Study disputes wisdom, need of tax-limit amendment

A plan to use the state constitution to limit government spending could seriously undermine Wisconsin’s economy and quality of life, according to a researcher at UW–Madison.

A study by Andrew Reschovsky, professor of applied economics and public affairs at the Robert M. La Follette School of Public Affairs and the Department of Agriculture and Applied Economics, raises significant questions about the need for a so-called Taxpayers Bill of Rights (TABOR).

“There is little doubt that over time TABOR would result in big reductions in programs that help the state’s most vulnerable citizens, result in serious downsizing of the University of Wisconsin System, seriously reduce the ability of public schools to provide a quality education for our children and risk substantial damage to our environment,” Reschovsky says.

Further, Reschovsky contends that the limits would harm Wisconsin’s economy and that the reasons commonly used by proponents of the measure are unjustified.

Advocates of the measure, which would tie government spending increases to population growth and inflation or some other index, argue that Wisconsin’s tax burdens are high, that over-taxation is hurting economic development, and that state and local spending is out of control.

But Reschovsky’s study shows that Wisconsin’s property tax burden has fallen since 1994, and that school property tax rates have fallen by nearly 50 percent since 1991.

Although Wisconsin has a high state and local tax burden compared to other states, Reschovsky notes that is partly because Wisconsin has a relatively low level of fees and charges, such as tuition. When general revenue from both taxes and fees is considered, the state ranks 19th nationally.

The study also found that Wisconsin businesses face a relatively low tax burden. The state ranks 50th in business taxes as a share of state and local taxes, and 35th in business taxes relative to profit.

“Data suggest that one reason Wisconsin residents may complain about high taxes is precisely because, relative to business, households in Wisconsin pay a larger share of total state and local taxes than households in almost all other states,” Reschovsky says.

Although TABOR advocates point to over-taxation as hurting state economic development, Reschovsky says that the evidence shows that taxes are only one factor influencing business decisions. A well-trained labor force and quality public services are of equal or greater importance to business, he says.

“We need to provide the things that attract workers to this state. This certainly includes high-quality public services – good public schools, an excellent public university system, an attractive environment, and safe and clean streets,” he says.

The study found that if TABOR had been in place since 1986, by 2003 public school spending in Wisconsin would have been 20 percent lower than the current level of spending. In addition, by 2003 state government spending would have been two-thirds of actual spending.

“The bottom line is that there is no credible evidence that the enactment of TABOR is necessary to prevent job losses and to spur continued economic growth in Wisconsin,” Reschovsky says. “In fact, it is highly likely that TABOR would over time be detrimental to the state’s economic health.”

TABOR would allow governments to exceed the limits if voters agreed in a referendum election. But Reschovsky says that would turn complex decisions about balancing government investments into a yes-or-no choice in what are typically low-turnout local elections.

“It is likely that many voters, if in fact they choose to vote, will be influenced by ‘bumper sticker’ campaigns financed by various groups that want to influence their vote,” Reschovsky says.

A complete copy of Reschovsky’s study can be accessed at www.lafollette.wisc.edu/facultystaff/reschovsky/reschovsky-resources.html.