Wisconsin escapes from ‘tax hell’

After two decades of shining a spotlight on Wisconsin as a high tax state, Todd Berry is retiring as president of the Wisconsin Taxpayers Alliance (WTA). He is leaving on top.

Todd Berry, head of Wisconsin Taxpayers Alliance

(Disclosure: I served on his board for a bunch of years.)

Wisconsin is out of the “Big Ten” (the top 10) for taxes among the 50 states after decades in what critics called “tax hell.”

The best metric for ranking tax burdens has long been the sum of state and local taxes as a percentage of personal income. Wisconsin perpetually ranked high; it was third in the nation in 1994.

That negative standing was often blamed for an exodus of high-income earners and wealthy retirees to lower tax states. It figured heavily in the decision by CEO Darwin Smith to move the headquarters of Kimberly-Clark from Neenah to Texas in 1984.

That departure triggered a hard look at the state’s hostility to business and wealth creation. The left-leaning tax tide started to turn toward a more pragmatic approach to governance of the state.

Flash forward to 2015, the last year for which comparable tax date is available. Wisconsin dropped far out of the Big Ten to 21st at 10.5% of personal income. That’s just below the national average. It was 13.3% in 1985.

Better yet, when fees are included, such as tobacco and gas taxes, Wisconsin ranked still lower two years ago at 28th highest.

Berry’s October WTA newsletter was therefore able to state with a note of pride that “Wisconsin cannot be called a high-tax state.” Berry’s unflinching numbers over the years had something to with that.

The improvement in rankings will surely figure into the efforts to recruit and retain businesses for the state. It may have been part of the calculus in Foxconn’s decision to choose Wisconsin for its $10 billion electronics plant.

Gov. Walker will surely use the better tax profile in his 2018 campaign for a third term, though the downward rankings trend began well before his first term.

Wisconsin’s income and property taxes are still above the national average, but its sales taxes (5% at the state level and .5% at the local level) are well below, ranking 35th. As the governor says, there is still work to do.

One obvious answer to an even better ranking is to accelerate Wisconsin’s economic growth. We have long lagged the nation on job and wage growth, which both drive the denominator in the tax burden rankings, namely personal income.

After years of commissions, analyses, experimentation, we have learned that best bet for faster growth is entrepreneurs. They are the ones who reinvent and re-energize a Wisconsin economy that is based on two pillars, manufacturing and agri-business. Both sectors have become extraordinarily efficient and therefore poor bets for job growth.

To diversify the economy, there are bets in sectors like fintech (financial management), health care IT and delivery, medical innovation, senior care, education innovation, insurance, business services and fresh water technology.

We have also learned what does little to stimulate the economy, such as the state’s heavy commitment to massive real estate development subsidies, to TIF subsidies for retail development and to recruiting, where there have been few wins, with the major exception of Foxconn (for which the jury will be out for a decade). The state has relied on those tactics for decades without reversing the slow-growth trajectories.

Berry’s WTA was always objective, non-partisan and research driven. It was his work that pointed out that Wisconsin has been losing GDP share for more than four decades, largely regardless of which party was in power.

Berry gave hundreds of speeches across the state and generally stopped short of advocacy. Of course, there was always a built-in WTA bias toward lower taxes, a truly balanced state budget, an ample rainy-day reserve and a hygienic disdain for funny money games in state financial reports. Thanks to a surplus on June 30, the reserves are in the best shape in some time.

Berry must be privately smiling as he heads for the exits.

In addition, he engineered a sayonara merger with the Public Policy Forum, a Milwaukee think tank and that could induce a broader look at state issues, It might even help to close the policy gap between Madison, the state’s center of government and higher education, and Milwaukee, the state’s business center.

It will be interesting to see if WTA moves from ”the facts and nothing but the facts” to policy proscription and even advocacy as the two think tanks figure out their combined role going forward. There is no shortage of issues to tackle in the Milwaukee region.

One goal should remain: staying out of the Big 10 for taxes. For the moment, we are even out of the Big 14 (there are now 14 teams in the Big 10).

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