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Let's Feed the Goose that Lays the Golden Eggs

Peter Barca, a usually levelheaded Democrat, articulated what has been wrong with state government. In giving an unenthusiastic nod to Governor Walker’s economic package, Barca questioned whether Walker’s actions would help the state’s economic emergency. Like the complaining patient who wants relief from the acute pain, even if the chronic condition remains untreated.

And that is what has been wrong with state government. Our leaders have been pandering to the here and now to the peril of what they know are serious underlying problems. They have patched up a budget after budget with wads of Bazooka and doses of debt. They have ignored the structural funding problems plaguing the University of Wisconsin, watched passively as state after state has passed up Wisconsin schoolchildren on standardized tests. They have scrupulously avoided long-term, strategic thinking.

Which brings us to the significance of the November 2 election, which has less to do with how the new governor and legislature will right our current wobbly economy than it has to do with shaping the future of Wisconsin. It has less to do with 2011 than it has to do with 2021. Yes, there they need to produce a balanced budget and to remove impediments to economic growth. But the real payoff from the November 2 election will be in how well they put Wisconsin in a position to flourish, not just tomorrow, but ten years from tomorrow. That is a vital perspective that has been lacking in Madison.

In that regard, there is much to be done. However, perhaps nothing will affect the long-range future of Wisconsin than our tax policy. At WPRI, we found that Wisconsin’s tax culture has been working against the creation of jobs and wealth in Wisconsin for decades.

What is working against Wisconsin is our culture of tax fairness, or more precisely, tax progressivity. For a century, we have been fixated on the fairness and progressivity of our taxes. Led by the Progressives, early in the 20th century, Wisconsin voters went out of their way to approve a constitutional amendment which resulted in the nation’s first working income tax in 1911. So began Wisconsin’s infatuation with progressivity.

There has long been an understood that there is a tradeoff between progressivity and growth. While the Progressive’s focus on protecting the little guy, that fixation is now working against all of Wisconsin. As former Indianapolis Mayor Stephen Goldsmith stated, “creating wealth rather than redistributing it has to be our current mantra. Without a sober commitment to reforming current government practices, wealth creation will be too slow to meet our needs, not to mention the needs of our children.”

Which leads us to consider the most pronounced emblem of our progressive tax culture, the corporate income tax.

Latter day Progressives sleep soundly knowing their state government is on the job extracting its pound of flesh from what they perceive to be greedy corporations. However, serious analysis shows that the corporate tax is a burden on Wisconsin’s economic growth. By one measure – that of the Beacon Hill Institute published as part of the Refocus Wisconsin project – without a corporate income tax, Wisconsin businesses would make over $1billion of new investment. It would be the single most dramatic way to boost business investment in Wisconsin, from both Wisconsin businesses as well as businesses contemplating expanding to Wisconsin.

For those who might not believe the prudence of lowering or eliminating the corporate income tax, look at Canada. Our neighbor to the north has been on a decade-long path of cuts to the corporate tax – in 2012, Canada’s overall rate will be 42% lower than it was in 2000. Why is Canada on this path? The goal is simple, to make Canada, “one of the most cost-effective places to do business in the developed world.”

Nothing says long-term economic growth as clearly as business investment and nothing is better for Wisconsin families than the prospect of long-term economic growth.
It would be beyond disappointing to let short-term thinking sidetrack a brighter future for Wisconsin families.

-January 7, 2011

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