Archive for December, 2009

3rd Quarter Tax Collections to Spur Budget Adjustment?

MacIver News Service

Tax collections for the third quarter fell by over a quarter of a billion dollars in Wisconsin from last year, according to new figures from the US Census Bureau. The data confirms what many already suspected about the state’s financial situation.

In November the Pew Center released a study listing Wisconsin as having one of the most perilous economic conditions in the country. The Doyle Administration responded by claiming the Pew Center was wrong. Department of Administration Secretary Michael Morgan,said in a press release, “While Wisconsin has been affected, like all states, by the national economic downturn, we have balanced our budget by cutting spending and raising revenues as needed.”

However, according to the Census Bureau the State of Wisconsin collected $2.6 billion in the third quarter of 2009 compared to $2.9 billion in 2008.

General sales and personal income were two of the areas hit hardest. Last year the state collected $748 million in general sales taxes. This year it was $679.8 million, a $68 million or 9.2 percent drop.

Personal income tax collections last year were $1.46 billion, compared to $1.29 billion this year. That’s an 11.6 percent drop. Tobacco tax collections also dropped from $110 million to $107.8 million.

Wisconsin made gains in property, fuel, and alcohol taxes. Property tax collections went from $890,000 to $974,000. Fuel tax collections went from $175.6 million to $177 million. Alcohol tax collections went from $9.8 million to $9.9 million. Hunting and fishing license sales also increases. In the third quarter of 2008 the state made $14.7 million. This year it made $15.4 million.

On Thursday, the Wisconsin State Journal reported the state is already withholding $10.1 million in payments to municipalities that help pay for services like police and fire protection.

In an exclusive interview with the MacIver Institute in early December, Senate President Fred Risser admitted one of the challenges in 2010 will be adjusting the state budget to match the state’s financial situation.

“We’re in real trouble fiscally. We’re still using mirrors a little bit to balance the budget, and we’re going to have to find new revenues, I think, or substantially cut back on the services that we now provide,” Risser said. “If the purpose of government is to help those people that need help, we’re going to have to find the revenues to do it.”

All of these developments raise the question as to whether a Budget Adjustment Bill will be necessary to address Wisconsin’s fiscal woes.

According to the Legislative Fiscal Bureau:

Section 16.50(7) establishes a separate process that must be followed if there is a larger revenue shortfall. Under this provision, if at any time after enactment of the biennial budget, the Secretary of Administration determines that previously authorized expenditures will exceed revenues in either year of the biennium by more than 0.5% of the estimated GPR appropriations for that fiscal year, the Secretary cannot address that revenue shortfall by use of the budget estimate process. Instead, the Secretary is required to immediately notify the Governor, the presiding officer of each house of the Legislature, and the Joint Committee on Finance of the revenue shortfall.

Following this notification, the Governor is required to submit to the Legislature a bill containing his or her recommendations for correcting the imbalance between projected revenues and authorized expenditures. Further, if the Legislature is not in a floor period at the time of the Secretary’s notification, the Governor is required to call a special session of the Legislature to take up the matter of the projected revenue shortfall and to submit a bill dealing with the shortfall to the Legislature for consideration at that special session.

Officials at the State Department of Revenue have agreed to an interview with the MacIver Institute after the New Year to discuss the full impact the decline in revenue could have on the state, and we’ll continue to bring you the latest news from Legislative leaders and others in the Doyle Administration.

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Posted in News | December 31, 2009 | | No Comments

Doyle Use of One-Time Money Would Create Full-Time Tax Burden

With less than one year until we elect his successor, Governor Jim Doyle wants to complete his reputation as a tax-and-spend governor. Doyle announced right before Christmas that he would consider lifting the property tax caps on some school districts.

I think Wisconsinites would have preferred coal in our stockings.

Doyle plans on using $250 million in federal “Race to the Top” federal money to boost school funding in some districts. But when the “Race to the Top” money runs out, Doyle would like to lift the caps on property taxes in those districts.

