Christian Schneider

Author, Columnist

\”Underpaying\” Business Taxes

Today, the Institute for Wisconsin\’s Future released a \”study\” that purports to show that Wisconsin businesses \”underpay\” their taxes by $1.3 billion. The report uses data from Ernst and Young that estimates Wisconsin businesses pay 35% of total state tax receipts, as opposed to a 40% average nationwide. Additionally, Wisconsin businesses pay 47% of local taxes, compared to 52% nationwide. The study then concludes that if Wisconsin businesses paid the national average, they would pay $1.3 billion more, and individuals would pay that much more less. The report says:

The combined underpayment of state and local taxes means that Wisconsin\’s corporate sector is $1.3 billion short of what it would be paying, if only it brought its share up to the national average.

As a taxpaying partner in supporting state and local services, Wisconsin\’s corporate sector ranks 41st among all the states, according to Ernst & Young. This is a Bottom Ten ranking that should embarrass corporate leaders.

This is a pretty reliable talking point for liberal advocates – that somehow businesses are sticking it to taxpayers by neglecting to pay their \”fair share\” of taxes. In fact, versions of the term \”underpayment\” appear seven times in the eight page paper, as if businesses are willfully disobeying the law.

In fact, businesses pay the amount they owe. And the less they owe, the more capital they have available to employ Wisconsin taxpaying citizens. If someone believes businesses aren\’t paying their fair share, then their concerns are best taken up with the Legislature and not the businesses themselves.

Furthermore, such a simplistic analysis ignores some important trends. Is it possible that Wisconsin businesses are paying less as a percentage of total taxes because businesses are leaving the state? If there were fewer businesses in Wisconsin to pay taxes, the total amount they contribute would certainly be less. Are businesses paying less as a percentage because individuals are paying more? That could be a sign of a good economy, if individual incomes (and tax receipts, as a result) are up.

In fact, it would be just as easy to get to their magic \”40%\” number by cutting taxes for individuals, since businesses would be paying more as a percentage of tax receipts. Is this what the Institute for Wisconsin\’s Future is advocating? I\’m guessing not. That would explain why so many states with high income taxes are at the top of the \”scale\” the study cites – is this something that they consider to be desirable?

Finally, does the passage of the \”single sales factor\” business tax break (signed by Democratic Governor Jim Doyle) have anything to do with the smaller business tax share? (It is buried in a footnote.)

The report doesn\’t address any of these questions, which shows that it really isn\’t a serious attempt to discern an appropriate tax level for businesses. It briefly cites the tax statistics, then is padded with typical shots at Wal-Mart, Wisconsin Manufacturers and Commerce, and banks. In fact, if businesses were forced to pay more in taxes, more would probably choose tax-friendlier states to do business, and there would be fewer employees paying taxes to local and state governments. Minnesota\’s JOBZ program attempts to lure Wisconsin businesses by completely eliminating sales, income and property taxes – which means they are dying for businesses to come in their state and \”underpay\” taxes.

Normally, such a report wouldn\’t merit a rebuttal, but today\’s Milwaukee Journal Sentinel gave it a story without a single dissenting viewpoint, so a counterpoint was necessary.

5 Comments

  1. I’ll take Door #1, with the additions that taxes are much higher in Wisconsin than elsewhere in the country and the all-important-yet-forgotten-by-liberals-daily fact that every penny that a corporation pays in taxes comes from individuals.

  2. What the study did not seem to reference was the level of SPENDING done by the State vis-a-vis population or incomes (e.g.).

    There’s a reason for that…

    Nor does it sort out “corporations” from partnerships, Sub-S companies, or sole proprietorships, where the tax obligation falls directly on individuals–then comparing the % of each of those entities to the %s found in other States.

  3. Mr. Pelican Pants

    April 12, 2007 at 7:04 am

    Wisconsin businesses lend much more to our quality of life than just tax revenues, be they too low or too high depending on your perspective. They create jobs, provide health insurance for their workers, stabilize and grow local economies, provide a wealth of goods and services to improve our own way of life, and from time to time, engage in charitable causes for the good of their community.

    In addition to that, local businesses are subject to other government fees aside from just income, sales or property taxes. They must remit monies for a variety of fees and permits, as well as contribute to unemployment compensation programs and workers compensation programs. In addition, the morass of government regulation placed on small, medium and large businesses each year comes at a very high price as well.

    Wisconsin will never attract or retain good companies that offer competitive wage packages for their employees if the state imposes massive tax increases on said companies. Business leaders make their decisions based on many factors, and perhaps the single-most prevalent factor is the tax climate from state to state. Wisconsin is constantly competing for business not only in the Mid-West, but also nationally and internationally. Thus, to advocate sweeping tax increases in the name of some kind of fairness or egalitarianism would leave those entities with little choice but to either cut their workforce or simply move out of state.

  4. COOOOOOL!!!!!!!! Let’s be friends!!! Go to my site and post your info 🙂

  5. To whom it may concern:

    Add another business to the list. I’m laying off all of my employees so that, after I’m done with law school, my wife, my daughter, my business, and I can leave the state unencumbered. Take my advice – do what rats do on a sinking ship – bail out of this bum state!

    James R. Holmes, EA, PI

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