Time to Reform State Taxes–Pt. 3: Income Tax Reform

In my previous 2 blog posts, I suggested reforms in state sales tax exemptions which could bring in $1.9 billion in revenue to the State of Wisconsin without raising sales tax rates, and a significant reform to property tax structure to blend those taxes with income to recognize the modern reality that property wealth does not equal actual wealth.  Today’s post will describe a common sense rebalancing of Wisconsin’s state income tax structure, which is long overdue.

While on the face of it, the fact that Wisconsin has 5 income tax brackets may seem like it has a progressive system of taxation, a closer look reveals otherwise. As you can see these brackets are very close together, particularly for all but the very lowest income bracket.

Tax Bracket (Single)
Tax Bracket (Couple) Marginal Tax Rate
$0+ $0+ 4.60%
$10,180+ $13,580+ 6.15%
$20,360+ $27,150+ 6.50%
$152,740+ $203,650+ 6.75%
$224,210+ $298,940+ 7.75%

Thus, an individual, such as Wisconsin’s richest individual, Judy Faulkner, founder of Epic Systems, currently ranked #285 on Forbes Magazine’s list of the 400 wealthiest Americans with a net worth of $1.7 billion, would pay just a slightly higher 1.25% more than one of her lower paid employees, who may clean her office, and may only make $21,000/year (roughly $10.50/hr).

Sadly, rather than making this system more progressive, Wisconsin’s legislature exacerbated the problem by granting huge capital gains tax exemptions in the current budget, which predominantly benefit Wisconsin’s wealthiest citizens.

According to [a] Legislative Fiscal Bureau report, taxpayers with incomes over $150,000 represented only 10 percent of 2009 state tax filers but claimed 52 percent of the capital gains exclusions.

The consequences of this exemption for Wisconsin’s budget are dire.

The Legislative Fiscal Bureau estimates the new exemptions will reduce revenues by $16.1 million in 2011-12 and $20.2 million in 2012-13. Once fully phased in by 2016, tax collections would fall by over $100 million annually, the bureau estimates.

An examination of other states’ income tax brackets and rates reveals that Wisconsin is not the only state with a barely progressive rate.  There are 7 states which have no income tax, and 7 other states with a completely flat income tax rate, as well as 2 states which have a flat rate on dividends and interest income only. California, Hawaii, Vermont and New York have the most progressive income tax rates with the widest variation and largest number of brackets.  Other states fall somewhere in between.

While there is no magic formula for calculating fair income taxation brackets and rates, just as the last Presidential election was a referendum which determined that the American people recognized that the wealthiest Americans should pay a higher rate of taxes than the rest of us, so too should this same doctrine apply at the state level.

The time for tax fairness is now.  The question remains whether elected officials in Wisconsin as well as other state politicians whose states have flat or barely progressive income tax systems will do so.

For more information on how I can help you accomplish effective, progressive systems change e-mail Jeff Spitzer-Resnick or visit Systems Change Consulting.


Time to Reform State Taxes–Pt. 2: Property Tax Reform

As news leaks out about Gov. Walker’s desire to cut Wisconsin income taxes, it is remarkable that there has been an absence of serious discussion about property tax reform for over 2 decades.  This is surprising given that property tax revenue is the single largest source of tax revenue in Wisconsin and many other states, providing critical funding for schools and other municipal and county based services, including police, fire, and public health services.

Former Gov. Tommy Thompson recognized that there was a property tax problem in Wisconsin when he attempted to put a lid on property taxes over 20 years ago by restructuring how Wisconsin funds schools and local services, instituting revenue caps, which deny school boards and local governmental bodies the power to raise sufficient revenue to fund critical programs.  At the time this system was instituted, the trade-off was that state government pledged to provide much greater support for schools (2/3 funding) and other local services.  Unfortunately, his successor, Gov. Jim Doyle, reneged on that pledge of more state support, and then in Wisconsin’s current budget, Gov. Scott Walker went one step further by reducing the revenue limits drastically (amounting to an $800 cut to schools alone in revenue authority on top of an $800 million state funding cut).

But that is only one side of the story.  What about the people who pay property taxes?  Are they being taxed fairly?

The simple answer is that property taxes are the most regressive tax that Wisconsin and most other states use.  This is for one basic reason.  Unlike centuries ago when property wealth virtually always correlated very closely with income wealth, we no longer live in such a world.  Many examples abound, including:

  • The elderly homeowner who has fully paid off her home, but the value has risen tremendously in the 50 years since she built the home, and now her only earnings are from Social Security.
  • The divorcee, whose divorce agreement left her with a home for which she can make her mortgage payments, but after 5 years of rising property values, she can no longer afford to stay in her home due to rising property taxes.
  • The formerly comfortable middle class family, whose primary bread winner lost his job just before the $7,500 property tax bill came due.

