Spare agriculture from a tax hike? Not just that easy. An LFB memo shows 25 percent of manufacturers claiming the Manufacturers and Ag Tax Credit are 'inextricably tied' to agriculture. #wiright #wipolitics Click To Tweet
MacIver News Service | March 13, 2019
By M.D. Kittle
MADISON, Wis. — When Gov. Tony Evers rolled out his budget plan, which taxes some to fund tax cuts for others, his supporters said the plan would hold farmers harmless.
'It's very naive to think that you could punish food manufacturers, processors, cheesemakers, in this state with higher taxes and somehow think that's not going to have a negative downstream impact on farmers,' said @ManleyWMC. Click To Tweet
But the Democrat’s tax-cut package would roll back tax relief for food manufacturers dependent on the agriculture industry, according to a memo from the Legislative Fiscal Bureau.
“Even if we followed this (Evers’) plan, this would be a significant blow to agriculture,” state Rep. John Nygren (R-Marinette), who serves as co-chair of the Legislature’s budget-writing committee, said at a press conference earlier this year.
The nonpartisan LFB memo notes a quarter of manufacturers who claimed the Manufacturing and Agriculture Tax Credit (MAC) last year have deep connections to agriculture.
“Without a doubt, Wisconsin is a top food-processing state, and there are many thousands of workers who are employed at some world-class food manufacturers, like Sargento, Johnsonville Brats, and other significant companies in our state,” said Scott Manley, senior vice president of Government Relations for Wisconsin Manufacturers & Commerce.
Those industries are “inextricably linked” to farmers, Manley said, and both need to be healthy in that relationship. WMC has voiced concerns that raising taxes on food processors will serve as a disincentive for those manufacturers to grow, or even to remain in Wisconsin.
“It’s very naive to think that you could punish food manufacturers, processors, cheesemakers, in this state with higher taxes and somehow think that’s not going to have a negative downstream impact on farmers,” Manley said. “That’s simply not economic reality.”
Evers’ middle-income tax cut would be paid for in large part by partially rolling back the successful Manufacturing and Agriculture Tax Credit, which former Gov. Scott Walker signed into law in 2011. Evers’ plan limits the credit for manufacturers to the first $300,000 of qualified income, raising a projected $516.7 million in tax revenue over the biennium.
The governor’s Family and Individual Reinvestment (FAIR) credit would cut taxes on middle-income earners by $833.5 million over the two-year budget, redistributing a big chunk of that from manufacturers that have created tens of thousands of good-paying jobs thanks the manufacturing tax credit.
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Evers’ claims the tax increase will only hit the wealthiest manufacturers, an assertion that glosses over the fact that many very middle-class earners would be impacted. Nearly 70 percent of Wisconsin manufacturing firms pay the individual income tax rate instead of the corporate tax rate, according to the Tax Foundation. Since those companies are organized as pass-through businesses, all of their business income is taxed as individual income.
In other words, the Evers administration may consider a manufacturer who earns $300,000 annually to be part of Wisconsin’s upper-echelon of earners — but all of their equipment and inventory is included in that income threshold. Their actual income could be, and often is, significantly less.
“ … Governor Evers’ tax plan clearly demonstrates that he does not understand the private sector as shown by his irrational commitment to punishing our state’s job creators by raising their taxes,” state Rep. Rob Hutton (R-Brookfield) said last month in a statement. He noted that Wisconsin’s manufacturers employ 500,000 people in the state and the Manufacturing and Agriculture Tax Credit has, according to a 2017 University of Wisconsin-Madison study, created at least 42,000 jobs.
Wisconsin’s manufacturers employ 500,000 people in the state and the Manufacturing and Agriculture Tax Credit has, according to a 2017 University of Wisconsin-Madison study, created at least 42,000 jobs. Click To Tweet
While Evers’ rollback proposal doesn’t directly touch farmers (that is, agri-businesses are not subject to the cap), more than 25 percent of the manufacturers hit by the tax increase are integrally connected to agriculture, according to the LFB memo. Food manufacturers account for 22.6 percent of MAC claims. The credit saved these producers a total of $62.3 million in tax payments in 2018-19, according to the Fiscal Bureau.
Another 2.7 percent of manufacturers claiming the credit came from beverage and tobacco product manufacturing and basic chemical manufacturing, also heavily connected to agriculture. These producers recorded a combined $7.5 million in tax relief, thanks to the credit.
The MAC meant about $276 million in total tax relief for the manufacturers that claimed it in 2018-19.
Farmers, meanwhile, claimed more than $15 million in credits, according to the memo.
Evers argues that’s money depleted from the state’s coffers, cash that could be redistributed to middle-class taxpayers, and to those who pay little or no taxes at all. It could also be used to fund liberal programs and initiatives in an $83.5 billion biennial budget that significantly grows the size and scope of government.
The governor last month vetoed a Republican tax cut plan funded by the state’s projected surplus, better-than-expected revenue generated in large part, Republicans say, thanks to eight years of tax cuts amid GOP leadership in the Legislature and the East Wing.
In rejecting the Republican plan, Evers insisted he wouldn’t sign a tax cut proposal dependent on surpluses, which he says may not materialize in the years ahead. Republicans counter that excess revenue has been a feature of GOP-led state budgets over the past eight years, and could continue to be if the governor doesn’t drown businesses and taxpayers in tax hikes.
Manley said the ripple effect of the Manufacturing and Agriculture Tax credit is felt throughout the entire Badger State economy.
“You bring in 40,000 additional workers, with average annual wages of $57,000, and you’ve got a ton of additional taxes and additional buying power,” not just the short-term revenue collected by capping the tax credit, Manley said.