This news comes as Wisconsin taxpayers are receiving their property tax bills and learning just how much school property taxes went up as a result of the last state budget. The Wisconsin Taxpayers Alliance estimates school property taxes went up statewide six percent, in part the result of cuts in state aid.

Doyle would tie the increased funding to a set of reforms in each school district, including whether the insurance for teachers is competitively bid. Once the federal funding dries up, then those districts would be able to raise property taxes above and beyond the revenue caps currently in place. So, ironically, by responding to the taxpayers and being fiscally responsible, the school districts may get the power to punish taxpayers even more.

Other requirements for the increased funding for some school districts would include cooperating with each other on union contract negotiations, increase mentoring, hiring math and reading “coaches,” and conducting more teacher evaluations.

Whether Johnny’s reading or math skills improve? Not a criteriea for increased funds.

Doyle’s proposal would put an end to the education funding structure that has put some check on local property taxes since 1994. Then, Governor Thompson and the legislature created a plan for state government to fund two-thirds of local education spending. In return, the local property taxes were “capped.” For 2009, the cap was just under three percent. Teacher salary increases were limited by the districts’ ability to make a Qualified Economic Offer (QEO) of three point eight percent.

The QEO was already removed as part of the last biennial budget.

The Wausau School District is already seeing the result of repealing the QEO, according to the Wausau Daily Herald. Negotiations with the district are at an impasse, heading to mediation, as the union is asking for salary increases of one point five percent above what the school district is offering, meaning some teachers would see increases of more than seven percent.

Meanwhile, the state is already failing to keep the two-thirds funding promise. Under Doyle’s last state budget, the state’s percentage of K-12 education spending dropped to 62.6 percent.

To make matters worse, the state used $2.2 billion in federal stimulus money to plug existing budget holes. The state will need to either make cuts or raise taxes to replace that money.

Now the state is looking at the “Race to the Top” money to create more obligations on property taxpayers.

Wisconsin taxpayers may soon realize we can’t afford any more “free” money from the federal government.

But worse than the short-term increase in tax obligations will be the unraveling of the consensus that has managed to hold Wisconsin education spending and Wisconsin property taxes in check.

Sadly, this year’s property tax increases may soon look like the good old days.

By James Wigderson
Special Perspective for the MacIver Institute

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Posted in mi perspectives | December 28, 2009 | | No Comments

Medicaid is Wisconsin Budget Buster

Remember that sweater Grandma gave you for Christmas when you were eight years old, and your mom gave you that look that said if you didn’t give a sincere thank you the GI JOE doll under the tree would be given to your little brother? Senator Harry Reid and the Democrats in the US Senate have scheduled the vote on their version of health care reform for Thursday night at 8:00 PM central time. Thanks Grandma.

The Senate health care reform plan is full of lots of goodies for those who were nice to Senator Reid in finding him the 60 votes necessary for the vote in the dark of early Monday morning that would limit debate. Unfortunately for many states, the Senate health care reform bill will increase Medicaid costs as the program expands nationally to cover those under 133% of the federal poverty line.

If you are wondering why Senator Ben Nelson of Nebraska gave in to his Democratic colleagues to become the 60th vote necessary to limit debate on the health care bill, Nebraska will receive 100% funding from the federal government to cover the expansion of Medicaid in that state.

In Wisconsin, we could have used that kind of relief for our versions of Medicaid, Badger Care Plus (including the Core Plan). It is unlikely that Wisconsin’s burden from Medicaid will go up under the new federal health care plan. Not because either Senator Feingold or Senator Kohl was able to cut a deal, but because Wisconsin already spends so much on state run health care. To make matters worse, Wisconsin’s Medicaid programs are $1 billion behind.

If we were to join the rest of the country in providing health insurance for those that are at 133% of the federal poverty line, we would actually be reducing the rolls of Medicaid recipients in Wisconsin. Only 17.2% of Wisconsinites would qualify for Medicaid coverage under the current federal health care plan.