Most of us, myself included, have lost one or more neighbors such as these.  This creates unstable neighborhoods, one of the hallmarks that works against the creation of safe and sustainable places to raise healthy, happy and well educated children.

The problem, of course, is that while virtually everyone agrees that Wisconsin’s property taxes are too high, almost no politicians are willing to make the hard decision about how to replace the revenue which would be lost if we reduced property taxes for those whose incomes clearly cannot afford them.

The answer is actually quite simple.  We can make state property taxes equitable by adjusting them up or down based on the property owner’s income. Of course, many variations could be instituted, including the number of adjustment categories and the percentage of adjustment.  However, any such system can be aligned to be revenue neutral to taxpayers. Moreover, Wisconsin’s system of shared revenue which moves property tax revenue from property rich tax districts to property poor districts can continue to be utilized to provide equity in such a system so that property/income rich neighborhoods contribute to the ability of less wealthy neighborhoods’ ability to fund schools and local services.

Here is an example of how a simple 3 tier property tax system with income adjustments would work:

  • Betty is a 78 year old widow who has lived in the mid-sized 3 bedroom home she and her husband built 45 years ago for $12,000.  She lives in a safe middle class neighborhood with good schools, and her home, though fully paid for, is now valued at $325,000.  That valuation results in a $7,000 property tax liability, which she cannot afford because her only income is her monthly $700 Social Security check.  She will need to sell her home once she has exhausted all her savings by the end of this year because she cannot afford her property taxes. Under my proposal, taxpayers with Adjusted Gross Incomes under $50,000/year would have their property taxes reduced by 50%, reducing Betty’s property taxes to a manageable $3,500.
  • Joe and Tammy have the exact same property value and tax situation, but they both work and each earn $60,000/year for a total of $120,000/year in family income.  Under my proposal, taxpayers with Adjusted Gross Incomes between $50,000-$250,000 would receive no adjustment since those with Joe and Tammy’s income while certainly not wealthy, can afford to pay their property taxes.
  • Sally and Don live in a house with the same property value, but they both hold very high paying jobs, each earning $200,000/year.  Under my proposal, their property taxes would increase 50%, to $10,500, which they can still afford, and which offsets Betty’s discounted property taxes.  Keep in mind that their property tax payment is fully deductible under federal tax law so they will actually receive a larger federal tax deduction under this plan.

In sum, while property taxes are indeed too high, they remain a critical component to funding critical local programs and services, including public education, so eliminating them is not really an option without a steep hike in income or other taxes.  By making them equitable as I have suggested, we will allow more people to remain in their homes, helping to maintain and create stable neighborhoods, without any loss of revenue.

Now the question is whether political leaders will have the courage to adopt real Property Tax Reform, such as the system I have proposed.

For more information on how I can help you accomplish effective, progressive systems change e-mail Jeff Spitzer-Resnick or visit Systems Change Consulting.

Time to Reform State Taxes–Pt. 1: Sales Tax Exemptions

With the constant fiscal crisis in Washington, all eyes have been focused on federal taxes.  Unfortunately, that has taken attention away from very serious inequities in our state system of taxation.  Since I am most familiar Wisconsin taxes, I will focus on how Wisconsin needs to reform its system of taxation in order to treat its citizens fairly and fund the services its citizens need most.  As so much reform is needed, I will divide this topic into 3 separate blog posts: Sales Tax Exemptions; Reforming Property Taxes; & Income Tax rates.

It is important to look at Sales Tax exemptions first, since revenue from Sales Taxes represents the largest single source of Wisconsin’s revenue, by far.  The latest data shows that Sales Tax collections represented over 47% of Wisconsin’s revenue. Given Wisconsin’s heavy reliance on the Sales Tax, it is worth examining whether Wisconsin numerous special interest Sales Tax exemptions represent sound policy.

By law, every two years, the Wisconsin Dept. of Revenue must produce a Tax Exemption Device Summary.  While many tax exemptions, such as food and medicine, represent sound public policy, it is worth considering whether the following tax exemptions are worth maintaining at such great cost.

