We’re (that is, we were) number 4!

The latest state business climate comparison is the eighth annual Council on State Taxation study of state and local taxes, prepared by Ernst & Young on the 2009 fiscal year.

The study ranks the 50 states on tax liabilities for “headquarters operations, research and development facilities, durable and non-durable manufacturing facilities, and office and call center activities” — that is, “the percentage change in the rate-of-return over the 30-year period analyzed” when state and local taxes are factored in.

Wisconsin ranks, or more accurately ranked — surprise! — fourth in state and local business tax competitiveness based as weighed by both capital investment and by jobs. Wisconsin’s effective tax rate was 4.5 percent on capital investment and 5.7 percent on job creation.  That is 50 percent and 33 percent, respectively, higher than the number one state, Maine, but it is 75 percent and 25 percent , respectively, lower than the national average.

This study is unfortunately two fiscal years out of date. That’s because the 2009–10 Legislature idiotically raised taxes by $2.1 billion. (Which is why numerous state legislators found themselves former legislators after the Nov. 2 elections.) If Wisconsin ranked fourth in the 2009 fiscal year, we certainly did not rank fourth in the 2010 fiscal year.

Nevertheless, the study shows that Wisconsin does some things right in terms of business taxation. Wisconsin taxes only in-state sales, not employment or facilities, as the state used to do. (Until single-sales-factor became state law, corporate income taxes used to be 50 percent based on in-state sales, 25 percent based on in-state facilities, and 25 percent based on in-state employment. Great recipe to discourage locating in the state, wasn’t it?) The state also taxes only corporate income (that is, profit), not gross receipts (that is, revenues), and the state has no franchise tax, a tax on the net worth of a corporation. (I hesitate to bring that up because Wisconsin Democrats will want to introduce franchise taxes next.)

The study includes sales taxes, and Wisconsin’s 5 percent rate and relatively limited local sales taxes (the 0.5 percent county rate in most counties) ranks better than all of our neighbors — Minnesota (7 percent), Michigan (6 percent), Illinois (7.3 percent) and Iowa (7.8 percent). Wisconsin also does fairly well in business property taxes thanks in large part to the state Machinery & Equipment property tax exemption.

One problem with the study is that it measures business taxes and not total taxes. Most businesses are small businesses, and small businesses set up as S corporations or other pass-through entities pass on tax liability to the owners. And recall that Wisconsin has the fourth highest state and local taxes in the country, which means the taxes people directly pay. (People also indirectly pay business taxes given that they are part of the cost of businesses’ products and services. So perhaps Wisconsin deserves credit for having more transparent taxation.) The taxation numbers may be artificially low not just because of the aforementioned idiotic tax increase, but because state and local governments have been piling on so much debt, which of course is future taxation.

The second problem is that the study measures only one aspect — perhaps the most important aspect, but certainly not the only aspect — of business climate. In economic performance comparisons, Wisconsin does better than other states in only one area, unemployment. In other areas — business start-ups and incorporations, number of corporate headquarters and venture capital spending, to name three — Wisconsin trails the nation as a whole, and has for quite some time. That may be an indictment of the previous Department of Commerce, which as of July 1 was replaced by the Wisconsin Economic Development Corp. Wisconsin is also below par in in-migration — people moving into Wisconsin vs. people leaving Wisconsin — and people always vote with their feet when deciding where the land of opportunity is.

Taxation studies by definition do not take into account other business burdens, principally regulation, and Wisconsin is really, really good at overregulation. Recall the kerfuffle over the proposal to build a Bass Pro Shops store in wetlands — more accurately, unused, unproductive trash-filled land — near Lambeau Field, proof positive that to environmentalists, plants are more important than people. (Then again, this is a state that budgeted $86 million per year for this decade to buy land and take it off the tax rolls.) The aforementioned former Department of Commerce was the Peter and Paul of state government, simultaneously promoting and overregulating state business with the overt or covert approval of our elected officials.

Ultimately, judging a state’s business climate — which includes but is not limited to state taxation — must be based on performance. A Milwaukee Journal Sentinel letter-writer makes this inconvenient point:

… the number of people under 65 in households in Wisconsin with incomes below 200% of the federal poverty level have increased 5% in the past decade while the number of people in households with higher incomes in Wisconsin fell about 5% in the same period and the drop in people with higher incomes in Wisconsin was greater than in the country overall.

The facts are undeniable, but the explanation requires an opinion. I submit that in a state where the predominate mantra for the past several years under Gov. Jim Doyle was make the wealthy pay “their fair share” and make certain that every business and corporation be bled for every possible dollar while increasing support for nonproductive individuals is the reason for the facts.

The important question is not whether a tax rate is this number or that, but how are people doing. People voted about that with their votes Nov. 2, didn’t they?


Presty the DJ for July 12

Today is the anniversary of the Rolling Stones’ first public performance, at the Marquee Club in London in 1962. They were known then as the “Rollin’ Stones,” and they had not recorded a song yet.

If you’re going to record just one song that gets on the charts, ending at number one would be preferable, whether in 1969, or in the year 2525:

Birthdays start with Christine McVie of Fleetwood Mac:

John Wetton played bass for Asia and King Crimson:

Eric Carr replaced Peter Criss on drums for Kiss:

Phil Kramer of Iron Butterfly:

Robin Wilson of the Gin Blossoms: