A Jobs Plan that Creates a Greater Tax Burden on the Public

News of Wisconsin's swelling budget shortfall and unprecedented job losses have made it clear that job creation will be the premiere theme for the 2010 gubernatorial election. Just recently, for instance, Democrat nominee Tom Barrett is sounding off like Wisconsin's leading fiscal conservative saying that "The state must play its role effectively and then get out of the way."  But Barrett's plan for Wisconsin is anything but getting government out of our way.

In May, Barrett introduced a 67-page jobs plan that aims to create various councils, committees, boards, and institutes to promote economic development.  His plan proposes investments in financial capital, universities, bio-fuels, biomass plants, green buildings, pension funds, minority owned businesses, dairy science, arts and culture, local transportation, quality of life communities, workforce development programs, on and on.  That's a lot of state-based investment, so how much will this cost the taxpayers?  In total, Barrett's plan will create more than two dozen state programs and a billion dollars in new spending.

Below, I will explore Barrett's emphasis on targeted tax cuts, his defense of Combined Reporting, and how his plan does nothing to resolve Wisconsin's poor business climate.

Barrett's Targeted Tax Cuts are Economically Backward

One of the biggest problems with Barrett's business plan is his "targeted tax cuts" proposal.  On page 7 of his plan, Barrett says he will provide tax cuts, credits, and incentives to businesses that create, save, or attract jobs.  But most economists prefer broad-based tax cuts to a more targeted approach; here are the reasons why.

First, targeted tax cuts create a greater distortion in the free market.  All taxes, to some extent, distort free market activity.  It is the job of an economist, therefore, to minimize these distortions and make the economy work efficiently.  A targeted tax approach isolates specific activities for preferential treatment, which in turn alters taxpayer behavior in ways that wouldn't happen when left to free market forces.  When government starts allocating resources to certain areas, things can get very complicated.  It releases an uncertainty into the free market that politicians are sometimes not equipped to handle.

Second, targeted tax cuts lack neutrality and invites massive abuse.  In Barrett's proposal, state government gets to pick the winners and losers; and by doing so, they reward companies for doing what they want while penalizing companies for doing what they don't want.  It also invites powerful special interest groups to vie for preferential treatment in a type of "pay to play" scheme.  Another term for this behavior is corporate welfare.  It's an unfair practice that marginalizes smaller businesses while corporations with the most clout can get the biggest piece of the pie.

Third, the more targeted the tax cut, the more bureaucracy is needed for record keeping, tracking, monitoring, and filing purposes.  And the more bureaucracy needed, the more government resources are required.  Regulatory behavior not only neutralizes the economic benefit of a tax cut, but it requires increased taxes to maintain itself. 

And fourth, giving tax cuts to companies already stable enough to hire new workers misses the whole point.  On page 3 of Barrett's jobs proposal, he admits that "tax cuts stimulate private sector job creation."  And yet he gives tax cuts to companies already creating jobs while ignoring companies that struggle to keep them.  Where are the tax cuts for businesses that actually need them to create jobs?  

Barrett Defends Combined Reporting

Another problem with Barrett's jobs plan is his defense of Combined Reporting.  Combined Reporting is a law passed by Wisconsin Democrats that seeks to collect more tax revenue from companies with plants or facilities in other states.  Combined Reporting is a money grab by the state to help repair a profound budget hole left by the Doyle Administration, and it's expected to increase tax revenue by more than $200 million for the fiscal period of 2009-2011. 

One of the more visible problems with Combined Reporting was the financial headache it caused Harley Davidson.  It cost them $22 million, which is an equivalent to about 400 manufacturing jobs.  Shortly after, Harley announced they were considering regrouping and possibly moving two of their plants out of the state.  If this were to happen, Wisconsin could lose about 2,200 jobs.  The announcement sent shock waves through the state and sent a clear message to Democrats that Wisconsin's tax climate needs some reshaping.     

Defending Combined Reporting, Barrett said it was an important way to ensure that larger corporations pay their fair share of taxes in Wisconsin because it prevents them from shifting their reported incomes to "off-shore tax havens" in other states.  The irony is that these companies wouldn't try to shift their reportable incomes off-shore if Wisconsin itself were a tax haven.

While companies leave the state, our leadership should be developing a plan to retain and attract more companies.  Instead, Barrett defends Combined Reporting issuing statements like "there hasn't been a mass exodus of businesses", or only "11% of Wisconsin businesses will see an increase in their corporate tax liability".  By minimizing the punitive tax effects of Combined Reporting, Barrett concedes the point.  Wisconsin needs to attract businesses to the state, and enacting laws that increase corporate tax liabilities is like staking a big sign at the state border saying, "No Businesses are Welcome".

Barrett's Plan does not Create Better Business Environment

On page 3 of Barrett's jobs proposal, he says that "creating jobs will be his main job" and that "in the Barrett Administration, jobs will be Job One."  However, on page 15 he says, "When tax dollars are used to lure businesses and spur private investment to the state, there needs to be a significant return on investment.  As Governor, Tom will ensure that tax dollars for economic development are not wasted on corporate welfare or company bailouts."

