First, the good news: I've heard from several sources that new fiscal estimates will soon reveal that the state's coffers are surging well beyond projections. Even the Speaker Robin Vos publicly alluded to the news in a column this weekend.
As I say, overall, this is good news. Frankly, so is the Assembly Speaker's promise not to spend any unexpected funds but rather return them to the taxpayers.
Now the bad news. We all need to temper our excitement, because the figures are skewed by a problem with the tax law that must be fixed.
Along with the additional revenue that is the result of a more vigorous Wisconsin economy, comes a pile of new revenue accumulated thanks to a surge of funds collected by the state's Alternative Minimum Tax.
How did this happen?
In 2011 the legislature passed the Manufacturing and Agriculture credit. The phased in tax cut was sold as: If you make it or grow it in Wisconsin, income from that activity would be tax free.
First and foremost, the credit will be a powerful incentive for existing manufacturers to expand their facilities here. Manufacturers that are already located in Wisconsin often have difficult choices to make when considering expansion in Wisconsin versus expanding facilities elsewhere. While Wisconsin has many advantages of interest to manufacturers, there is no question that Wisconsin’s individual and corporate income/franchise taxes are among the highest in the nation. This credit will help tip the balance in favor of expansion here. The timing of the credit is crucial as the economy continues to recover and manufacturers act on plans to meet expected demands;
For the same reasons, this credit will encourage some out-of-state firms to locate their production facilities in Wisconsin as they expand;
Finally, the credit will provide an incentive for start-ups to take root here in Wisconsin.
But legislative intent was not followed. Unfortunately for thousands of people and businesses in Wisconsin, the tax break would only be offset by their now being subjected to the State's Alternative Minimum Tax.
Federal and state tax laws treat different kinds of income differently. In addition there are a myriad of special deductions and credits for various expenses.
Wisconsin’s AMT demands that, when certain criteria are met, Wisconsin income is taxed at a rate of 6.5%. Liberals argue that Alternative Minimum Taxes ensure that all individuals who benefit from these tax advantages will pay at least their fair share of taxes.
But the AMT is essentially a second income tax system. It makes compliance with our tax laws more complex. So not only does this hurt our ranking among the states when it comes to overall tax burden, The additional compliance cost hurts our state’s overall business ranking when compared to the more tha 40 states without an Alternative Minimum Tax.
According to the nonpartisan Legislative Fiscal Bureau, only 7,660 fell under the AMT in 2012. The AMT brought in only $7.5 million from 2012. But, because of the income tax rate reductions of the last budget and the Manufacturing and Agriculture credit passed in 2011, by 2015 that number is expected to surge to a staggering $50 million, from 30,000 tax filers.
That’s right. Because taxes were cut, more individuals and corporations will fall under the onerous Alternative Minimum Tax.
This increase in the AMT burden flies in the face of what the legislature intended.
What can be done?
Simple. Wisconsin should not have two separate income taxation systems. The time is now to repeal the Wisconsin Alternative Minimum Tax.
Republicans have an obligation to not spend the new revenues and they also have an obligation to do the right thing and fulfill their tax cut promises of 2011 and 2013.
Here's hoping a straightforward, complete and stand alone repeal of the AMT is offered, debated, passed and signed into law this spring, before the AMT monster grows even uglier.
Repeal the AMT, without delay and without any other gimmicks like a sales tax holiday attached for the ride.
Where does your lawmaker stand on the issue? We’d love to know. Share what you find out in the comments section, below.
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