March 10, 2014
by James Wigderson
Special Guest Perspective for the MacIver Institute
State Rep. Tyler August has found another way state government hurts small businesses and the middle class in Wisconsin. The state is collecting too much money to administer professional and trade licenses. The fees for licenses have become a hidden tax on entrepreneurship and hard work.
Beginning under Governor Jim Doyle, the state Department of Safety and Professional Services (DSPS) in the 2009-2011 biennium changed the way professional license fees were determined. For the first time, instead of being set by the legislature, the fees were set administratively.
Fees for professional licenses generally went up. For example, a professional engineer saw the bill go up 41%, while a professional nurse’s license fee went up 24%. Surprisingly, members of the state legislature didn’t react to the over-collection issue when massage therapists’ licenses jumped by 55%.
Since this change, the amount DSPS has been contributing to the general fund has gone up. The two fiscal year average contribution jumped from $2,675,150 (2007 to 2009) to $5,564,695 (2009-2011). That amount is above the 10% of license fee collections that is already mandated to go the general fund.
(Because professional and trade license fees are multi-year, revenue for the DSPS tends to rise and fall within each biennium. That’s why comparing the two-year average is important.)
Total revenue for DSPS has gone up, too. The 2007-2009 two fiscal year average was $17.4 million while for 2009-2011 the average was $22.1 million. The numbers for 2011-2013 are incomplete but they appear to be close to the 2009-2011 average.
While that sounds good, increased revenue generally means increased economic activity, that’s money that is taken out of the private economy directly from the 380,000 license holders in a DSPS regulated industry. While the DSPS is supposed to be charging what it needs to administer the state’s official licensing, they’re taking millions over what is needed.
What’s worse, the fees are coming directly from the very people we should be encouraging to expand their businesses. According to the DSPS, there are “over 83,000 active DSPS credential holders in construction sector professions” alone.
Because the DSPS continues to collect revenue above what is needed for the administration of the licenses, the fee has really become a tax. It is a tax first on the service providers, and then it is a tax that is passed along to the consumer. As a result, consumers are paying more for everything from plumbing to haircuts.
August’s bill would require the DSPS to submit a 25% reduction in all fees for the 2015-17 fiscal biennium. The cut in fees would cost DSPS $11 million in revenue over the biennium, or approximately what the DSPS has been contributing to the general fund above the DSPS expenses and the 10% mandated contribution.
While the individual amounts going back to the license holders may be small, it’s still $11 million in tax relief directed back to the professional and entrepreneurial classes. That’s more money that can be directed to growth of their businesses or lowering costs to the consumer.
More important, it re-establishes the principle that fees collected by the government be leveled at the amount necessary for administering the program rather than act as a hidden tax to support the government’s appetite for general spending.
During the Doyle era, the appetite for general state spending caused the government to raid the transportation fund and the patient’s medical malpractice fund. The courts forced the state to repay the latter, and the state is still scrambling to make up the shortfalls in the money for the road infrastructure.
But one more Doyle-era raid remains in the state budget, the raid on the earnings of professional and trade license holders caused by the over-assessment of fees. This hidden tax is an unnecessary drain on the state’s economy directly hitting the state’s professional and entrepreneurial class. As state revenue continues to grow, Wisconsin has the opportunity to remove one more Doyle-era barrier to economic growth by repealing this hidden tax.