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2/21/2009
Montgomery: Eight Days, $1.2 Billion in Taxes, No Solution

Last Wednesday, Governor Doyle, joined by Assembly Speaker Mike Sheridan (D-Janesville) and Senate Majority Leader Russ Decker (D-Schofield), held a press conference in Madison to announce a deal they reached on a proposal that Governor Doyle described as “a first step toward investing in Wisconsin’s economy and improving the state’s finances.” This Thursday, Governor Doyle signed the proposal into law.

The speed by which this proposal moved through the legislature was breathtaking. It took until Monday of this week to get a physical copy of the actual proposal. On Tuesday, the bill was rushed through the Joint Finance Committee. On Wednesday, the bill was approved in the State Assembly and State Senate. In the span of eight days, the proposal received no public hearings and no citizen input. Shielding the general public from the actions of their elected government is hardly the kind of change we can believe in.

While there are many details to this 389-page proposal worth mentioning, for the sake of brevity, I think it can be summed up in two numbers - $1.2 billion and $125 million. The $1.2 billion refers to the amount of new permanent taxes included in the proposal. Hometown businesses will be on the hook for $90 million in new taxes every year thanks to a change in the way corporate taxes are calculated. The next time you need to go to the hospital for health care, it may cost you more money because of $300 million a year “sick tax” imposed on hospitals. Families with very young children may pay more to the state through a new sales tax on cloth diapers.

While these new taxes are permanent, the government spending reductions of $125 million are temporary. Rather than actually reducing spending to close the state’s ongoing $5.7 billion budget deficit, the Governor’s proposal simply asks state agencies to lapse extra money to the state’s general fund. To put this in perspective, for every dollar in temporary government spending reductions, there is $10 in new taxes.

And finally, to add insult to injury, the new law leaves the state’s budget more than $5 billion in the hole and not one proponent of the legislation can definitely point to a single job created as a result. We missed an opportunity to close the budget deficit and have a tougher road ahead to get our economy back on track.

Needless to say, I voted against the plan, but not before offering 50 different amendments to try to improve the proposal. The only consolation was that it included one of my amendments to require legislative oversight on the spending of federal stimulus.

It's a lot more than repairing a loophole
For about the last year or so, politicians, bureaucrats and special interests in Madison have been pushing legislators to close a so-called loophole in the state’s tax code. They call it the “Las Vegas Loophole.” Their claim is that Wisconsin companies are avoiding paying state corporate income taxes by sending the profits generated here to a Las Vegas post office box. A potent rhetorical argument to be sure.

I bring this matter to your attention because Governor Doyle chose to include a provision in the budget “repair” bill that he claims does nothing more than close down the “Las Vegas Loophole.” If that were true, I believe there would broad legislative support. Unfortunately, the reality is that Governor Doyle’s plan goes well beyond just closing a tax loophole.

The provision agreed upon behind closed doors by Governor Doyle and leaders of the Democrat-controlled Legislature changes the way multi-state companies with operations in Wisconsin calculate their Wisconsin corporate income taxes. Under the state’s current tax code, such companies pay taxes based on income generated in Wisconsin. Under Governor Doyle’s plan, companies that operate across state lines will be required to calculate their Wisconsin corporate tax based on income generated in and outside Wisconsin. As a result, affected companies will see their taxes go up by about $90 million a year.

Not surprisingly, my Assembly Democrat colleagues did not want the word to get out that their plan was going to increase taxes in the midst of a recession. Instead, they kept repeating the Madison rhetoric that their proposal was just closing down a tax loophole. Rather than argue on their terms, I decided to find out for myself the real world impact of this tax law change on hometown Green Bay businesses.

As it turns out, two hometown businesses, Proctor & Gamble and Shopko, would be hit hard. In fact, Proctor & Gamble would be sending another $5 million to Madison, but they are not the only local businesses that would be adversely affected. Fox Valley paper companies will also be paying more in taxes. Evidently, some of my Democrat colleagues who represent the Fox Valley don’t fully understand how bad this new law would hurt our local economy, but the workers do.

On Wednesday, the day that the state Assembly was voting on this proposal, I received an e-mail from a local Union President asking that I oppose it. He pointed how hard the company he works for has tried to gain a competitive advantage while paying its fair share of state and local taxes. During the debate, I mentioned the note and actually read it aloud on the Assembly floor in hopes of convincing my Democrat colleagues to set the provision aside and instead focus on closing down the loophole. Sadly, my argument fell on deaf ears.

Yesterday, Governor Doyle signed the budget “repair” bill into law. As a result, hometown companies will have to start sending more money to Madison in the form of a new “Jobs Tax”. Instead of keeping that money to prevent layoffs or hire unemployed workers, that money will be going for more state government spending.

Now, more than ever, when families all across Northeast Wisconsin are struggling to make ends meet and local employers are being forced to take extraordinary steps just to give their existing workers a steady family-supporting paycheck, I ask that you think twice when a politician tells you they closed down the Las Vegas Loophole. The reality is that they may have cost someone a job or caused a hometown company to either close down or move away.

Spotlight on Government Spending
With both federal and state “stimulus” bills signed into law this week, and a new budget plan introduced by Governor Doyle on Tuesday, Wisconsin taxpayers are rightfully asking where and how their money is going to be spent. Recently, I joined my Assembly Republican colleagues in sponsoring several important accountability measures, including:

Earmark Transparency Act: An “earmark” describes funding in a piece of legislation that is directed to a specific program or project that may have a negligible benefit statewide. The Earmark Transparency Act requires all earmarks be reported to the public forty-eight hours before a vote is taken in committee or either house of the legislature; prohibits state agencies from asking for earmarks; and prohibits a legislative conference committee from adding earmarks to the final version of the state budget bill.
Government Spending Website: Tracking the expenditures of state government should be more user-friendly for taxpayers. This bill instructs the Wisconsin Department of Administration to create a website tracking the expenditures of state government. This proposal is similar to the federal government’s Checkbook Disclosure Act written by then-Senator Barack Obama and Senator Tom Coburn.
Truth in Budgeting Act: The proposal requires an update of Wisconsin’s budgeting construction by switching to the Generally Accepted Accounting Principle (GAPP) method, which would lend more credibility to budget forecasts and more accurate assessments of government spending and revenues. The proposal also requires state agencies to submit budget requests in terms of zero-based budgeting instead of on a cost-to-continue basis at least once per decade.

Taking a hard look at programs and building a budget from the bottom up will require agencies to take a harder look at how we’re spending taxpayer dollars. These common-sense measures to improve state accounting methods and allow more public scrutiny of the state budget have my full support as we consider the upcoming state budget.
Phil Montgomery is a Republican and represents the residents of the 4th Assembly District.

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