Thursday, May 4, 2017

WisGOP tax plan not Koo-Kooky for roads, but regressive garbage for everything else

A few thoughts after briefly looking into the Transportation Fund and General Fund sides of the latest Koo-Koo tax plan by the Wisconsin GOP.

Oddly, the Transportation Fund side isn’t that bad. I wrongly predicted that the new sales tax on gasoline would go to the General Fund and be set up as a transfer to the Transportation Fund. It does not, and in fact it stops another regular transfer of General Fund money. The only other big difference that hadn’t been mentioned previously is a new “hybrid tax” intended to make up the difference for those vehicles’ lower fuel consumption.
Your proposal would expand the sales and use tax base to include motor vehicle fuel sales and deposit those revenues to the transportation fund. In the 2017-19 biennium, the additional revenue from the base expansion ($660 million in increase transportation fund revenue) would be used to: (a) reduce the amount of transportation fund-supported bonding that would be available for immediate use under [the Governor’s budget bill] by $300 million; (b) eliminate the current law transfer of GPR to the transportation (an $81.4 million decrease in revenue); and (c) decrease the motor vehicle fuel tax rate by 4.8 cents per gallon ($278 million decrease in revenue). In addition, provide $70 million in contingent, transportation fund-supported general obligation bonds, the use of which would be subject to the amount of federal highway aid received in August, 2017, through the annual distribution process.

The proposal would also assess additional annual registration fees on hybrid and electric vehicles, which would increase revenue to the transportation fund by an estimated $4.8 million in the 2017-19 biennium.
The LFB says this trade-off would add about $115 million to the Transportation Fund in the next Fiscal Year, and $185 million in 2018-19. There would be no extra spending vs the Governor’s budget, so we’d still see delays in highway projects, but at least we’d see less borrowing, which would save taxpayers $22 million in debt service during this budget cycle, and much more in later budgets.

There’s even a part that allows something I’ve wanted to see for the last 3-4 years- the ability to allow counties to put in their own sales taxes to fix the roads.
Under a draft of the proposal, this provision would allow a county to adopt an ordinance to impose up to a 0.5% sales and use tax rate, for the purposes of maintaining and repairing highways in the county ("local roads optional sales tax"), if electors of a county approve the ordinance at a referendum at the spring or general election. The taxes may be imposed only in their entirety and may be in addition to the existing 0.5% county sales and use tax. Under the proposal, the sales tax rate could be as high as 6% (5% state and 1% county) in counties with an existing sales tax.
So should I stop calling Dale Kooyenga “Koo-Koo” and apologize for my earlier statements about this tax plan? Uhh, no. And it's not just because of this gobbledygook that Koo-Koo mumbled to stay on the good side of the Kochs.

Uh, no Dale. Wisconsinites will pay more in gas taxes with this, for good or for bad. Now if the required minimum markup is reduced (and that Wal-Mart bill is part of this), then a person have an outside chance of paying a lower price on gas. But they're definitely paying more in taxes to the state, even if they don't have a hybrid. And there's plenty of other bad things in this package.

It starts with this ridiculous provision regarding the new sales tax on gasoline.
Also, by eliminating the sales tax exemption on motor fuel purchases in the state, the proposal would increase sales tax revenues for the counties that currently collect the optional 0.5% sales and use tax. Currently, 64 of Wisconsin’s 72 counties collect the optional 0.5% sales and use tax. From the amounts generated from the county sales and use tax expansion, the proposal would require the state to retain $18.0 million in 2017-18 and $25.0 million in 2018-19 and thereafter from the amounts that would otherwise be distributed to counties in those years and deposit those revenues to the state’s general fund.
This is an impressive double-steal by Koo-Koo. Not only do the counties not get a dime in sales tax on gasoline (unlike the state), but the money doesn’t even go to the DOT. Instead it gets stashed to fill budget holes in the General Fund.

And boy, are there holes in the General Fund. Sure, Koo-Koo gets rid of Gov Walker’s stupid $1-a-week tax cut, which would have cost $200 million. But it’s replaced by something worse, as income tax cuts start for the upper ¾ of Wisconsin income earners in 2018, with the richest Wisconsinites getting their income tax rates cut in each of the next twelve years.

Eventually, all income levels in Wisconsin would be taxed at 3.95% in 2029, and the state would lose between $213.4 million and $256.9 in every year after 2020, with the total price tag hitting $2.365 billion in the next 13 years. And that's on top of massive Koo-Koo tax cuts in the past. If this were to pass and would not be reversed and/or changed by 2019, the state of Wisconsin’s finances would be massively hamstrung for decades…which is probably what Koo-Koo and the rest of the ALEC crew want.