That sounds like a lot, but with the expansion of government coverage in Wisconsin since 1998, nearly one in five Wisconsin residents is receiving Medical Assistance, and enrollment in the state’s Medicaid programs has jumped 174%, according to the Wisconsin Taxpayers Alliance. In 1998, less than one in thirteen residents received medical assistance.

Wisconsin’s Badger Care Plus generally covers residents at 150% of the poverty line, although there are exceptions that even go up to 300% of the federal poverty line. The Core Plan covers childless adults up to 200% of the poverty line if they do not qualify for any other federal assistance, again substantially higher than what other states will be covering.

In an effort to contain costs on the state’s Medicaid programs, the state budget planned on $600 million in cost savings in the current budget biennium. However, $195.4 million are from one-time savings that will have to be covered in the next biennium. We’re putting off to tomorrow what we should be paying today, only making what we have to pay tomorrow even bigger.

The current budget also relies upon temporary increased federal matching, $317 million, as a result of the federal stimulus bill. There is a bill in congress to extend the increased matching through June 2011, but then the stimulus funding would need to be replaced for the 2011-2013 biennial budget.

Now Wisconsin is experiencing higher-than-expected enrollment in our Medicaid programs because of the economy, and we’re experiencing an additional shortfall of $450 million. Enrollment in Badger Care Plus has leveled off for now, but it is still higher than planned.

So the news the Core Plan can no longer afford to add new enrollees, and that Wisconsin now has a waiting list looking for state medical assistance, should come as no surprise. As of November 14th, there were 7,434 people waiting on the Core Plan wait list.

We don’t need one of senators to blackmail the senate for more money, although it would help in the short run, we need to start promising less.

Unless Wisconsin gets control of its Medicaid costs soon, it will be the monster that eats the state budget.

By James Wigderson
Special Guest Perspective for the MacIver Institute

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Posted in mi perspectives | December 22, 2009 | | No Comments

Budget-Busting, Health Care Bill that Does Not Address Costs or Quality Advances in DC

The Wall Street Journal has a comprehensive review of “A Reckless Health Bill Nobody Believes In.”

An excerpt:

Mr. Obama promised a new era of transparent good government, yet on Saturday morning Mr. Reid threw out the 2,100-page bill that the world’s greatest deliberative body spent just 17 days debating and replaced it with a new “manager’s amendment” that was stapled together in covert partisan negotiations. Democrats are barely even bothering to pretend to care what’s in it, not that any Senator had the chance to digest it in the 38 hours before the first cloture vote at 1 a.m. this morning. After procedural motions that allow for no amendments, the final vote could come at 9 p.m. on December 24.

Even in World War I there was a Christmas truce.

The rushed, secretive way that a bill this destructive and unpopular is being forced on the country shows that “reform” has devolved into the raw exercise of political power for the single purpose of permanently expanding the American entitlement state. An increasing roll of leaders in health care and business are looking on aghast at a bill that is so large and convoluted that no one can truly understand it, as Finance Chairman Max Baucus admitted on the floor last week. The only goal is to ram it into law while the political window is still open, and clean up the mess later.

***

• Health costs. From the outset, the White House’s core claim was that reform would reduce health costs for individuals and businesses, and they’re sticking to that story. “Anyone who says otherwise simply hasn’t read the bills,” Mr. Obama said over the weekend. This is so utterly disingenuous that we doubt the President really believes it.

The best and most rigorous cost analysis was recently released by the insurer WellPoint, which mined its actuarial data in various regional markets to model the Senate bill. WellPoint found that a healthy 25-year-old in Milwaukee buying coverage on the individual market will see his costs rise by 178%. A small business based in Richmond with eight employees in average health will see a 23% increase. Insurance costs for a 40-year-old family with two kids living in Indianapolis will pay 106% more. And on and on.

