I considered it curious that after creating a record structural deficit, prominent legislators should consider the state’s tax revenue too high. The fact that the state’s extraordinarily low corporate tax rate hasn’t done anything to bolster Wisconsin’s standard of living apparently means we’ve much more revenue to reduce. Enter the Taxpayers’ Bill of Rights.

On its surface, the concept of amending the state constitution to limit state tax hikes to inflation plus population growth seems relatively unassailable. The Consumer Price Index (the index that determines inflation) seems to vindicate the contention that taxes have been on a steady increase in Wisconsin. The conservative group Citizens for a Sound Economy points out that the 2002 Wisconsin state budget would have been $1.5 billion smaller had taxes been linked to inflation since 1992. Wow! $1.5 billion is 15 percent of taxes collected in 2002, which was the second consecutive year of decline in overall tax revenues. Could the budget really have exploded that quickly?

The answer is yes and no (mostly no). The methodological flaw in CSE’s assertion, and in the amendment itself, is linking taxes and inflation. The usual comparison is between taxes and Gross Domestic Product (GDP) or its equivalent state-by-state measure, Gross State Product (GSP). In Wisconsin, GSP tells a very different story. Wisconsin’s tax revenues have stayed relatively constant as a percentage of GSP for the last 20 years, never straying more than a percentage point from a 1980-‘99 average of 5.86 percent. From 1992 to 2001, taxes rose just over 1 percent more than GSP. I couldn’t find GSP data for 2002, but keep in mind tax collections actually fell that year.

So what’s the difference between Gross Domestic Product and Consumer Price Inflation, and which is the better index for government spending? I’m not remotely qualified to answer this question, so I asked someone who is. I asked Steven Durlauf, professor of economics at the University of Wisconsin, specifically, “Why is the CPI so frequently referenced as an indicator of the absolute value of money?” as, in this case, proponents of the Taxpayers’ Bill of Rights are assuming that taxation can be kept to the same absolute monetary value when indexed to inflation.

Professor Durlauf was gracious enough to respond to my inquiry and detailed the strengths and weaknesses of the Consumer Price Index as well as the Gross Domestic Product Deflator. His response was wonderfully detailed and thoughtful and I feel terrible about reducing it to his last sentence, but myriad nuances notwithstanding, he said, ” … the CPI is generally thought to be more useful in assessing consumer welfare, whereas the GDP deflator is probably more closely tied to government monetary and fiscal policy.”

It’s not exactly a firm pronouncement but definitely enough to call into the question the wisdom of inscribing a relationship economists are dubious about into our state constitution.

So, assuming they weren’t simply too unconcerned to look into it, why would (mostly conservative) legislators want so desperately to hamstring the state budget, to say nothing of the county and municipal budgets to be bound by the same rules?

The answer to that question can be found at the website of the Wisconsin Democracy Campaign (www.wisdc.org). WDC tracks campaign contributions in Wisconsin and their results.

Their report, “The Graft Tax,” details hundreds of millions of dollars in tax breaks and loopholes for politically connected corporations and organizations in just the last few years. These tax breaks slashed budgets for public institutions, including the university, and precipitated the state’s recent fiscal crisis. The middle class was seeing no tax relief, and state revenues were falling faster than could be accounted for by the recession.

Governor Doyle’s budget has granted graft a reprise by passing the deficit on to state agencies and municipalities, a slightly better situation than tying their hands with a property-tax freeze, but a reckoning is still not impossible.

If Alabama’s Republican governor, Bob Riley, could introduce an (albeit unsuccessful) tax-reform bill that called for tax relief for the middle class and the poor, elimination of corporate-tax loopholes and higher taxes on the rich, what would happen in Wisconsin, a state with a much more progressive history? The Taxpayers’ Bill of Rights is not tax reform; it’s a major obstacle to tax reform.

Granted, the bill would allow tax increases to be brought for referendum, but I have an alternative. I would suggest that, once every couple years or so, the public should vote for “representatives” whom they trust to carry out their business. These “representatives” would then assemble in a governmental body of some sort and conduct the public’s business as responsibly as possible within the latitude granted them by the existing state constitution and/or applicable municipal charter. It’s an odd system, but it’s worked for 150 years.

 

Peter Gruett ([email protected]) is a senior majoring in music.