This is not the way to do Business

We are undeniably in the midst of the worst recession in the last half-century. With luck, most of us will never see anything this bad again in our lifetimes. While Wisconsin's unemployment rate may be slightly better than the national average, there are parts of the state that are doing much, much worse. My hometown area is one of those places that is doing so poorly. In fact, I don't think it's much of a stretch at all to say that Beloit and Janesville are on the verge of economic depression if steps are not taken to improve the economic climate soon.

In that context, let's look at the tax and fee increases in the state's new budget. The total damage is set at $2.1 billion over the next two years and that does not include the $252 million worth of tax increases passed in the budget "repair" bill earlier this year. The lion's share of these taxes hurt small businesses and discourage large companies from locating production facilities in Wisconsin.

It makes no sense to me that we would pass these tax increases in the middle of a recession. Precisely when we need to encourage job growth and economic investment, we are punishing it. Rather than focusing on trimming the fat in state government and creating a climate in which business and job creation can flourish, we are doing the exact opposite. Let's just look at two real quick examples.

This budget increases taxes on anyone earning more than $225,000 a year. I know that for some it's fun to punish the "evil" or "idle" rich, but it's not usually the best policy. Many of those caught in this new bracket may not be business owners themselves, but they most certainly represent a good share of those in the upper levels of management in many companies. Do we want to punish the best and brightest and perhaps force many to leave the state? Also, we know that at least some small business owners will be caught in this bracket. I know we're a broken record here at LiB, but the more money taken out of a business owner's pocket, the less he/she is going to have to invest in their company. That means a loss in jobs.

Just to throw salt in the wound, the budget also closes a "loophole" on disregarded entities and the sales tax. The example in the Fiscal Bureau's analysis highlights - at least to me - the absurdity of the tax in the first place:
An owner entity could create a separate transportation company solely to haul products for the owner. In the absence of the separate company, the owner would owe tax on its purchases of trucks, trailers, and other hauling equipment. However, the separate transportation company would have qualified for the sales tax exemption for vehicles purchased by common or contract carriers.

So, what they're saying is that a "common or contract carrier" is exempted from sales tax in the purchase of all the things it needs to conduct business, but if a company - in order to cut down on the costs associated with contracting out their transportation needs - wants to create what amounts to a separate transportation division within its company, it gets screwed. Never mind the fact that jobs would still be created and the business may be able to expand, they're just trying to skirt the law and should be punished. After all, who needs jobs.

These are no small increases either. The two changes alone amount to $327.8 million dollars in tax increases.

There are a number of other bad provisions in this budget that create a massive problem for the state's economic and fiscal future. We have to find ways to attract businesses or at the very least encourage businesses to stay, but we aren't. Provisions like the elimination of the Domestic Production Activities deduction, the elimination of the deduction for "Thowback Sales," and the reduction of the Capital Gains tax exclusion account for another $377.3 million in new taxes and discourage investment and economic growth.

I know that individual cities and counties can offer great incentives to attract business - like Beloit did for Kerry Ingredients - but that is no way to create a postive business climate. We cannot create jobs or improve the economy piece by piece, we need to make the entire state a good place to work.

And like I said, there are a lot of bad things in this budget. Tomorrow I'm going to take on the issue of health care and how we are stifling reform and innovation.