Lawmakers in Wisconsin are poised to override a federal tax break that could save businesses in the state millions of dollars.
On March 9, President Bush signed into law a post-Sept. 11 economic stimulus package allowing companies purchasing equipment between Sept. 11, 2001 and Sept. 11, 2004 to deduct 30 percent of its value in taxes.
The cuts could result in hundreds of millions of dollars in lost revenue for the states. Texas and Virginia stand to lose $730 million and $300 million respectively.
Twenty-five states will automatically conform to the law, while another 21 periodically vote on whether to incorporate federal tax changes into state law.
Supporters of the law say it will pump some much-needed life into the economy. Adversaries of the law, like the National Governor’s Association, are calling it “an assault on the states’ revenue base.”
Legislatures in Wisconsin, Virginia, Indiana and Maryland have slipped provisions into their budgets nullifying state income tax code from the federal code. This negates any tax break a business would have received as a result of the package.
UW-Madison Applied Economics Professor Andrew Reschovsky, who also works in public at UW’s LaFollette School of Public Affairs, said he believes the package would have done little to alter local business decisions.
“Small differences across states in taxes are not on the whole what drives business decisions,” Reschovsky said. Firms make decisions for many complex situations. Market connections, labor force needs and other factors tend to dominate small changes in tax law.”
Reschovsky also said the state’s current budget difficulties may have played a role in Wisconsin choosing not to conform to the new law.
“If we were to follow suit on this, we would see a significant drop in state revenue,” Reschovsky said. “This obviously wouldn’t be good for a state in fiscal crisis.”
Louise Keely, UW assistant professor of economics, said the short nature of the law would limit its long term effects.
“In the short-run, there maybe some effects, but since its not [long-term], the effects will be negligible,” Keely said. “If it was a permanent decision then it might force some businesses to leave Wisconsin and make other ones not come here in the first place.”
It seems to be common practice for the federal government to sign into law tax breaks in hope of resuscitating the economy, Joseph Boucher, senior UW business law lecturer said.
“If you look at it historically, the last time during a recession when the economy was tough, there were tax breaks,” Boucher said. “The law seems to be coming at the expense of businesses.”
Donald Stanley, a professor of life sciences communication with knowledge of starting up web-based businesses, said he thinks the law would have been greatly beneficial to companies within the state.
“Anytime you are able to have any type of savings or assistance from the government it’s beneficial,” Stanley said. “In larger businesses where there are big overhead costs, a 30 percent deduction would definitely be helpful. You can invest more into your company’s employees, equipment or advertising, so saving money is definitely a good thing no matter what business you are in.”