Wisconsin Budget: AMT, Gas Taxes, Prevailing Wages, and a Sports Stadium

June 22, 2015

This post originally appeared as an op-ed on Forbes here.

Wisconsin’s 2015-2017 budget has sparked disagreement within the legislature over a bevy of policy issues. These include: transportation funding, prevailing wages for construction workers, public financing for a new Milwaukee Bucks arena, as well as a proposal to eliminate the Alternative Minimum Tax. Here’s a quick update on each:

Transportation Funding

On transportation, Wisconsin policymakers and Gov. Walker are currently at an impasse over how the state is to pay for its road projects. Gov. Walker wants to borrow $1.3 billion in order to circumvent hiking gas taxes, while legislators have said they want to cut that amount by $800 million, stating that the governor’s plan is “not sustainable.” As a result, the Republican leadership has been meeting behind closed doors over the past week in an effort to reach a deal.

People of course don’t like to pay gas taxes (in 2009, we found in surveys that Americans consider them one of the “least fair” taxes), but if they borrow to pay for infrastructure improvements, those payments have to come due at some time. Gas taxes have a big advantage over other taxes in that they conform well to the benefits principle of public finance theory. The benefits principle states that people should pay in proportion to the benefits they receive from the government. The more people drive, the more they pay in tolls and gas taxes. This benefits system could work quite well, except we don’t rely nearly enough on gas taxes to pay for the road spending that voters demand. In 2011, only 43.6 percent of state and local road spending in Wisconsin was covered by user fees and user taxes. Leaning more on them could prevent hiking other more damaging taxes, or in Wisconsin’s case, taking on debt.

The Prevailing Wage Debate

Wisconsin’s prevailing wage law requires that construction workers assigned to local and state projects be paid a wage set by the state. According to the Madison, Wisconsin-based MacIver Institute, these wages can be as much as 40 percent higherthan the actual prevailing market wage. As of last week, there had been no agreement on whether to reform or repeal the law, according to Senate Majority Leader Scott Fitzgerald (R-Juneau).

Bucking the Bucks

While a relatively minor part of the budget, Gov. Walker has also expressed support for keeping the Milwaukee Bucks in Wisconsin. Despite the proposal’s unpopularity in Milwaukee and the state as whole, the governor has argued forcefully for it, saying that the team’s economic impact offsets the spending on a new stadium. The motto “Cheaper to Keep Them” has drawn a tremendous amount of interest, investigation, and hand-waving. Though the ultimate fate of the plan is uncertain, some lawmakers are calling for it to be voted on separately from the overall budget.

The AMT and Marriage Penalty

Finally, perhaps the best tax policy discussions in the current budget debate are being led by Rep. Dale Kooyenga (R-Brookfield), who had proposed eliminating the Alternative Minimum Tax (AMT). The AMT was originally intended to ensure individuals making between $200,000 and $500,000 who have a large number of deductions pay some minimum tax rate. The problem the AMT is intended to solve is actually one created by lawmakers: unjustified tax preferences in the original code. Instead of solving these more fundamental issues, the AMT ends up creating more compliance costs with very little revenue in return.

Unfortunately, it looks as though for now Rep. Kooyenga will withdraw this plan, citing a lack of support. In its stead, he has continued to push for eliminating the marriage penalty for married couples filing a joint tax return.

More on Wisconsin.

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