TAX NEWS - 2010

Republican Tax Cut Promises Hard To Pull Off

MADISON, Wisconsin -- Promises by the two main Republican candidates for governor to repeal nearly $2 billion in tax increases immediately after taking office would mean deep cuts in other areas of the budget, and even then probably couldn't be done for at least a year or more.

Republicans and Democrats, as well as independent budget observers, say promises by GOP candidates Scott Walker and Mark Neumann to repeal nearly $2 billion in tax increases immediately after taking office probably can't be achieved right away.

How the next governor will deal with the state's budget is one of the biggest issues of the race. Both Walker and Neumann have made the promises of tax cuts a central part of their campaigns. Those promises are in stark contrast with Democrat Tom Barrett, who doesn't support repealing the recently enacted taxes.

Of course, anything the next governor wants will have to go through the Legislature, which now is under Democratic control. The Republicans can talk all they want about cutting taxes, but passing anything Democrats object to will be tough.

All three gubernatorial candidates have said they want to cut spending.

Neumann said he would limit state agency's annual spending increases to no more than 1 percent less than the rate of inflation, but he hasn't said which ones would be exempt from the reductions or what exactly would be cut.

Walker on Thursday said he would propose all state workers and elected officials pay their portion of pension benefits, which would save nearly $180 million a year.

Barrett earlier this month revealed a plan he said would cut more than $1 billion a year from the budget, including doing away with the secretary of state and treasurer's offices, which would require a constitutional amendment.

Promising to repeal the tax increases passed in 2009 to address a record-high $6.6 billion budget shortfall is unrealistic, said Rep, Mark Pocan, the Democratic co-chair of the Legislature's budget committee.

"I think this is what politicians do at election time when they lie to voters," Pocan said. "They make promises that are pretty much impossible to keep."

Solving the expected budget shortfall, not accounting for any tax breaks or new spending, will be daunting, said Todd Berry, president of the nonpartisan Wisconsin Taxpayers Alliance.

"Whatever you want to do makes the challenge bigger," Berry said.

Walker has been working with Republican lawmakers on the Legislature's budget-writing committee to come up with a more detailed spending cut plan that will incorporate how he intends to pay for repealing the tax increases.

Walker said he would be proposing more than just specific repeals but a total reform of the state's tax system that would cut taxes for everyone.

"If you cut taxes aggressively enough, other states have actually seen it help balance their budget and not draw on their budget," Walker said.

State Rep. Robin Vos, R-Caledonia, is working with the candidate on his budget proposal expected to be released next month.

"I don't think all of it is going to be possible to eliminate in the first year," Vos said. "That's not to say it couldn't be done."

He said repealing the tax increases could start in 2011 but then phased in over time.

It would be great if Walker could repeal the taxes immediately, said Sen. Alberta Darling, R-River Hills, who is helping Walker.

"The question is would it be possible with a billion-plus deficit we have to address first thing," she said.

Whether the taxes can be repealed right away or over a series of years depends on the economy, said Sen. Luther Olsen, R-Ripon, another member of the budget committee.

Olsen said none of the candidates, including Walker and Neumann, have provided many details on how they will balance the budget. They may be holding off because detailing cuts will only upset people, he said.

"In all honesty, when you're running for office, if you have a lot of money to spend you make a lot of friends," Olsen said. "If you have to cut things, you make enemies."

Berry agreed.

Making the cuts necessary to eliminate the ongoing deficit is doable "if you want to serve one term," Berry said.

The taxes Walker and Neumann want to repeal include the so-called "combined reporting" tax that affects large, multistate corporations, a tax on capital gains and an income tax increase that only affected couples earning more than $300,000 a year. Walker has also said he wants to gradually phase out a tax on retirement income.

All told, eliminating those increases would subtract about $1 billion a year from tax collections.

The Democratic-controlled Legislature, along with Democratic Gov. Jim Doyle, approved the tax increases as part of a plan that also included a $2.2 billion influx of federal stimulus money to balance a record-high $6.6 billion budget shortfall.

Doyle and Democrats defended the moves, saying they protected the middle class by not raising general income or sales taxes.

Repealing the taxes now would double the budget deficit overnight and force deep cuts in local funding and public services, like education and police and fire protection, said Barrett spokesman Phil Walzak. Communities will be forced to raise property taxes, which will adversely harm the middle class, he said.

"It's clearly irresponsible campaign rhetoric that's going on in a cheap attempt to get votes," said Wisconsin Democratic Party Chairman Mike Tate.

But Republicans, especially those running for governor, said the tax increases on businesses led to numerous companies either leaving the state or, like Harley-Davidson, considering pulling out.