These increases are solely the result of ObamaCare–above and far beyond the status quo–because its strict restrictions on underwriting and risk-pooling would distort insurance markets. All but a handful of states have rejected regulations like “community rating” because they encourage younger and healthier buyers to wait until they need expensive care, increasing costs for everyone. Benefits and pricing will now be determined by politics.

As for the White House’s line about cutting costs by eliminating supposed “waste,” even Victor Fuchs, an eminent economist generally supportive of ObamaCare, warned last week that these political theories are overly simplistic. “The oft-heard promise ‘we will find out what works and what does not’ scarcely does justice to the complexity of medical practice,” the Stanford professor wrote.

• Steep declines in choice and quality. This is all of a piece with the hubris of an Administration that thinks it can substitute government planning for market forces in determining where the $33 trillion the U.S. will spend on medicine over the next decade should go.

This centralized system means above all fewer choices; what works for the political class must work for everyone. With formerly private insurers converted into public utilities, for instance, they’ll inevitably be banned from selling products like health savings accounts that encourage more cost-conscious decisions.

Unnoticed by the press corps, the Congressional Budget Office argued recently that the Senate bill would so “substantially reduce flexibility in terms of the types, prices, and number of private sellers of health insurance” that companies like WellPoint might need to “be considered part of the federal budget.”

With so large a chunk of the economy and medical practice itself in Washington’s hands, quality will decline. Ultimately, “our capacity to innovate and develop new therapies would suffer most of all,” as Harvard Medical School Dean Jeffrey Flier recently wrote in our pages. Take the $2 billion annual tax–rising to $3 billion in 2018–that will be leveled against medical device makers, among the most innovative U.S. industries. Democrats believe that more advanced health technologies like MRI machines and drug-coated stents are driving costs too high, though patients and their physicians might disagree.

“The Senate isn’t hearing those of us who are closest to the patient and work in the system every day,” Brent Eastman, the chairman of the American College of Surgeons, said in a statement for his organization and 18 other speciality societies opposing ObamaCare. For no other reason than ideological animus, doctor-owned hospitals will face harsh new limits on their growth and who they’re allowed to treat. Physician Hospitals of America says that ObamaCare will “destroy over 200 of America’s best and safest hospitals.”

Read the entire piece, here.

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Posted in mi perspectives | December 21, 2009 | | No Comments

Reason to be Concerned About State of Wisconsin Highways

The Reason Foundation is out with their 18th annual Highway Report, which looks at the cost and quality of state-owned highways across the country.

The study finds over half of all state-owned highways across the country are congested and 25 percent of bridges are deficient or functionally obsolete.

Since 1984, per-mile total disbursements on state highways have increased by 262 percent. In 2007, U.S. states spent over $109 billion on state-owned highways, a 10 percent increase over 2006. But not everyone is getting their money’s worth. Taxpayers in New York, Hawaii, New Jersey, California, Rhode Island and Alaska have the worst-performing highway systems in the nation.

The Reason Foundation study examines state highway systems in 11 categories, including congestion, pavement condition, fatalities, deficient bridges and total spending. The annual report is based on information that each state reported for the year 2007

How did Wisconsin fare?

At first blush, we appear to be in the middle of the pack. We rank 21st in efficiency and cost effectiveness.

But note, we fell considerably between 2000 and 2007.  Yet another ranking where we are headed in the wrong direction.

Moreover, we are one of only ten states whose highways are worsening despite the state spending more than the national average on its roads.

With the continuing raids on the transportation fund and the emergency (and temporary) patch work of the zoo interchange, expect Wisconsin’s rankings to plunge even further when Reason conducts their next report in 2010.

A mixed-bag, but getting worse. Could be Wisconsin’s motto for so many areas, not just state highways.

Add this to the “Legacy of Jim Doyle” file.

