Governor, legislature should seek compromise on these policy priorities
My hope for 2023 is that every legislator in Madison will talk to somebody in their district who lost their small business or their job, and ask why.
Shouldn’t be hard to find them.
Between March of 2020 and March of 2021 — the last period of time for which I could find data — 17,364 Wisconsin establishments opened and 13,698 closed, according to the U.S. Small Business Administration. Almost all of those were small businesses.
The churn is constant — and, overall, positive at first glance. We had a net increase of over 3,600 businesses in just that year, according to the SBA. But there’s a downside too — a very significant one.
Opening and expanding businesses added 195,000 jobs while closing and contracting businesses lost 278,000 — a net decrease of 83,000. Small businesses alone — despite the fact so many new ones opened — had a net job decrease of over 56,000 jobs.
Moreover, if you look at business establishment in Wisconsin over a longer period of time, 2012 to 2020, Wisconsin has only had a 2.4% increase — less than places like Minnesota and Iowa and Indiana (though a little more than Illinois and Michigan).
Wisconsinites are resilient. Lots of folks, it is clear, lose or leave jobs and take a chance on a new business. Some will succeed beyond their craziest hopes and dreams. Many will crash and burn. No matter what the politicians say, government can’t really help any of them succeed. Whatever they build, they build themselves. But it can surely make them fail.
Taxes and lack of skilled labor are the primary killers.
At 7.65%, Wisconsin’s top individual income tax rate is higher than all but eight other states and the District of Columbia.
As noted in our Mandate for Madison, high individual income tax rates affect almost all of Wisconsin’s businesses because 95% of them are structured as pass-throughs — profits “pass through” to the owners’ individual income tax returns. In Wisconsin, sole proprietorships, partnerships, limited liability companies (LLCs) and S corporations can all be taxed under the individual income tax code rather than the corporate income tax code.
Looked at another way, approximately two-thirds of pass-through business income is exposed to the 7.65% top personal income tax rate.
Moving to a flat tax of around 5%, increasing the standard deduction so folks at the bottom of the income scale (who pay only 3.3% currently) don’t see an increase and tweaking a few other things would eliminate one of the primary government-erected barriers to success. Wisconsin’s ranking State Business Tax Climate would rise from 27th to 9th, according to the Tax Foundation. Tax “savings” would often be reinvested, used to grow — increasing the chances for small business success.
“Typically, businesses will reinvest in equipment or manpower, those are the two big things,” said Steve Kohlmann, executive director of the Independent Business Association of Wisconsin — a group that generally includes businesses with $5 million to $75 million in sales and 25-50 employees.
“In the last year, what has been on their minds is employment, inflationary issues and supply chain issues.”
Fiscal conservatives, his members are also “concerned about the unbelievable spending the government does.”
There’s going to be enormous pressure to spend the state’s nearly $7 billion projected budget surplus as lawmakers in Madison put together the next budget. Our hope here is to give as much of that as possible back to the businesses and job-creators and other taxpayers all up and down the income ladder.
At the same time, we also need to make sure all kids in this state are being treated equally. That is not the case right now, and that’s not good for either the kids themselves or the businesses that would like to eventually employ them.
As we’ve also pointed out in our Mandate:
Traditional public school districts spent between $11,000 and $22,000 per pupil, all-in, according to Wisconsin Department of Public Instruction figures for the 2020-’21 school year. The statewide average was $15,329 per pupil.
Schools in Wisconsin’s three choice programs, by contrast, received $8,946 per pupil in high school and $8,300 per pupil in K-8 schools. The figures have increased slightly, and this school year they are $8,399 for K-8 students and $9,045 for high schoolers.
While charter school funding is more complex, charter schools fare little better than choice schools on a per-pupil basis.
None of this is new. For at least two decades, per-pupil funding for choice students has lagged far behind the sum that taxpayers would spend if the very same students instead attended a local district school.
As Patrick McIlheran and Jim Bender pointed out in our Mandate, this inequity in funding harms the state’s children by foreclosing options for their families, and breaking the promise of Wisconsin law that parents should be able to choose the school that best meets their children’s needs.
There are many fine public schools in the state but too many failing ones as well — and, therefore, too many businesses struggling to find kids with skills, desire and a basic work ethic.
That’s why, as we move into 2023, our main priorities are education and tax reform. Helping small business succeed and grow will create untold opportunity for the entire state.
Mike Nichols is the president of the Badger Institute. Permission to reprint is granted as long as the author and Badger Institute are properly cited.