Like a blast of arctic air, Wisconsin got a chilly dose of news about the condition of our business climate: It’s getting worse.
The latest state-by-state ranking of business climates is available. Wisconsin ranks No. 38 on the list of the most business-friendly states, dropping from No. 32 the previous year. The 2007 version of the State Business Tax Climate Index was prepared by the Tax Foundation in Washington, D.C.
Five areas of taxation were examined to compile the rankings: individual income taxes, major business taxes, sales taxes, unemployment insurance taxes and taxes on wealth or assets (that would include property taxes).
Wisconsin’s discouraging ranking should be another warning sign that Wisconsin taxes are too high. The Tax Foundation reports, "Taxes matter to businesses. In a highly competitive global market, states need to make their tax systems friendly to business in order to facilitate the expansion and growth of business. A simple tax system that is fair to all businesses is the best way for states to have a competitive business tax climate."
States with lower taxes can and do steal business from states with higher taxes. The U.S. Department of Labor, in a June 2004 study entitled, "Extended Mass Layoffs Associated with Domestic and Overseas Relocations," reveals that more often than not, states lose jobs to other states, not to other countries. Wisconsin should worry about Mexico and China. More importantly, Wisconsin needs to fear nearby states with more favorable business climates, such as Indiana (No. 12), Illinois (No. 25) and Michigan (No. 27).
Taxes affect the number of jobs retained and created. Taxes play a role in the location and construction of plants. The most important effect taxes have on business is a reduction in profits. When taxes bite a bigger chunk out of profits, the costs are passed on to workers and consumers. Workers bear the brunt of higher taxes with lower wages and fewer jobs. Businesses frown on setting up shop in a state with taxes that produce smaller profit margins.
The five states with the best business climates are Wyoming, South Dakota, Alaska, Nevada and Florida. Wyoming and South Dakota do not have corporate or individual income tax, Alaska does not have individual income or sales tax, Florida does not have individual income tax and Nevada does not have corporate income tax.
The best way to improve Wisconsin’s dreary business climate is to make our tax system less punitive on everyone. Easing Wisconsin’s tax burden would also keep more people from leaving.
During November 2005, the Wisconsin Taxpayer Alliance issued a very troubling report entitled, "Moving In, Moving on: Migration in Wisconsin." During the five years prior to the 2000 census, almost 669,000 people either moved to or out of Wisconsin. However, the net in-migration into Wisconsin was a meager 7,282.
Individuals with college or advanced degrees were more likely to leave, while those with less education tended to come. Individuals with household incomes above $75,000 left Wisconsin. Those with incomes of $200,000 or more had the highest rates of leaving.
The huge exodus of wealthy Wisconsinites leaving the state caused a loss of an estimated $4.72 billion in net worth and a loss of $455 million in income over the five years of this study. That means far fewer in-state bank deposits, less stock in Wisconsin firms, less investment capital for in-state ventures, and less money given to local charities.
We are losing our best and brightest at a very young age, and we’re experiencing retiree flight.
Young adults leave for college, especially to Minnesota because tuition reciprocity with Minnesota means students cross the border at little or no added tuition cost. Western states like California, Arizona and Colorado also draw Wisconsin youth.
True, senior citizens head to Florida and Arizona for warm weather. They leave for another reason: economics. High-income seniors go to Florida at higher rates than to Arizona, the reason being Florida does not have income tax.
The best way to cut taxes is to reduce spending. I support a constitutional amendment to control the growth in the increase in spending. It tells state and local governments that just like families struggling to get by, they, too must live within reasonable means.
Wisconsin simply cannot afford any more moving vans.
If you have comments on this or any other issue, please contact me at Sen.Lazich@legis.wisconsin.gov or Senator Mary Lazich, State Capitol, P.O. Box 7882 Madison, WI 53707 or 1-800-334-1442.