By Brian Fraley
A MacIver Perspective

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Posted in mi perspectives | December 21, 2009 | | No Comments

Sen. Risser Predicts MPS Action in Early January

MacIver News Service

[Madison, Wisc...] Senator Fred Risser is predicting the Senate will eventually heed Governor Doyle’s call for action on Milwaukee’s public schools, but only after that city’s residents get a chance to comment publicly on the idea. Moreover, Risser is not so sure the legislature will grant Doyle’s request to turn over control of MPS to the mayor of Milwaukee.

“We have to do something in early January and we will,” said Risser in this exclusive interview with MacIver News Service.

The longest-serving state legislator in the country predicts the Senate will act on the matter in the second week of January, days before the next regularly-scheduled Senate session day, and after the Senate Education Committee’s public hearing on the issue, which is scheduled for January 5th in Milwaukee.

“I think it’s going to be early January and I think it’s going to be after we’ve had a good public hearing in Milwaukee and had an opportunity to get the input from people who are really affected,” Risser said.

While the Senate has a regularly-scheduled floor session on January 19th, that is also the deadline for the State’s application for Race to the Top federal education grant monies. .

“I think it’s possible we’ll take this up the week before then,” said Risser.

The Governor and legislative supporters of the mayoral control bill believe the state must show sweeping efforts to improve MPS in order to qualify for the most Race to the Top funding possible.

While Senator Lena Taylor has claimed she has the votes to pass the mayoral control bill, which she authored, Senator Risser says anything can happen in a Special Session.

In this interview with MacIver’s Bill Osmulski, Risser said it is possible several competing bills, including a plan by Senator Spencer Coggs, could be taken up by the legislature.

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Posted in News | December 18, 2009 | | No Comments

Government as a Growth Industry?

The saddest nugget taken from this payroll data^ from the Department of Workforce Development…

Wisconsin now has more government jobs than manufacturing jobs!
(438,200 to 435,800)

In the past month Wisconsin has added a net 4,900 government jobs and lost 3,000 manufacturing jobs. In the last year, we’ve lost a whopping 46,000 manufacturing jobs.

Add this to the “Legacy of Governor Jim Doyle” file.

The Department of Workforce Development’s only jobs plan seems to be the printing and distribution of oversized checks given to displaced workers for job retraining programs.

We have a publicity-shy Department of Commerce whose strategy seems to be to take as low of a profile as possible.

There is no coherent economic development or jobs agenda coming from those running this state.

And now the Governor wants to impose a series of global-warming proposals that will make it even more expensive to manufacture anything and everything here.

Sigh.

The private sector, not government, is the engine for economic recovery.

*from the Milwaukee Journal Sentinel.

By Brian Fraley
A MacIver Perspective

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Posted in News, mi perspectives | December 18, 2009 | | No Comments

Non-elected Board Jacks up Taxes with Little Public Notice, No Public Input

The poorly-managed properties of the Wisconsin Center District (The little-used Milwaukee Theatre, The U.S. Cellular Arena and the Midwest Airlines Convention Center) are facing a 19 percent decline in revenues and therefore have racked up a $4 million deficit.

Rather than looking at cutting staff, streamlining operations and/or examining other ways to cut their costs, the Wisconsin Center District Board decided (with little public notice and NO public input) to double their tax rate from .25 to .50 percent on food and beverage purchases in Milwaukee County.

OPM. Other People’s Money. Better than MagicPutty ™ simply use OPM to plug any leaky publicly-funded operation. No fuss. No mess. Especially when, as an non-elected body, you have no constituency to worry about angering.

A full twenty percent of the Board wasn’t even present for the vote. Twelve of the Board’s 15 members voted on the plan with only Wauwatosa Mayor Jill Didier, and the Commercial Association of Realtor’s Jim Villa voting no. Both were appointed to the Board by Milwaukee County Exect Scott Walker (For full disclosure, I’ll  note that not only have I known Villa for more than 10 years, we are friends and former business partners although I have not spoken with him about this matter ).

