Wisconsin Wave

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Aiming to make Wisconsin more attractive to business, Republican lawmakers have proposed reducing the state tax on the production earnings of manufacturers and agricultural businesses to almost nothing by 2016.

The tax reductions - slashing the rate in annual steps from the current 7.9% to 0.4% - would apply to the production income of the businesses, not to income such as royalties and investments.

The Legislative Fiscal Bureau estimates the measure would cost the state $359.7 million over its first five years, and $128.7 million a year once it is fully phased in starting in 2016.

Well worth it, says Sen. Glenn Grothman (R-West Bend), who expects the provision, which was added to the budget bill Friday, would give Wisconsin a competitive advantage in attracting manufacturers.

"This improves the tax climate big time for manufacturers - and manufacturers bring money into the state," Grothman said. "If we have a strong manufacturing climate, we will automatically have a strong retail climate and a strong service sector."

The Republican-dominated Joint Finance Committee voted 10-4 along party lines to pass the measure, which was spearheaded by Grothman and Rep. Dale Kooyenga (R-Brookfield).

Some Democrats were sharply opposed. Rep. Tamara Grigsby (D-Milwaukee) called it an enormous tax break and said in an email that the measure is "unjustifiable and morally outrageous" during a time when CEOs in Wisconsin make 121 times more than the median Wisconsin worker's salary and unemployment remains high.

"Republicans waited until the very last minutes of the budget process to include this huge giveaway because they know it's wrong," said Grigsby, who voted against the proposal in the Joint Finance Committee meeting. "Unfortunately, Republicans chose to cut $1.6 billion from our schools and raise taxes on working people, all while giving away hundreds of millions of dollars to CEOs and big corporations."

The measure would give businesses that are assessed as manufacturing or agricultural for property tax purposes a dollar-for-dollar credit of 1.875% on all income from manufacturing or agricultural production on their 2013 tax bill. That credit would rise to 3.75% in 2014, 5.526% in 2015 and 7.5% in 2016.

Unused tax credits could be carried forward for as many as 15 years to offset future tax liabilities.

Businesses organized like limited liability companies - whose shareholders pay the firm's tax as personal income tax - would be able to reduce their rate from as much as 7.75% to 0.25% or less.

Without accounting for the credit, the Legislative Fiscal Bureau has estimated that the $1.8 billion of corporate income and franchise tax the state would pull in for the two fiscal years ending in June 2013 would represent 6.7% of all tax collected. The highest percentage of money collected would be $13.6 billion of personal income taxes, estimated to represent nearly 51% of all tax collected.

"This is the icing on the cake for us be able to go out and sell Wisconsin as manufacturing heaven," said James Buchen, vice president of government relations for Wisconsin Manufacturers & Commerce, the state's largest business trade association.

Buchen's group sent an alert to all members Monday encouraging them to contact legislators to show their support for the manufacturers' tax credit.

Wisconsin is a manufacturing-heavy state because it has long had tax benefits for companies in that sector, Buchen said. The state has for decades made manufacturing equipment, pollution-control equipment, and manufacturing stock and inventory exempt from property and sales taxes, he said.

The group's members who are corporate leaders and "frequently wooed by these other states, say to us, 'We think across the board reductions in the tax burden is far more important than economic development,'" Buchen said.

But Joel Rogers, a University of Wisconsin-Madison professor who heads the Madison-based Center on Wisconsin Strategy, said:

"More mindless lunacy - when will it end?"

While acknowledging the state's need to grow its economy, and its neglect of the manufacturing sector "for a very, very long time," Rogers said his research indicates the state already has one of the lowest effective corporate tax rates in the country.

A Journal Sentinel study done last year showed Wisconsin ranks 25th among all states for corporate income tax burden.

Todd Berry, of the Wisconsin Taxpayers Alliance, said that if reducing the state's business tax burden is the goal, it might make more sense to simply cut the corporate tax rate rather than add this provision to the practices of the last few decades, where legislators created a "Swiss cheese" of a tax system with many targeted credits and deductions.

Most corporate tax managers would choose a simpler reduction, Berry said.

"They'll pick the rate reduction because it's simple and understandable and they know they'll get it and everybody participates," he said.

The budget bill now goes to the Assembly, and then to the Senate. After both houses agree on a budget, it goes to Walker, who could then approve it or alter it with his partial veto pen.

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