What do Governor Tommy Thompson, Bert Grover, the Wisconsin Education Association and the Wisconsin Property Taxpayers Alliance all have in common?
They all have plans to reduce homeowners burden of paying for education.
What do each of their proposals lack?
A recognition that the system of taxation in our state has been dominated by special interests — the interests of private business over those of parents, teachers, and the average citizen.
The renewed sense of urgency in the debate over who should pay for our schools is largely a result of a decision by the Wisconsin Education Association (WEAC), the most powerful teacher union in the state, to make the issue its top legislative priority.
The Wisconsin Property Taxpayers Association (WPTA) — not to be confused with the Wisconsin Taxpayers Alliance; Burt Grover, the head of the Department of Public Instruction; and even Wisconsin’s new conservative Governor also want to increase the percentage that the state pays for education in order to relieve overburdened property taxpayers.
As the WPTA indicates, local property taxes have risen 134% since 1975. What the same group of Republican activists does not mention, however, is that manufacturing property taxes fell from 11.3% to a meagre 6.5%. The latter’s decline explains the former’s ascent.
For years many people have criticized funding schools by the property taxes. This tax is “regressive” because it hits poor and middle income people particularly hard. It penalizes the old person who wishes to continue living in his/her old home; the large family that needs a big house but is nevertheless poor; the farmer who needs a lot of land to make a living but who can’t afford the high taxes. Another problem is that the property tax is based on property value and not use, thus allowing the same tax on similar land of a homeowner and a land speculator. Also certain property owners are exempt from taxes: the government, churches, cemeteries, and property of banks and insurance companies. Thus the brunt of the tax is on the single homeowner and the renter who pays through the rent
If school budgets were financed by a more “progressive” tax rather than property taxes, students and teachers would benefit. Each new school building or innovative program, each contract dispute wouldn’t pit the interests of students and teachers against poor and middle income people. This problem is particularly acute in urban areas where the educational needs are greatest and where the ability to pay property taxes is low.
Thus residents and teachers from the city of Milwaukee should take seriously the opportunity to significantly reduce the tax burden of education on the homeowner.
WEAC has offered the most dramatic proposal: to increase the percentage of state support from the current 40% to 75%. The additional dollars would come from increased taxes and shifting state funds from other areas. The most likely increase for state taxes would be an additional one percent sales tax, raising our current tax from five to six percent. The most likely cuts would be in other urban directed property tax, relief programs, with the most likely victim being revenue sharing.
WEAC’s proposal to cut revenue sharing is essentially an anti-urban, anti-Milwaukee proposal, It proposes the gainjajnooey for education by enforcing a loss of tunas that hits Milwaukee harder than just about anywhere in the state. This proposal sets city workers who gain from the state support for city services from revenue sharing, against teachers. Thus the idea of cutting revenue sharing pits WEAC — who represents non-Milwaukee teachers —against AFSCME who represents city and county workers.
Public opinion polls indicate that the general population — from all social classes — find sales taxes the least objectionable type of taxation. Perhaps this is why the WEAC has made its proposal and the recent Governor’s Commission on Quality Education suggested a similar one percent increase.
To increase the sales tax in search of more dollars for education is problematic, however, since it, too, is regressive. Sales taxes affect the less able to pay more than those more able to pay. Its regressivity can be addressed somewhat by exempting necessities like food, but as more items are exempted the total revenue raised is reduced.
A more progressive way of utilizing the sales tax would be to forego a raise and instead broaden what is taxed to include services that are currently exempt such as newspapers and periodicals, lawyer services, accounting, data processing and computer services, advertising services, telephone company equipment, janitorial and cleaning services, management consulting, domestic pet training, boarding and grooming, etc. Business utilizes many of the above mentioned services that currently go untaxed. Wealthier individuals more often utilize such currently non-taxed services as dance lessons, dog training and grooming, protective services or rentals of safety deposit boxes. The services used by the majority of the population such as medical services could Continue to be exempt.
State of Wisconsin data (see The Summary of Tax Exemption Devices) indicate that revenue raised via taxing, exempted services, not including such essentials as food, fuels and medical services, would come to well over $400 million dollars per year. Moreover, services are the fastest growing part of the economy and tax revenues from such services would grow over time.
The major obstacle to such thinking comes from, some business groups who oppose a sales tax on services or an increase in tax on manufacturing property. They say such taxes hurt the business climate by impacting negatively on growth and business location.
This debate on “business climate” has been wrapped in a cloak of confusion and dominated by “special interests” of the businesses themselves. The public has bought the business climate argument and the facts seem to make no difference.
State and local taxes simply do not determine where businesses locate. Karl Case of the Bank of Boston reviewed better than 150 studies on this issue and concluded that, “it is one of the few economic research topics where a consensus has actually emerged… An overwhelming majority of papers and studies reviewed conclude that state and local taxes have little or no effect on industrial location decisions.” He based his conclusion “from surveys of decision makers as well as from careful analyses of actual location decisions.” Bennett Harrison and Sandra Kanter of MIT, point out that state and local taxes make up only .5 to 3% of the average business’ operations which is miniscule compared to other costs such as labor. As for business growth, the 1981 study by the Advisory Commission on Intergovernmental Relations notes that there is no correlation between taxes and economic growth. Perhaps this is one reason why states known for high taxes, like California and Massachusetts, have consistently outperformed other states in job growth.
In addition to the persuasive evidence of these studies, one should also remember that Wisconsin stands 47th in the nation in the percentage of taxation that falls on business, — the result of which puts us higher than average in almost every other category of taxation (except the sales tax).
Yet as soon as taxes on businesses are proposed major employers begin talking about moving their operations elsewhere. People -begin to shake. Yet what almost all these studies show is that while businessmen complain about taxes (don’t we all?), they are not making their business decisions based on them. What they are doing is a not so subtle form of political blackmail which tends to work during periods of economic decline such as we are in. But basing public policy on this blackmail is showing some signs of receding. A recent Wall Street Journal article noted that several states have begun to reject the use of tax abatements for industry and in our own state. Rep. Spencer Black was recently criticized for the unfair loss of business tax revenues.
Once we have overcome the confusion surrounding “business climate” we can move towards a more equitable tax system. In the past fifteen years the business community has succeeded in getting its machinery and equipment, inventories, and fuel used in manufacturing exempted, riot to mention dozens of other major and minor tax breaks worth hundreds of millions of dollars.
So, short of a major change in the military dominated federal budget which funds only 4% of the state’s educational costs, we should look to obtain funds from increased taxes on business property and an expansion of taxable services under the sales tax. This would not even set Wisconsin ahead of most other states, but rather would put us closer to the average.
This type of approach has much appeal. Rather than pit rural areas against cities, city workers against teachers, such a proposal has the potential of uniting various union, elderly, community and teacher groups to fight against the special business interests that have-dominated the area of tax legislation. Perhaps some farsighted businesspeople might adopt a long-term outlook and place an improved educational system above short-term benefits of lower taxes.
Students and teachers would appreciate that.