Going into 2014 and a full-throated campaign for governor, the battle lines have been drawn, the major issues framed out.
It’s a given that Mary Burke, former business executive and former state commerce secretary, will have to play to the Democratic base on Act 10, which is anathema to public unions. She will call for its rollback.
Gov. Scott Walker will not want to resurrect the near-violent 2010 debate on that emasculation of public unions, but it will be unavoidable. Political reality says that Act 10 can’t be repealed or changed, because that would require a change of control of both houses of the legislature and the governor’s seat. That’s not likely to happen.
Still, Burke will force him to defend his anti-union decision, and the pro-union forces from across the country will be out in force to unseat him. Act 10 has become a national issue, and Walker has taken early steps to ride its passage and budget-balancing results to a run for the presidency. He has to get re-elected governor first.
For fiscal reasons, Burke will stop short of rolling back the increased contributions by public employees to their pensions and health costs. Local government and school districts don’t have the money to go back to minimal health care premiums and pension contributions.
Burke, who had a short and lackluster term at commerce, will call out the governor on his promise to create 250,000 new jobs during his four-year term. Almost three years into Walker’s four-year term, Wisconsin has seen job growth of 104,000. That pace projects to about 144,000 jobs in four years, or 58% of his goal.
Burke will say she can do better, but to date has offered no specifics on how.
The truth is that state policy is only one element in the jobs dynamic. The movements of the national and international economies play largely. And unexpected crises can cancel normal business and consumer activities.
Nonetheless, Wisconsin lags most states in recharging its economy, and the business climate of a state does make a difference at the margin. The erosion of Wisconsin’s position relative to other states goes back four decades.
Gov. Walker will say to Burke something like this: “Okay. Maybe I shot too high at 250,000. Excuse me for setting an ambitious goal. It was a worthy goal. We still need more jobs for the nearly half million people in Wisconsin who are unemployed or under-employed.
“So I am going to set the bar high again – for 250,000 new jobs in my second term.”
He will then play the cards he has always played to win office. He will cite his balanced budgets as Milwaukee County executive and governor. He will cite tax cuts on his watch. He will point to an improved business climate.
It is Republican dogma that lower taxes promote a stronger economy. Burke will make the Democratic case for economic stimulation: investment in education and infrastructure.
Walker has taken the offensive by floating the concept of income tax elimination. He has convened focus groups to kick the idea around. On the surface, a zero income tax appears improbable, even though a few other states have made that a calling card.
Wisconsin’s proclivity for above-average spending on average on education and roads makes big tax cuts a tall order. To many, they are investments.
The personal income tax currently brings in $7.7 billion per year, and the corporate income tax another $990 million. Together, that’s well over half of the state’s operating budget.
In comparison, the 5% sales tax brings in $4.6 billion. Each point is worth about $900 million.
Smart policy makers have proposed raising the sales tax a couple points in exchange for equal dollar reductions in other taxes, namely the unpopular income and property taxes. They believe that tax mix, though regressive, would make Wisconsin more competitive.
The bottom line on any tax cuts should be job creation. A Wisconsin Prosperity Strategy would accelerate job and wage growth. We are in the bottom quartile on wages, below Alabama.
Moving the sales tax from 5% to 7% — California has the highest sales tax at 7.5% — would bring in only $1.8 billion in revenue. That’s enough for a 20% income tax cut, a long way from 100%.
Extending the sales tax to a broader range of products and services would increase the tax take.
Moving up one point to 6% would be about enough to cut out the corporate income tax. Under Walker, the state has already passed legislation to phase out the corporate income tax for manufacturers and agri-business. (Disclosure: my company will benefit from those cuts.) Again, think job creation in other important clusters like finance, insurance, healthcare, information technology and business services.
Burke’s people probably won’t buy the argument for job creation from corporate tax cuts. The left wing of the Democratic Party would label them a break for the fat cats. But, as a former business executive, she will be in an awkward spot to explain why such a reduction wouldn’t help.
Note: any cut in the personal income tax helps small business, because most are structured as pass-through entities for taxes.
One unavoidable truth is that as along as Medicaid is chewing up a majority of new tax revenue, there isn’t much dough left for anything else, including tax cuts. It is the elephant in the room. Medicaid costs are a politicized federal-state quagmire, so both candidates will probably take a duck. Other states will have to lead the way.
The campaign will touch on other issues: K-12 education; university funding and tuition; environmental protections; and stubborn poverty levels in Milwaukee and Madison.
But jobs and taxes will be center stage in the debates. Republican assemblymen seem to have already recognized revenue realities and are calling a lesser, but politically appealing measure: a set of short sales tax holidays.
Bear in mind, though, Walker has trumped expectations and small ball in the past. He may have a long bomb in his game plan.