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.

Categories Education, Public schools, Sales Taxes, Tax ReformTags , ,

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