And yet Barrett's policy of targeted tax cuts is the very definition of corporate welfare.  The summary point is this, the fact that Barrett promotes tax cuts of any kind as a way to generate private sector jobs is a concession that taxes have and always will be a hindrance to small businesses.  At the Hispanic Conservative, I went to great lengths to point out that taxes discourage market activity. If taxes on businesses pose a problem for both businesses and market activity, then why not spread more tax relief across the board?  If this has proved particularly effective for Ireland, then why not Wisconsin?

In a New York Times story, Ireland reportedly found that lower corporate tax rates and better education encouraged economic prosperity.  In the 1980s, Ireland began borrowing, spending, and taxing beyond its means.  According to Deputy Prime Minister Mary Harney, it nearly drove them under.  But Ireland's profound problems prompted them to make substantial changes.

Ireland slashed its corporate tax rate to 12.5%, which is far lower than the rest of Europe.  Low corporate tax rates attracted foreign investors, and now Ireland is home to 9 of the 10 top pharmaceutical companies, 16 of the top 20 medical device companies, and 7 of the top 10 software designers in the world.

If reducing corporate tax rates attract companies, then why is Barrett defending Combined Reporting?  The truth is, there is no defense for it.  Combined Reporting is not about companies paying their fair share.  Fairness to Democrats typically means paying more taxes, not less.  And when companies are forced to pay more, it typically results in lower pay, less benefits, or worse yet, unemployment. 

St. Anthony's is a Beacon of Hope for Local Hispanics

To say that St. Anthony's School in Milwaukee is a bedrock of the local Hispanic community is an understatement.  St. Anthony's is the largest grade school in Milwaukee and 98% of their students are Hispanic.  The quality of education children receive at St. Anthony's is nothing short of innovative and remarkable.

Even things that most people take for granted, St. Anthony's considers carefully.  If a room needs painting, they research wall colors that best promote creativity, concentration, and productivity.   If lights need to be replaced, they find the sort of lighting that reduces stress and anxiety while promoting improved attitude and behavior.  Because they lack bureaucratic strictures in schools with teachers' unions, St. Anthony's makes it a regular practice to seek out experts across the country to implement proven methodologies in the best interest of our children.

St. Anthony's philosophy is that if students struggle to read, they will struggle in all areas of learning.  St. Anthony's, therefore, requires their students to complete 90 minutes of reading per day.  Reading is such a high priority that St. Anthony's school body can boast of reading more than 50,000 books per school year.  Not bad for a student body consisting predominately of Spanish speakers.

Ideas are great, but parents want results.  Within a student's first year at the academy, 3rd grade students improve their reading proficiency from 22% to 55%.  And even more remarkable, 8th grade students improve from 20% to 68%.  How is St. Anthony's able to get stunning results?

Students are immersed in English-only classes under a curriculum called "English is a Flash".  English is a Flash is a visual methodology that pairs language with images resulting in accelerated learning.   And no student is left behind.  If students receive a grade below 85% in math or reading, their teacher reviews the course material with them.  If they continue to fall below the mark, the lesson is repeated until they score above 85%.  If students hand in late homework assignments, teachers call their parents the next day. 

Teachers are not without help either.  Once-a-month, "coaches" observe all of the classrooms to provide teachers with constructive criticism.  Teachers who struggle in their performance receive support from their colleagues.  And teachers who excel receive merit pay for their achievements. 

Sounds unreal?  It's not.  If the School Choice program were to falter, however, the Hispanic community would suffer a serious setback.  This is why having the right legislators in office is paramount to the School Choice program. 

Ron Johnson on School Choice

On July 1st, candidate for U.S. Senate Ron Johnson met with Hispanic leaders at St. Anthony's to discuss Wisconsin's School Choice program. Johnson said he was "an ardent supporter of school choice" because he is a "free market guy".  One thing not talked about, however, is how school vouchers can save taxpayers substantial costs.

To educate a student at MPS, the cost to taxpayers is about $13,000 per pupil. To educate a student at a Choice School, it costs taxpayers about $6,500.  If the state were to lift the School Choice student enrollment cap from say 22,000 to 32,000, it would save the state approximately $65 million (presuming that 32,000 students had enrolled).  It makes a fairly powerful argument that the free market approach is the most fiscally responsible. 

But the School Choice program found an enemy in the teachers' union, and it is therefore vulnerable to legislative attacks by Democrats in the state and federal legislatures.  In 2009, Wisconsin Democrats tried to pass a motion to cap the School Choice program at 19,500 students.  If it had passed, hundreds of students would have been sent back to the public school system.

On a federal level, Wisconsin Democrat Dave Obey recently tried to redirect $100 million from the federal Charter Schools Programs to the public school system to sustain teachers' jobs.  If his maneuver succeeds, schools in the program would lose up to 40% of their annual funding thus putting the jobs of 6,000 charter school professionals in jeopardy.  If elected, Johnson could be a deciding vote for school choice.

