Corporate Wisconsin Legally Avoids Paying Taxes While Working Wisconsin Picks Up Their Slack
By Jack Norman
Why isn’t Corporate Wisconsin doing more hiring? It certainly isn’t because their taxes are too high.
Wisconsin’s tax bite on big corporations wasn’t that big to begin with. And it keeps getting smaller and smaller by the month.
The latest tax break for corporations came in the final days of debate over the new two-year state budget. Senator Glenn Grothman (R-West Bend) inserted a tax cut that virtually eliminates the corporate income tax on manufacturers and agricultural businesses by 2017.
Under this new tax break, the corporate income tax would fall from 7.9% of profits down to 0.4%. It will ultimately cost the state at least $129 million yearly, according to the Legislative Fiscal Bureau.
That’s money far more wisely spent to preserve the jobs of teachers, highway patrol officers and construction workers, to name just three areas that lose with huge cuts in the state budget.
And this is just the latest of a number of tax gifts to corporations this year from the Governor and Legislature. It started with a special legislative session that created new tax credits; continued with the governor’s budget, which opened two big loopholes in the corporate income tax for giant companies; and extended into Grothman’s gift.
These tax favors are useless for battling the weak economy. Evidence from many states and many years show that cutting taxes does nothing to get companies to hire. To cite one example, the Institute for Wisconsin’s Future (IWF) found that states with higher business taxes—as determined by two different rankings by business groups—showed better job growth in the 2000s than states with lower business taxes.
And Wisconsin already has the fourth lowest taxes in the US for new business investments, according to a recent study by Ernst and Young, the huge accounting firm.
Big corporations don’t just take advantage of loopholes in tax law. They aggressively support candidates who will propose new loopholes. They aggressively lobby for the loopholes to be written and enacted. And they aggressively push as much profit as they can through the loopholes in order to avoid paying Wisconsin tax.
That’s how Associated Bank has managed to go years without paying state income tax. Green Bay-based Associated is now the largest bank based in Wisconsin; in metro Madison it has the fourth largest market share.
From 2001 to 2008, Associated Bank made $2.6 billion in pre-tax profits. Total state income tax paid on those profits: $0.00. Associated Bank’s corporate parent—Associated Banc-Corp—did just as well, paying not a penny in income tax during a period when it consistently earned millions in profits.
Associated makes most of its profits in Wisconsin. Of $17 billion in deposits in 2010, 71% came from instate residents. Shouldn’t Associated be paying income tax on the profits it makes from Wisconsin customers?
Associated may have used its corporate siblings in tax-free Nevada to avoid Wisconsin taxes. There are four Las Vegas-based companies in Associated’s corporate family.
It wouldn’t be alone in doing so. M&I (Marshall & Ilsley) is another banking system that has paid well below its fair share of Wisconsin tax, with help from a stable of corporate subsidiaries in Las Vegas. From 2002 until the recession, M&I made $3.9 billion in profits, but paid merely 0.7% of that in state income tax. The official state rate is 7.9%, but M&I managed to squeeze almost all its profits through one loophole or another.
Both Associated and M&I are discussed in a new newsletter from the Institute for Wisconsin’s Future, published in cooperation with the Union Labor News. The publication, called WhoDoesNotPayTaxes?, calls attention to the growing problem of tax avoidance in Wisconsin.
Tax avoidance isn’t the same thing as tax evasion, which is clearly illegal. That’s an issue as well, but far bigger is legal tax avoidance, made possible by the continual creation of new tax credits, tax deductions, tax incentives and tax exemptions for large, profitable business organizations.
When big companies don’t pay a fair share, everyone else—both families and other businesses—has to cover for them.
In the newest Wisconsin budget, the Governor and Legislature could have taken a balanced approach, using selective tax increases on big business and wealthy investors in addition to painful cuts. Closing tax loopholes, ensuring that everyone pay a fair share of taxes, is an essential part of a balanced approach to government.
Look for future issues of IWF’s WhoDoesNotPayTaxes? Tax avoiders will be named.
– Jack Norman is the Research Director at the Institute for Wisconsin’s Future.