  • Newspapers, periodicals and shopper guides: $18.2 million
  • Caskets and burial vaults, and funeral services: $15.8 million
  • Tractors & Farm Machinery: $35.5 million
  • Personal Property and Supplies Used in Farming: $187.6 million
  • Fuel & Electricity Used in Farming: $28.9 million
  • Veterinary Services and Medicine: $28.4 million
  • Semen for Livestock Breeding: $3.4 million
  • Machinery & Equipment Used in Manufacturing: $190.8 million
  • Fuel & Electricity Used in Manufacturing: $87 million
  • Catalogs & Catalog Envelopes: $2.4 million
  • Trucks, tractors, busses and other vehicles sold to common carriers: $28.6 million
  • Motion Picture and TV Film and Advertising Materials: $15 million
  • Labor Input into Construction: $459 million
  • Trade-Ins and Lemon Law Refunds: $94.5 million
  • Beauty, Barber, Nail and other personal care services: $26 million
  • Dues Paid to Business Associations and Fraternal Organizations: $13.2 million
  • Health Clubs: $17.1 million
  • Legal Services: $114.5 million
  • Architectural, Engineering, Testing Laboratory and Surveying Services: $98.1 million
  • Accounting Services: $51.3 million
  • Business computer services: $148 million
  • Management, Consulting and Technical Services: $84.1 million
  • Scientific Research and Development Services: $35.8 million
  • Advertising: $64.6 million
  • Investigation and Security Services: $15.6 million
  • Commissions to Real Estate Brokers: $27.9 million
  • Repair of Real Property: $42.9 million
  • Janitorial Services: $24.5 million
  • Disinfecting and Exterminating: $3 million
  • Sewerage Services: $29 million

TOTAL VALUE OF THESE EXEMPTIONS=$1.99 billion, or significantly more than the $1.6 billion cut to public education in the current budget.

Please note that these are not all of Wisconsin’s Sales Tax exemptions, just those that I believe are worth a second look, especially when one considers that Wisconsin cut $1.6 billion out of its current public education budget.  While there may be merit to some of these sales tax exemptions, remember that it does not matter what your personal or business income is, the tax exemption exists for rich and poor alike, since sales taxes are regressive flat taxes.  Sadly, ever since the Reagan tax revolution, legislators of both parties are reluctant to take a serious look at the long history of special interest tax exemptions.

This list should cause Wisconsin citizens, legislators and the Governor to pause and consider whether it is in the public interest to exempt bull semen, hair extensions, health club dues, and yes, attorneys, architects and accounting fees paid largely by the wealthy from the category of taxes which funds virtually half of all Wisconsin government services.  I further suspect that a similar list exists in most States which also merits debate and examination. The time for that examination is NOW.

For more information on how I can help you accomplish effective, progressive systems change e-mail Jeff Spitzer-Resnick or visit Systems Change Consulting.

Putting an End to the School to Prison Pipeline

One of the saddest phrases in American education is, Schools to Prison Pipeline. The very concept that schools are actively sending their students to prison is so fundamentally contrary to everything public education should stand for that every American should cry foul and insist that this shameful practice end.  Of course, as is true with many challenging societal problems, ending a shameful practice is easier said than done.

But first, let’s make sure we understand what the Schools to Prison Pipeline is, and how bad the situation has become.  The ACLU’s Racial Justice Project defines the Schools to Prison Pipeline as:

The “school-to-prison pipeline” refers to the policies and practices that push our nation’s schoolchildren, especially our most at-risk children, out of classrooms and into the juvenile and criminal justice systems.  This pipeline reflects the prioritization of incarceration over education.

A variety of methods are used by too many schools, which contribute to this human disaster.  They include:

  • Overuse of zero tolerance of even minor school infractions;
  • Increased reliance on police in schools, resulting in a direct line from a school infraction to juvenile justice prosecution; and
  • Increased use of disciplinary alternative schools, which like prisons, rarely teach students how to behave properly, and instead congregate children with problematic behavior who teach each other how to improve their misbehavior.

Perhaps the most glaring statistic is the remarkable number of students who are suspended in many school districts.  Let’s look at Milwaukee Public Schools (MPS), where the problem is rampant.  The most recent suspension data is from the 2010-11 school year.  In that year, 18,797 or 23.2% of MPS’ students were suspended, though that number may be low as MPS has been caught submitting false lower numbers to the US Office of Civil Rights in the past.

Even more troubling is that certain populations of students are suspended at significantly  higher rates by MPS.

  • 33.8% of African-American students were suspended;
  • 44.4% of students with disabilities were suspended.

It is beyond question that,

Higher suspension rates were found to be correlated with lower graduation rates.

