One Wisconsin Now Blog

Walker latest "plan" -- Biggest corporate tax loophole in history? Or just another gimmick?

With failed Milwaukee County Executive Scott Walker, you just never know what it's gonna be. Will his latest idea be a gigantic giveaway to corporation at the expense of Wisconsin's working families? Or will it be a totally empty promise, another in a long list of gimmicks trotted out by Brown Bag Boy?

Part of Walker's three-page agenda calls for making "Wisconsin a highly attractive place to start a business by eliminating corproate taxes for the first two years of operation." Operating under the assumption the Milwaukee Journal Sentinel's PolitiFact won't get to fact-checking Walker's claim for at least another day or two, let's unpack this just a bit.

If Walker is talking about "corporate" taxes, his proposal would not apply to any businesses structured as a partnership, or a sole proprietorship, or an LLC, or even an S-corporation, all of which pay taxes through the individual income tax and not the corporate tax. If that's the case, Walker's "plan" sounds great, but would help only a handful of start-ups.

If Walker's "plan" is really aimed at startups, very few of them make any money during their first two years of operation, so they wouldn't be paying income tax under the current system anyway. In fact, under the current system they are able to use losses in the first two years to offset profits in subsequent years. If Walker's proposal exempts them from taxes it might very well eliminate their ability to carry these loses forward, meaning Walker's "plan" would actually cost companies money when they do start being profitable. So far, so good, I guess.

Now, if Walker's "plan" is actually broader than just true startups -- let's say it would include new operations in the state set up by existing firms -- then the "plan" would open up a loophole the size of a high-speed passenger train for profitable companies to simply re-incorporate every two years in order to enjoy a perpetual tax exemption (aka giveaway). Given that corporate income taxes bring in well over half-billion dollars every year, Walker's loophole would leave a smoldering crater in the state budget.

Of course, this latest giveaway would be in addition to his $4 billion in tax breaks to the rich and big business he's already proposed. He has yet to explain how he plans to pay for any of these plans, especially troubling given Wisconsin's existing $3 billion budget deficit. Would he just shut the entire state down, like forever? Would Wisconsin declare bankruptcy? Would he kick everyone off BadgerCare and sell the public school buildings, or what? How else could he make up $7 billion in deficits?

So which is it? Is Walker's plan just a meaningless talking point? Or is it the biggest corporate tax loophole in the history of Wisconsin?