Voting  in favor of the tax were Franklyn Gimbel, the Board’s Chairman; Milwaukee Aldermen Willie Hines, Ashanti Hamilton and Terry Witkowski; W. Martin Morics, the Milwaukee city comptroller; Joel Brennan of Discovery World; restaurant owner Jack Weissgerber; John Burke, of Burke Properties; James Kaminski of Kaminski Consultants; and Stephen H. Marcus of the Marcus Corp.

The Marcus Corp. Owner of the Milwaukee Hilton. Hmmm.

Fox 6 in Milwaukee reported on this outrageous development and included a brief interview with me. Here’s their story.

Oh, and the District Board promises the tax will sunset. But they do not have a firm date set for the tax to be repealed.

As long as the Wisconsin Center District maintains its current make up, don’t hold your breath for that rescission decision.

As bad as this news is, it could have been worse. According to the Milwaukee Journal Sentinel:

The board also rejected, on an 8-4 vote, a proposal suggested by Marcus to increase the countywide hotel tax from 2% to 2.5% to raise an estimated $375,000 next year to be added to the Visit Milwaukee budget.

Good grief.


Besides Marcus, Hamilton, Weissgerber and Hines voted in favor of raising the countywide hotel tax.

The board also agreed to move $1.45 million from the district’s reserve fund to the district’s general fund as a means of balancing the budget. Gimbel said the measures to raise the food and beverage tax and move money from the reserve fund were intended to address severe budget problems.

Through Oct. 31, the district reported net income of just over $60,000, more than $2.2 million below what had been anticipated.

The main culprit is the abrupt drop in tax revenue. The district receives no property-tax money or state subsidies. Instead, it generates revenue from operating revenue and special taxes. Within Milwaukee County, the district collects a 2% room tax, a 3% car-rental tax and the soon-to-be 0.5% food and beverage tax. In addition, it also receives a 7% hotel room tax formerly collected by the City of Milwaukee.

The tax revenue is used for bond payments for the improvements at the Midwest Airlines Center and support for Visit Milwaukee, the region’s major tourism and convention group. The revenues generated by the Midwest Airlines Center, the U.S. Cellular Arena and the Milwaukee Theatre are used for all operating expenses.

Collections for the two hotel taxes are each off 21%, district officials said. The car-rental tax is off 20%, and the food and beverage tax is off 5%.

We’ll have more on this boondoggle in the days ahead, including a closer look at who serves on this board, who appointed each member, potential conflicts of interests with certain members, how the district properties are managed and what, if anything, can be done about this appointed board that has seemingly unchecked authority to raise your taxes at a time when families are facing the toughest economy in generations.

By Brian Fraley
A MacIver Perspective

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Posted in mi perspectives | December 17, 2009 | | No Comments

Rep. Colon Says Mayoral Control Bill Alive, Despite Delay

MacIver News Service

[Madison, Wisc...] State Democratic legislative leaders decided on Tuesday not to take up the MPS takeover bill during this week’s special session, preferring to wait until public hearings on the bill are held.

For Representative Pedro Colon, the Assembly author who partnered with Senator Lena Taylor (D-Milwaukee) to propose the MPS mayoral control plan, it is important for the public to get a chance to officially weigh in on the bill, but that course of action also comes with risks.

“I think we owe it to the people of Milwaukee,” said Colon (D-Milwaukee) in an exclusive interview with MacIver News Service prior to the caucus meeting Tuesday.  “If we do it (vote on the bill) tomorrow without having a hearing it will be difficult.  Unfortunately my belief is that those who oppose it [mayoral control] are holding the ball.”

Many state officials and lawmakers, including Colon, believe giving the mayor control of MPS will be an essential component in Wisconsin’s bid for $4.3 billion in federal Race to the Top grants.  The application for those grants is due January 19th, and any decision on MPS must be made before then so the results can be incorporated into the state’s presentation.

“Unlike many other bills, this has an expiration date–we have to have our Race to the Top application done on January 14th,” explained Colon. “That is probably not the most important reason to do this, but that is the most important reason to do this before January 14th.”

