Taking a Step towards Fair Taxes

“What are you going to do about taxes?” The older man was not happy with his property tax bill.

Most of the complaints I hear about taxes center on property tax. Wisconsin does have high property taxes. But you may be surprised by who isn’t paying them.

Did you know that 35 years ago residential property accounted for half of all property taxes collected and by 2005, this number had risen to 70 percent? That means that business property taxes, (including agriculture) have dropped.

Many types of business personal property are exempt from property tax – manufacturing machinery, equipment, computers – including cash registers.

Some business groups say the exemptions are not fair – they target one business over another. Restaurant owners, for example, feel left out in the cold.

Very large businesses seem to do better in the avoiding taxes game. One study found that 26 of the largest 35 companies based in our state paid no tax at all. None at all.

The study also reported that 62 percent of companies that make over $100 million in revenue – that’s a big company – pay no state tax. None.

The corporate income tax brings in a pittance to state and local government - far less than other taxes. For example, in 2006, only 3.5 percent of state and local tax dollars came from corporate tax while more than one-third (37 percent) came from property tax payers and almost 30 percent came from individuals through income tax.

Maybe that is one reason why Wisconsin was recently ranked 41 out of 50 states in businesses’ share of state and local taxes.

As companies become larger and operate in many states, they find ways to avoid state taxes. Because of this, 20 states have put in place a new way of figuring out how much companies owe the state. The new method, called “combined reporting” requires companies that operate in more than one state to report all their income from both the parent company and the subsidiary. Tax-policy people say that this is the best way to keep companies from shifting income from one state to another to avoid paying taxes.

Combined reporting is a fair way to spread the tax burden around – it is fair to families and small businesses that do not have a branch in another state.

When the Senate passed the state budget, senators agreed that we needed to change the way multi-state companies were taxed. We passed “combined reporting” as part of the budget. The Assembly Republicans did not support the plan and now the new way of taxing large companies is part of the budget battle being fought out in the Conference Committee.

Changing the tax system is not easy. But small changes add up over time. As we make small changes, we need to keep the big picture in mind.

Our goal should be a fair system - one that does not hurt one person or one type of business over another.

Property tax is an antiquated system based on the 150-year-old notion that property equates with wealth. In 1860, this might have been true. But now the wealthiest man is not the one with the 600-acre farm.

The long term answer to our tax problems is to move to a system that has low rate and a broad base – so everyone pays his or her fair share and no one pays too much.

And we need a tax system that grows with the economy – so our resources for roads and services grow as our needs grow.

Have ideas about fixing our tax system? Let me know. Write: State Capitol; P.O. Box 7882 Madison, WI 53707-7882 or sen.vinehout@legis.wisconsin.gov; call Black River Falls (715) 284-1730; Eau Claire at (715) 838-0448 or Madison at (877) 763-6636 (toll free). Visit my website at http://www.legis.state.wi.us/senate/sen31/news/