Addendum: The Relationship between the GOP and the Hispanic Community

As the discussion about School Choice came to a close, we began talking about the strained relationship between Conservative Hispanics and the GOP.  Ivan Gamboa, a former Hispanic Outreach Director, opened up with the line saying "If you're a Hispanic Republican, you're probably in an abusive relationship".  Gamboa explained that since Hispanics and Republicans share core principles, Hispanics are naturally drawn back to the GOP even though they tend to snub us when the political winds shift.

Although we all got a good chuckle, there is a lot of truth to Gamboa's statement.  Politicians flirt with Hispanic leaders when their base isn't looking.  But when their GOP turns jealous, Republicans are quick to brush us aside for something more useful.

Johnson said his campaign would do no such thing and stated we would hear no anti-immigrant rhetoric from his camp.  He said he believes that immigrants should respect the rule of law, but conceded that illegal immigrants should be treated with dignity and respect as human beings.

Johnson also stressed the importance of securing our borders and laid out two ways to reduce the influx of illegal immigration.  First, he said, "We must secure our borders to protect citizens against the violence of drug cartels."   And second, we need to implement a "verification system" for employees that stops employers from exploiting immigrants and decreases "the incentive for immigrants to cross the border illegally'.

Conclusion

Ron Johnson's visit to St. Anthony's school is a step in the right direction for our community.  St. Anthony's school is a beacon of hope, and School Choice is the vessel that can father great success.  This is why it's important for Hispanic parents to get involved and tap community leaders about promoting School Choice.  And this includes candidates competing for Pedro Colon's seat in the 8th district.  No politician can claim to be an advocate for the Hispanic community and refuse to fight for the very thing that promotes achievement and prosperity for our children.

When Liberals Obscure Reporting

It didn't take long for the liberal media to start testing the waters on the O'Donnell Parking Garage tragedy.  It's a tragedy that happened in Walker's backyard, and it simply too good for them to waste.

Joel McNally, from the Capital Times, wrote a piece trying to connect the county's deferred maintenance of the parks system to the tragedy at O'Donnell's Parking Garage.  It was an attempt to blame County Executive Scott Walker without explicitly making an accusation.  Such attempts are cowardly because they provide the writer with plausible deniability if he was ever called to the carpet.   

I'm not exactly sure what passes for journalism or essay writing at the Capital Times, but I'm pretty sure they can do better than this.  Besides the basics of lacking a clear thesis, McNally's article also lacked a fair gathering of the facts.   For example, it might have been helpful to know that the original architect of the O'Donnell Parking Garage was fired and sued by the Milwaukee County government nearly two decades ago.

The article ended up being a hit-piece on Walker and all those who share a "right wing ideology" of tax cuts and controlled spending.  The article made a few points worth refuting.

Refutable Points

First, McNally stated that Walker represented a more extreme version of a tax-cutting philosophy and that he was responsible for the deterioration of our nation's premier parks systems.  Again, McNally is selective with the facts.  What McNally didn't mention is that the Milwaukee County Parks won a national gold metal of excellence last year from the American Academy for Park and Recreation Administration and the National Recreation and Park Association.  Liberals like McNally are rewriting history, and it's important that they are corrected when it happens.

Second, McNally stated that Walker blatantly attempted to shift blame to his predecessors for the original design and installation of the decorative panel.  In McNally's world, he wants to believe that Scott Walker's tax-cutting philosophy contributed to the deterioration of the O'Donnell Parking Garage.  Unfortunately, McNally's world isn't real, and there is no evidence that links deferred maintenance to the slab of concrete that fell. 

Democrat officials may be spenders, but they are also practitioners of cronyism.  And it appears that the original architect of the O'Donnell Garage was offered the job without proper vetting.  Unfortunately, cronyism resulted in a few shortcuts and ultimately an inferior design.  Almost immediately after completion, the parking garage showed signs of stress, deterioration and structural weaknesses.  In order to rectify the problem, tons of soil were removed from the fourth story of the building and its structural supports were reinforced and strengthened.  McNally neglected to mention this history ostensibly to lay blame on Walker.

McNally said nothing about the architect, how he was hired, why he was fired, and that the Milwaukee County government pursued a lawsuit against him.  Was Walker shifting the blame?  Such a question presumes Walker is blameworthy.

If you were the County Executive, what would you do if all the critical, potentially critical, and necessary repairs were made to the parking structure, and yet this tragic event occurred nonetheless?  If there was no deferred maintenance on the building, logic leads you to something more fundamental or more architectural with the structure. 

To McNally, however, Walker's deferred maintenance must be the cause of the collapse because he want to say, "I told you so."   But the county released a report of all the maintenance done on the O'Donnell Parking Garage, and it showed that nearly all of the violations were corrected.  If McNally refuses to believe the report, then that is his right.  But as a "state columnist", it is his duty not to cherry pick the facts.

Conclusion

McNally has an ideological problem with fiscal conservatism.  By scaling back funds to the public parks, McNally argues that it will burden our grandchildren with millions in deferred maintenance.  On the flip side, however, it is not sensible to pour millions into the public parks when 10% of our taxpayers are jobless and when most are forced to make cuts to their personal finances.  Public funding should always reflect the taxpayer's ability to pay.  When people start trimming their own budgets, the government should do likewise.