In today's announced reshuffling of Senate committee deck chairs, there's potentially a big hint as to where Democrats think Republicans will be vulnerable next fall. That hint is the creation of the Senate Committee on Tax Fairness and Family Prosperity, to be chaired by Bob Jauch.
Some might think this is a demotion for Jauch, who is giving up his seat on JFC. However, what it smells like to me is an opportunity for him to start laying the groundwork for the Democrats' '08 message.
The Democrats win right now on on the issue of fiscal responsibility, if only because Republicans at the federal level have completely smeared the reputation of Republicans everywhere. They can't, however, win on the issue of aggregate tax burden. Everyone knows the Democrats like to spend, and that Democrats won't be making a pitch to shrink government anytime soon.
Where they do have Republicans totally over the barrel, however, is the issue of tax fairness. It is much to their advantage to shift the debate from "what is our aggregate tax burden?" to "who is paying taxes, and is this situation equitable?"
Now, as we all know, the 16-year reign of Republican governors in Wisconsin led to one tax break after another for businesses. There were sales tax exemptions, property tax exemptions, income tax credits - you name it, the GOP employed it in an attempt to buy the support of the business community. And all of those tax breaks now add up to exemptions that measure not in millions, but billions of dollars.
Some of these... really now. A sales tax exemption for livestock semen? A property tax exemption for ATMs? Equipment for producing maple syrup? Live game birds? Sorry if I missed the taxpayers clamoring for any of these.
But here's a bigger example of the political problem this creates. Let's take Wal-Mart - although lots of companies engage in what I'm about to describe.
As we all know by now, Wal-Mart cleverly (and legally) uses Real Estate Investment Trusts (REITs) to avoid paying taxes. Here's how the scheme works.
A Wal-Mart store pays rent to its own REIT, which technically owns the store. The REIT pays out nearly all of its income in the form of a dividend, which allows the REIT to avoid corporate income tax on that money. Some of that dividend goes to Wal-Mart executives, but most of that dividend goes to another subsidiary called Wal-Mart Property. Wal-Mart Property is conveniently based in Delaware, which assesses no tax on dividend income. And what does Wal-Mart Property do? It hands the money back to the original store, which has already written the rent off as a business expense.
A brilliant strategy, if you ask me. And perfectly legal.
But it doesn't pass the smell test, and Democrats know it. Voters won't distinguish between tax avoidance, which is legal, and tax evasion, which is illegal. All they know is that Wal-Mart isn't paying its fair share.
How do you fix this particular problem? Easy. Combined reporting, a taxation method that has received bipartisan support across the country in recent years, a method that will only become more popular as states try to crack down on tax dodgers. Heck, even good old Texas is due to initiate combined reporting in 2008. And we all know Texas can't be wrong.
So how do the Democrats capitalize on this? Well, it's not all that hard. Combined reporting has no direct impact on individuals (an indirect impact, yes, but those are much harder to measure). Democrats also can propose tossing out hundreds of millions of dollars in sales and property tax exemptions for special interests.
Additionally, they can push the streamlined sales tax effort, which will help bricks and mortar businesses in Wisconsin better compete against out-of-state rivals. Some inaccurately argue that this is a tax increase. What it really amounts to is a way for the state to start capturing the hundreds of millions of dollars in revenue lost when Wisconsin residents illegally avoid paying sales and use tax on out-of-state purchases on their state income tax forms. That "tax-free" purchase you made online isn't really tax-free.
What can they do with the revenue? Well, they can use it to support popular programs. Or, if they're clever, they'll use some or all of it to pay for some kind of tax break. They could employ lots of strategies. They could, for instance, dramatically increase the standard deduction on state income taxes. They could lower income tax rates for middle-class taxpayers. They could do a lot of things - a lot of things that Republicans would politically find nearly impossible to oppose without signing their own political death warrant.
Such a strategy would place the Republicans solidly between two competing constituencies. On one side, the voters. On the other side, the rickety, dilapidated old war machine that is Wisconsin Manufacturers and Commerce, and all of their tax-sucking satellites, like the Wisconsin Restaurant Association, who doesn't want members to pay tax on their ovens or frying pans.
Tax fairness is an issue that the GOP, in its present form, can't win on politically - unless it is smart enough to realize that it can't side with businesses over families.
Don't get me wrong. I understand every conservative argument in the book. I understand that some of you don't think businesses pay any tax at all because it all gets passed on to the consumer in the end. I'm not even disagreeing with you. What I'm telling you is that voters don't see it that way. They want to see Wal-Mart, for example, pay its "fair share" even if they don't directly realize that they might well be paying for that "fair share" out of their own wallets.
Tax fairness is a winning issue for Democrats, and they will be handsomely rewarded if they can focus the debate on "who is paying?" and not "how much is being paid?"
