Walker's Tax Cuts: Would It Be Impolite To Say … I Told You So?
Dan Bell takes a critical look at some of the laws State Legislators are making.
That whooshing sound you’re hearing is the sound of Caledonia businesses hiring multitudes of people into their workforce. They are doing so in lockstep with the other businesses in this state, and indeed the nation. Happy days are here again! Thank God for the Republicans…and for their finding that magic elixir – the cure-all known as tax cuts!
What’s that you say, you don’t hear the whooshing? You got me there. I was just kidding. Truth be told, there will be no massive wave of hiring. Though that was the desired outcome of the just passed tax cuts by the Republican Legislature and signed into law by Governor Scott Walker.
This policy is ineffectual… and they know it.
Caledonia businessmen are not stupid. Even with the tax break, there is little incentive to hire workers in substantial quantities. And why not? Let’s do some simple math. If you hire a worker at $8 per hour, the yearly salary would be $16,000 dollars. If your business has total gross revenues of under $5 million, you get a $4,000 dollar tax credit for each “new job.” That leaves the owner to find a way to support the additional $12,000 dollars he has added to his payroll. That can only be done by increasing business – selling more products and services. Without any increase, that $12,000 dollars hits the bottom line… tax credit notwithstanding. Like I said, they’re not stupid. Neither is “Big Business” with its record profits and well over a trillion dollars in reserves.
What they’ve done is they have led the horse to water, the horse wants to drink, but they provided it with a thimble of water.
This tax cut is a real nice piece of feel-good legislation. A Republican promise kept. An ideology served. They will be pointing to this legislation four years from now saying they lowered taxes. What they won’t be telling you is the actual cost/benefit result. I’ll do it for them… I’m happy to oblige.
Reducing revenues can’t solve reducing the over $220 million budget deficit for this year and Wisconsin’s 3.2 billion debt; which is exactly what tax cuts do. Walker will have to cut from somewhere. Will it be from Medicaid, Medicare, school funding, state benefits, entitlement programs; all of the above? (He says that he will do so with “compassion.”) In the end what you have is exactly what they accuse the Democrats of doing – redistributing wealth. Only this time it is going in reverse. We give to those who have more and take away from those who are struggling. Nice job.
In my January 9 column entitled “First Do No Harm,” I cite two studies by a non-profit, non-partisan think tank that states in part, new firm formation (and in particular “high impact” small firms) is relatively constant regardless of the economy or public policy towards creation and that “policies will affect the numbers at the margins” and little else. Between 2008 and 2009, all the new jobs created came from these young firms. Not all small businesses are job creators.
So, I ask our Republican leaders, on the point of job creation; is it impolite to say I told you so?
Greta Mueller
3:10 pm on Tuesday, February 8, 2011
Hmmmm...Interesting that Caledonia's Wiscon Corporation is finding the $70,000 tax credit they'll be receiving to hire 18 new employees an important incentive to move forward with their planned expansion. By my calculator, that comes out to $3,888 per employees, a little less than the Walker tax credits, actually. As well, I guarantee the Christensen family (0wners of Wiscon) will be paying all or most of those employees well in excess of $8.00/hr leaving them with much more than a $12,000/employee deficit.
Dan, there are a number of small companies in a similar situation as Wiscon - they're just waiting for some help. There may not be many in Caledonia, since obviously, we don't have very many companies in Caledonia. Unlike you , however, I do believe with these tax credits, the HSA deductibility, tort reform and other initiatives on the horizon, these policies, in retrospect, will be proven out with time to have been an aid. Perhaps not to every company, but certainly to a number of them. However, only time will tell and could be at some point in the future, I'll be boasting "I told you so."
As far as your politeness, or lack thereof...somehow I think the effectiveness of their policies is of much greater concern to the Walker administration, particularly when the ink on those policies hasn't even dried, so I wouldn't worry about it if I were you.
Heather in Caledonia
8:39 am on Friday, February 11, 2011
Dan,
What is your solution? Leave taxes high and other costs of doing business (cost to protect against lawsuits, high fees and regulations for development, etc.) and wait for those high impact firms to get busy?
I'm not a business professor (although I do have a B.S. in MIS) and have to spend most of my days taking care of my children and managing my house and business instead of studying and researching, but my opinion is that it will probably take more than a few weeks for most businesses to react to the changes in the law. As Greta pointed out, there are other changes coming that will also impact business practices in Wisconsin.
I am concerned, however, about the very large companies (GE, for example) that are sitting on vast amounts of cash and have not been hiring for years. What is going on? Are they holding cash for expected terrible times ahead? It makes little sense to sit on cash when you could be expanding and improving your business. What would induce these companies to use this money? Any ideas?