject major income-tax cuts and new corporation relocation subsidies, according to the authors. Public investment to build a skilled work force is the better approach, they asserted.

They cited an Inc. magazine study of the 150 fast-growing companies in the country. That study showed that leaders of those firms had focused on the availability of an educated work force and quality of life factors in deciding where to locate.

Schools, parks, roads, and public safety are among the quality-of-life factors that are studied in making those decisions.

Gov. Walker is promising the new biennial state budget will provide more funds for “public education.” He has not defined where the money would go.


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