Bob Jauch's shiny new toy could be the start of a whole new world of political hurt of the GOP. We'll have to wait and see if the Democrats are able to exploit it to their advantage.
Some might think this is a demotion for Jauch, who is giving up his seat on JFC. However, what it smells like to me is an opportunity for him to start laying the groundwork for the Democrats' '08 message.
The Democrats win right now on on the issue of fiscal responsibility, if only because Republicans at the federal level have completely smeared the reputation of Republicans everywhere. They can't, however, win on the issue of aggregate tax burden. Everyone knows the Democrats like to spend, and that Democrats won't be making a pitch to shrink government anytime soon.
Where they do have Republicans totally over the barrel, however, is the issue of tax fairness. It is much to their advantage to shift the debate from "what is our aggregate tax burden?" to "who is paying taxes, and is this situation equitable?"
Now, as we all know, the 16-year reign of Republican governors in Wisconsin led to one tax break after another for businesses. There were sales tax exemptions, property tax exemptions, income tax credits - you name it, the GOP employed it in an attempt to buy the support of the business community. And all of those tax breaks now add up to exemptions that measure not in millions, but billions of dollars.
Some of these... really now. A sales tax exemption for livestock semen? A property tax exemption for ATMs? Equipment for producing maple syrup? Live game birds? Sorry if I missed the taxpayers clamoring for any of these.
But here's a bigger example of the political problem this creates. Let's take Wal-Mart - although lots of companies engage in what I'm about to describe.
As we all know by now, Wal-Mart cleverly (and legally) uses Real Estate Investment Trusts (REITs) to avoid paying taxes. Here's how the scheme works.
A Wal-Mart store pays rent to its own REIT, which technically owns the store. The REIT pays out nearly all of its income in the form of a dividend, which allows the REIT to avoid corporate income tax on that money. Some of that dividend goes to Wal-Mart executives, but most of that dividend goes to another subsidiary called Wal-Mart Property. Wal-Mart Property is conveniently based in Delaware, which assesses no tax on dividend income. And what does Wal-Mart Property do? It hands the money back to the original store, which has already written the rent off as a business expense.
A brilliant strategy, if you ask me. And perfectly legal.
But it doesn't pass the smell test, and Democrats know it. Voters won't distinguish between tax avoidance, which is legal, and tax evasion, which is illegal. All they know is that Wal-Mart isn't paying its fair share.
How do you fix this particular problem? Easy. Combined reporting, a taxation method that has received bipartisan support across the country in recent years, a method that will only become more popular as states try to crack down on tax dodgers. Heck, even good old Texas is due to initiate combined reporting in 2008. And we all know Texas can't be wrong.
So how do the Democrats capitalize on this? Well, it's not all that hard. Combined reporting has no direct impact on individuals (an indirect impact, yes, but those are much harder to measure). Democrats also can propose tossing out hundreds of millions of dollars in sales and property tax exemptions for special interests.
Additionally, they can push the streamlined sales tax effort, which will help bricks and mortar businesses in Wisconsin better compete against out-of-state rivals. Some inaccurately argue that this is a tax increase. What it really amounts to is a way for the state to start capturing the hundreds of millions of dollars in revenue lost when Wisconsin residents illegally avoid paying sales and use tax on out-of-state purchases on their state income tax forms. That "tax-free" purchase you made online isn't really tax-free.
What can they do with the revenue? Well, they can use it to support popular programs. Or, if they're clever, they'll use some or all of it to pay for some kind of tax break. They could employ lots of strategies. They could, for instance, dramatically increase the standard deduction on state income taxes. They could lower income tax rates for middle-class taxpayers. They could do a lot of things - a lot of things that Republicans would politically find nearly impossible to oppose without signing their own political death warrant.
Such a strategy would place the Republicans solidly between two competing constituencies. On one side, the voters. On the other side, the rickety, dilapidated old war machine that is Wisconsin Manufacturers and Commerce, and all of their tax-sucking satellites, like the Wisconsin Restaurant Association, who doesn't want members to pay tax on their ovens or frying pans.
Tax fairness is an issue that the GOP, in its present form, can't win on politically - unless it is smart enough to realize that it can't side with businesses over families.
Don't get me wrong. I understand every conservative argument in the book. I understand that some of you don't think businesses pay any tax at all because it all gets passed on to the consumer in the end. I'm not even disagreeing with you. What I'm telling you is that voters don't see it that way. They want to see Wal-Mart, for example, pay its "fair share" even if they don't directly realize that they might well be paying for that "fair share" out of their own wallets.
Tax fairness is a winning issue for Democrats, and they will be handsomely rewarded if they can focus the debate on "who is paying?" and not "how much is being paid?"
Bob Jauch's shiny new toy could be the start of a whole new world of political hurt of the GOP. We'll have to wait and see if the Democrats are able to exploit it to their advantage.
8 comments:
All good points. But...