Tuesday, the Senate Education Committee announced they will hold their public hearing in Milwaukee on January 5th. The Assembly has not decided on when and if they will hold a hearing on the plan.

Whether or not Colon’s bill makes it through before the January deadline, he is confident it will pass eventually.

“This is not a bill that will go away,” said Colon. “We will see some form or some aspect of this bill in the future, independent of party, because I think you have to do something.”

Colon provides further details on the process, and on why mayoral control is necessary for the educational and fiscal well-being of MPS, in this video report:


By Bill Osmulski
MacIver News Service

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Posted in News | December 16, 2009 | | No Comments

Congress Voted to Hike Taxes, Again

When is a tax cut not a tax cut? How about when it is actually a tax increase?

The House of Representatives recently passed the Tax Extenders Act of 2009. The act extends over 30 tax breaks to individuals and businesses, $31 billion of tax relief a year.

Congressman Ron Kind said of this bill, “This bill will provide much‐needed relief to families and businesses who are struggling in the current economic downturn and in a way that is fiscally responsible.”

Congressman Steve Kagen was even more enthusiastic. “This legislation helps to keep your money in your own pockets and extends tax credits for businesses, encouraging them create to higher wage jobs,” he said.

The bill extends the following for another year: the taxpayer election to deduct state and local general sales taxes in lieu of state and local income taxes, the tax deduction from gross income for qualified tuition and related expenses, the tax credit for increasing research activities, and accelerated depreciation for qualified leasehold, restaurant, and retail property, for motorsports entertainment complexes, and for farming business machinery and equipment.

Of course, this is Congress, so there are always a few interesting favors for special interests.  The bill also extends the following: the tax deduction from gross income for certain expenses of elementary and secondary school teachers, the tax credit for railroad track maintenance expenditures, the enhanced expensing allowance for certain film and television production costs, and accelerated depreciation of property used for business purposes on an Indian reservation.

My personal favorite is the limitation on the amount of distilled spirits tax covered (paid over) into the treasuries of Puerto Rico and the Virgin Islands. Yo, ho, ho, and a bottle of cheap rum.

However, even though the tax breaks were pre-existing, Congress has decided that the tax breaks must be “paid for” through higher taxes elsewhere. The Congressional Budget Office does not score existing tax breaks the same way it scores spending. It presupposes spending will continue as before even after the program expires, but expiring tax breaks need to be paid for under “pay as you go” rules even though Congress was not collecting that tax revenue in the first place.

As a result, while Kagen and Kind are claiming that they just voted for tax cuts, the reality is that they voted for a net increase in taxes. They have used not increasing a host of taxes as an excuse to raise other taxes.

The Tax Extenders Act of 2009 increases taxes on private-equity firms that sell shares to the public to more than 30% instead of the usual15% rate. It also taxes carried interest that investment managers receive at the ordinary income rate of 35% instead of the lower capital gains rate of 15% they currently pay.

The Private Equity Council says of the carried interest tax increase, “By more than doubling the tax rate, the carried interest proposal will discourage investment, deprive many American businesses of the capital they need to survive and grow, and jeopardize critical job-creation opportunities.”

Unlike Kind who does not even mention the tax increases, Kagen does not hide the purpose behind the targeting of the tax hikes. “The irresponsibility of Wall Street speculators and corporate greed got us into this mess and we are writing new laws to make sure they help pay for our recovery.”

Perhaps someone should ask Congressman Kagen how increasing taxes on investment and depriving business of capital will aid the recovery. Then they should ask the congressman what taxes on capital and investment he will support unnecessarily when it’s time to preserve the same tax breaks in 2010.

Instead of claiming they have cut taxes when they have in fact raised them, Congressmen Kagen and Kind should be working to change the CBO scoring rules so that past tax breaks will not justify the war on investment like this year’s version of the Tax Extenders Act.

By James Wigderson
Special Guest Perspective for the MacIver Institute

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Posted in mi perspectives | December 15, 2009 | | No Comments
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