In addition to the huge revenue losses, many lower-income Wisconsinites would see their taxes RAISED with this scheme. Not only would they likely be paying more for gasoline (a lot more if gas prices spike in the coming years), but check out this hidden provision.
Under current law, the state provides an income tax credit equal to 12% of property taxes paid on a principal residence or rent constituting property taxes on a prinicipal residence….The maximum credit is $300. The proposal would repeal the credit for renters, effective in tax year 2019.
WHAT A SCAM! When I was a renter, that $300 write-off came in handy. It's a total “screw you” to the middle and working-class people that can’t afford or don’t need a house in this point in their lives.

But don’t worry homeowners, you get screwed as well. Note these parts in the General Fund discussion.
The first dollar credit is a property tax credit extended to each taxable parcel of land on which improvements are located. For eligible properties, the credit is calculated by multiplying the property's gross school tax rate by a credit base value determined by [the Wisconsin Department of Revenue] or the property's fair market value, whichever is less. For the 2016(17) property tax year, the base value is set at $6,700, and the average credit is estimated at $67. The credit's funding is provided by a $150 million annual GPR appropriation. The proposal would phase out the credit by $50 million per year in 2020-21, 2021-22, and 2022-23. Compared to current law, this would have the effect of increasing tax bills by $22 in 2019(20), $45 in 2020(21) and $67 in 2021(22), and in each year thereafter.
Naturally the ending of the First Dollar Credit (and the higher property taxes that go with it) doesn’t hit until after Gov Walker and much of the Wisconsin GOP Legislature would run for re-election in 2018. There’s also a repeal of the married couple credit for two-earner families, which magically doesn’t hit until after the 2018 elections as well. So you millenials that are starting families and owning your first houses have these tax increases to look forward to, as if you don't have enough reasons to consider leaving here.

This Koo-Koo tax plan reduces Governor Walker's proposed increase in the School Levy Tax Credit to $47 million instead of $87 million. I can't come up with a logic behind this other than the extra $40 million allows it to legally fit into the 2017-19 budget, so there's another $12 added to the typical homeowner's property tax bill over Walker's budget. Now add in the fact that this bill takes up Rep. Michael Schraa's idea to force all new wheel taxes to go to referendum (I talked about that idiotic plan last weekend), and realize that the cuts in tax revenue will inevitably add to the huge amounts of state aid cuts that have already been imposed on local governments and schools. What this means is that property taxes are set to skyrocket in 2019 and beyond if this scheme were put into law.

So no, I don't approve of this latest Koo-Koo plan, although I'd be OK with taking the gas tax changes and the local roads sales tax and call it a day (although I'd probably use some of that extra money to actually fix more roads over reducing debt). But the income tax cuts should be kicked to the curb, not just because it's a massive giveaway to the rich while raising the taxes of poorer Wisconsinites, but also because of the massive hole in the budget that it will lead to.

It's typical Koo-Koo foolishness that has failed at sparking the economy or helping the budget each time it's been passed into law, and it's well past time that we laugh this Paul Ryan wanna-be out of the Capitol and kick him out of his gerrymandered (but blue-trending) seat.


  1. You're right that we have to rely on less borrowing, which is a mighty expensive bandaid. And more tax revenue has to be spent on fixing the conditions of our poorly-rated roads.

    As long as we have a seperate Transportation fund, why do local road maintenance costs have to be included with General Fund shared revenue allotments? Reducing shared revenue to localities screws them in so many ways.

    This Vos/Kooyenga plan to move to a flat 4% tax is insane. This is being put into a biennial (2 fiscal year) budget. How can this control tax rates beyond 2017-19? All income levels will be taxed at 3.96% in 2029?!?!?!

    The effect this legally-questionable scheme will be to massively hamstring Wisconsin's finances for years to come, especially putting shared revenue in a straitjacket.

    1. Local road maintenance is basically split between specific road aids in the Trans Fund, and then remaining money that's part of general Shared Revenues in the General Fund. But both have been limited, and given that the JFC threw out Walker's proposed increases to local road aids, cites, villages and towns will get NO HELP in this upcoming budget, as it stands.

      And yes, the ultimate goal is to straitjacket all levels of government, and force cuts and privatization. Right out of the Koch/ALEC handbook.

  2. You also didn't even mention the fact that this plan still keeps the Manufacturing and Agriculture credit, so it's not even an intellectually honest "flat" tax. I could accept some sort of flat tax somewhere in the neighborhood of 5% and getting rid of the M&A Credit.

    1. You're basically right. It "reduces" the M&A credit by saying you can't make your tax liability be below 0%, so instead of 7.5%, it "drops" to 3.95% by 2029.

      But you are correct, Alex. The rich get a double benefit in this situation - lower income taxes, and a lower percentage of income spent on sales taxes.