If I have to hear one more smug-sounding paid voice actor next fall talk about Democrats wanting to tax you "from the cradle to the grave" I think I'm going to have to kill myself.
You seem to state rather matter-of-factly that voters won't buy into this and instead focus on the concept of fairness.
The GOP spin worked well 4+ years ago and certainly resonated with a large portion of people 2 years ago (I realize thing swung Dem, but a lot of people still buy into that message).
Are you suggesting voters are getting smarter on this issue? Are you suggesting Democrats could actually stick to a single message (fair share) enough to overcome the countered spin?
It just seems like any elimination of a tax break, no matter how ridiculous the tax break is, gets automatically labeled as raising taxes. It just perpetuates the oft-held notion behind it that Dems just want to tax, tax,tax.
Just look at the length of your post (and my response) trying to discuss this issue. It isn't easy. It doesn't fit on a bumper sticker. It doesn't fit in a 30-second spot. But all the counter-argument do fit on bumper stickers and in 30 second spots.
Maybe I'm just a cynic, but I don't know if the voting public is willing to sit through this lengthy (but very logical) explanation of what exactly it is the Democrats want to do. Do you?
Packaging the issue succinctly really isn't hard. Let's try this on for size:
"Companies like Wal-Mart cost the State of Wisconsin hundreds of millions of dollars through special interest tax breaks and accounting gimmicks. Who pays for that? Hard-working, middle class families like yours.
We think that, for once, you deserve the tax break. So we're proposing to lower income tax rates for families like yours. That's more money in your pocket to pay for the things important to you. And we're doing it by finally asking companies like Wal-Mart to pay their fair share - just like you already do."
I can say that in a perfectly acceptable radio voice - slower than people normally speak - in about 30 seconds.
Democrats drop the ball on taxes because they always want to spend the additional revenue instead of giving it back.
Give me a revenue-neutral proposal that eliminates corporate tax loopholes and lowers individual income tax rates, and I will show you a proposal that will garner 80% support in a poll.
Tax fairness is a winning issue provided Democrats are willing to turn it into tax relief for individuals and not just more government spending. And I think we can both agree that would require a special kind of discipline from the Dems that they haven't always shown.
Gee, that sounds exactly like what Rod Blagojevich has been saying in Illinois for the past 10 months. And he's also adding on "pay their fair share and we'll provide health care for all children" Who wants to deny health care for children?
Apparently lots and lots of Republicans and Democrats because his fight is going nowhere and this plan has less of a chance of passing than a resolution supporting The Green Bay Packers in their efforts to win the NFC North.
I'd like to see the dems try this playbook in Wisconsin. Maybe it will give the Republicans a fighting chance in 08.
What Rod Blagojevich is doing in Illinois isn't really anything like what I just described. Instead of reforming an existing system, he's proposing to scrap the corporate income tax in exchange for a gross receipts tax. And while his goal is admirable (keeping businesses from ducking taxes), a GRT is likely to be more regressive and punish businesses that are engaged in either high-volume or low-margin activities.
He also wants to spend all the new revenue - so his idea of fairness, in effect, is simply to ask businesses to pay more, not to ask anyone to pay less.
What makes tax fairness a winning issue is the manner in which it allows significant tax cuts for individuals - provided, as I said, that Democrats can resist urge to spend all the money. But if they just plow it all into new programs, then you're right, the whole thing becomes a lot hairier.
RS, I tend to agree with your argument that, if played right, the Dems could really put the heat on the GOP regarding this issue. However, I don't think the Dems can mangage to stay out of their own way long enough before they mess it up. They are already talking about bringing back Healthy Wisconsin for round 2, which has the Assembly GOP giddy with joy because that is an argument the GOP can win.
Yeah, it's one of those things where I think everyone can see how the Dems can win with this issue - but as you said, it remains to be seen whether they can stay out of their own way. This has always been their problem historically. Give them a little power and they completely overreach.
If what the Dems wanted was Healthy Wisconsin as a talking point, they've already got it. "Don't you deserve the same health care as your legislator?" is a winner politically. The problem is that their proposal is still so incomplete and bereft with ambiguity that the longer they let it sit out there, the more holes are going to be blown into it. They're stupid for bringing it back this session.
Great post as always.
I'm reminded of Milwaukee County Supervisor Jerry Broderick. A neo-socialist if there ever was one.
He scores major points every time he points out a large corporation that pays no corporate income tax, like Johnson Controls.
How can I buy the GOP rhetoric that this is an awful place to do business when a company like Johnson Controls pays no corporate income tax?
Nobody who isn't a partisan hack possibly can.
I sure am glad Bob Jauch is the chair of the tax fairness committee. Senator Jauch is self-centered and lazy (beside being arrogant, bloviating...). Nothing serious will become of this issue with Bob Jauch on the job unless it personally favors himself. But since he is not up for re-election this year this issue will be lost to the democrats. Phew. Close call.
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