Congress has looked at this issue, but sadly has failed to act.  A House Judiciary Committee hearing received a report in 2009 which clearly set forth that:

A dropout crisis exists for minority and economically disadvantaged children in every state. African- American males are incarcerated at a rate six times that of White males and Hispanic males more than double that rate according to recent studies published by the U.S. Department of Justice. The significance of this statistic is that African-American males have the lowest graduation rate of any ethnic group.

Some may shake their heads and simply argue that in order to save well behaved students, we must lock up those who do not behave well.  But this logic has serious flaws.

  • There are solutions to the Schools to Prison Pipeline, including Positive Behavioral Interventions and Supports (PBIS)which fortunately now has a national support center.   A faithfully implemented, adequately funded system of PBIS has shown not only reduction in disciplinary problems, but a correlated increase in academic success.
  • From a selfish point of view, those who are concerned about crime should be concerned about reducing crime so they do not become victims of crime.
  • Recidivism rates are very high.  While there is no commonly accepted measure of juvenile recidivism, a recent Milwaukee County study showed juvenile recidivism rates hovering between 41-58%.

So the bottom line question is whether or not we want to continue our failed unofficial School to Prison Pipeline policy and continue to suspend and incarcerate students who are disproportionately African-American students and students with disabilities or shift gears and education them properly with sufficient resources to become productive citizens.  The answer should be obvious.  Let’s put an end to the School to Prison Pipeline NOW.

For more information on how I can help you accomplish effective, progressive systems change e-mail Jeff Spitzer-Resnick or visit Systems Change Consulting.

How Systems Change Happens

Having created progressive systems change in a variety of public policy arenas for over 27 years, many have asked me how I do it.  There is no formula for achieving systems change.  But my experience tells me that effective progressive  systems change only happens if the following elements are present:

  • Have the truth on your side.  That requires assembling data and stories that back your cause.  We did this in the 12 year campaign to pass a law prohibiting the inappropriate use of seclusion and restraint on children in Wisconsin’s public schools.
  • Educate those who need the change, the media, and those who are the decision makers required to make the change.  We accomplished this in 2011 by killing the Special Needs Voucher bill in Wisconsin despite a massive lobbying effort by the American Federation for Children (otherwise known as the lobbying arm of US Private Schools).
  • Organize supporters (or opponents, depending on the issue).  Especially when confronting powerful special interests, those seeking progressive systems change must have as many organized allies as possible.  Convincing the Wisconsin legislature to add key special education provisions to last term’s Read to Lead legislation required great organization amongst progressive reading and disability groups.
  • Litigate when necessary.  The courts are the oft forgotten branch of systems change.  Though years of unhelpful decisions often make systems change difficult in the courts, it still happens.  Our class action settlement with the Wisconsin Dept. of Public Instruction (DPI), in our case against Milwaukee Public Schools (MPS), created systems change in both of those massive bureaucracies.
  • Be Persistent.  Systems change is not for faint of heart.  Nor is it for those who are not willing and able to work hard for many years.  But remember, lack of persistence allows the other side to rule the day.  It took us 10 years to get a hearing on our seclusion and restraint bill, and 12 years to pass it.  We could have quit at any time before that and Wisconsin would continue not to have this important legislation.
  • Use all the tools above, but use them strategically and effectively.  Those who want to fight powerful, well-financed special interests, must be willing and able to use the truth, educate all concerned, organize well, litigate enough of the right cases, and be persistent.  Moreover, they must do so strategically and effectively.  Unprepared, ill-equipped advocates may cause more harm than good while fighting for a righteous cause.  Getting Gov. Walker’s signature on our seclusion and restraint legislation required using all of these tools including strong media work and publishing Out of Darkness…Into the Light. 

Many despair of the never ending legitimately awful things monied interests have foisted on the public.  But there is nothing new about the rich and powerful exerting their will on those less wealthy and powerful than them.  The challenge for those of us who want the world to be a better place is to apply these systems change principles consistently to push back on the never ending power grab by the select few.


For more information on how I can help you accomplish effective, progressive systems change e-mail Jeff Spitzer-Resnick or visit Systems Change Consulting.

2012 in review for Systems Change Consulting Blog

The WordPress.com stats helper monkeys prepared a 2012 annual report for this blog.

Here’s an excerpt:

The new Boeing 787 Dreamliner can carry about 250 passengers. Systems Change Consulting blog was viewed about 1,300 times in 2012. If it were a Dreamliner, it would take about 5 trips to carry that many people.

Click here to see the complete report.