"Manufacturers tax cut" doesn't add jobs, just big cash to rich!

The Manufacturing and Agriculture Credit has been mentioned a few times on this page as an example of how ALEC tax policies have failed Wisconsin, but a new report by one of my favorite state organizations have put into focus just how bad the M&A Credit is. This tax write-off was passed by Wisconsin GOP Legislators and signed into law by Governor Walker in 2011, and the amount that can be written off has gradually increased to the point that it is now maxed out at 7.5% of income, which means it can reduce the amount of taxes owed to somewhere between 0.15-0.4% (depending on whether an individual or corporation uses it and how much of their income applies).

The Wisconsin Budget Project’s Tamarine Cornelius did an excellent analysis on the M&A Credit, and called it “The Big Giveaway”. Cornelius looked into recent tax-filing figures, and it showed that rich Wisconsinites get a huge payback from the M&A Credit, while everyday Wisconsinites get basically nothing from it.

Information on the income of the filers who receive the credit is available for the portion of the credit distributed through the individual income tax, but not the corporate income tax. Most of the credit value — about 70% — is distributed through the individual income tax, meaning that comparisons of distributions by filers of different income levels for the individual income portion would likely hold true for the full amount of the credit. Figures describing the distribution of the MAC are taken from Wisconsin Department of Revenue estimates, and are based on Wisconsin Adjusted Gross Income.

Tax filers with the very highest incomes receive much bigger tax cuts from the MAC on average than do filers with lower incomes. Tax filers who had incomes of $1 million and higher receive an average MAC credit of $27,632, according to estimates for tax year 2016. That amount includes filers who receive credit amounts of zero. Filers with incomes between $300,000 and $1 million receive an average tax cut of $958 in 2016. Tax filers with incomes of under $300,000, a group that makes up nearly 99% of tax filers, receive an average tax cut of $5.

In addition, the Budget Project notes that the MAC is more than 100 times more likely to be used by someone making $1 million compared to anyone making under $300,000. And the fact that rich people are likely to use the credit and get much bigger write-offs from it helps to explain why the cost of this tax cut has exploded well beyond what was predicted when it was signed into law 5 years ago.



Even worse, as this write-off has gotten bigger, it seems to have done nothing to encourage manufacturers to actually hire people, which was the reason it was allegedly put into place. As the Budget Project notes

If the Manufacturing and Agriculture Credit helped Wisconsin’s manufacturing industry to expand, we might expect that the number of manufacturing jobs in Wisconsin would grow significantly faster than the national average in the period after the credit took effect. That did not happen, again demonstrating that the credit is doing little to expand Wisconsin’s manufacturing industry.

Both before and after the credit took effect, Wisconsin added manufacturing jobs at about the same rate as the national average. Between December 2011 and December 2013, the two years before the credit, Wisconsin manufacturing jobs grew by 2.1%, close to the national average of 2.3%. After the credit was implemented, the number of manufacturing jobs in Wisconsin grew by 2.1% between December 213 and December 2015, nearly identical to the national average of 2.0%. Wisconsin ranked exactly in the middle — 25th among the states — in the rate of job growth in manufacturing in the period after the credit was implemented.

That 25th-place standing in job growth looks even worse because Wisconsin has the second-largest proportion of jobs in manufacturing (behind Indiana), so if manufacturing was expanding nationwide, you’d think we’d be picking up more of those gains.

Cornelius completes her analysis by noting that not only has the Manufacturing and Agriculture Credit failed in boosting Wisconsin’s economy and job growth, the lost revenue due to this tax cut means that the real job-creating machine of the state has suffered- human capital.

The focus on cutting taxes has not boosted job creation, but it has reduced the resources available to invest in Wisconsin’s public schools, workforce, and communities. Wisconsin’s cuts in state support to public schools are among the largest in the country, and Wisconsin’s cut to higher education between 2015 and 2016 was the second-largest in the country, measured in percent change in state spending per student. These cuts will make it harder for manufacturers and other businesses to hire the skilled workers they need.

Any honest group of legislators that looked at a report like this would immediately be demanding that we give a second thought to this failed policy, and many would ask to dump it in favor of something that actually might improve our state’s substandard economy.

But the ALEC Crew at the Capitol won't do this, and the refusal to do so speaks volumes about how bought and/or clueless these people are when it comes to decisions on taxing and spending. And it's yet another reason these people have to get the boot this Fall.