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WisBusiness: State budget offers pros and cons for businesses
7/1/2009

By Brian E. Clark
For WisBusiness.com

MADISON – Business groups are calling the state’s new $62 billion budget a “mixed bag” due to changes in capital gains taxes and investment incentives.

Commerce Department and Democratic officials say new tax credits should bring jobs to the state. But one Republican state senator says the two-year spending plan is so foul it may prompt him to move to Texas.

“There’s good and bad in this budget,” said Jim Haney, president of Wisconsin Manufacturers and Commerce.

“But generally speaking, we are disappointed that the state is going to dramatically increase spending and raise a lot of new taxes while everyone in our world is tightening their belts and trying to get through this recession.

Still, Haney allowed, there are some provisions in the budget that WMC applauds as "movement in the right direction."

“There are some Act 255 enhancements that encourage investments by ‘angels,’ and other capital kinds of things that are good,” he said. “But the triggering date for most of them is 2011 and 2012 and a time for people to do mischief to them before they could go into effect.”

Unfortunately, Haney said, the message sent by this budget to investors “when you increase or double their exposure to capital gains tax in the state is not very positive and we’re disappointed with that.”

Tom Still, president of the Wisconsin Technology Council, noting the state’s projected deficit of more than $6 billion, said “this was a budget that tried to make the best out of a bad situation.

"Overall, I’d have to give it a B for a grade. And they deserve credit for getting it done on time for the first time since 1977.

He said the budget has items that could disappoint some members of the business community, but many others that are positive.

“On the distress side, Wisconsin moving from a 60 percent exclusion for capital gains taxes to a 30 percent exclusion sends the wrong message about the nature of that tax, but what it means to small business."

The Legislative Fiscal Bureau expects the change in the cap gains tax exemption to bring the state $115 million in 2009-10 and $127 million in 2010-11.

“Contrary to the belief of many, the capital gains tax is not just on wealthy people,” Still said. “It’s often a tax on small-business owners as they sell their property as they near retirement. It’s a tax on middle-class investors who are instrumental to our economic system.

“And finally, it is a tax on investment. Capital gains result from gains made on investments and to discourage that kind of activity is not a healthy thing,” he concluded.

But because of changes to Act 255 that allow 100 percent exclusion of capital gains if the money (up to $10 million) is invested in Wisconsin start-ups, Still said nascent Badger State companies could benefit from a part of the budget that most of the business community seems to despise.

“For many businesses in the tech sector, that may take some of the sting out of the overall exclusion change because you can still get a large exclusion in those Wisconsin start-ups,” added Still, who said the law goes into effect in 2011.

And he said he was pleased that that a provision that would have greatly increased the liability exposure of businesses was pulled from the budget.

“On the plus side, there were a variety of things that will over time help grow Wisconsin’s tech-based economy through targeted tax credits, investments in core research project and other incentives aimed at high-growth companies and entrepreneurs,” he said.

Still also lauded the governor for cutting by $1 million the tax break program that was credited for helping bring the Johnny Depp gangster film "Public Enemies," to Wisconsin. The Legislature wanted $1.5 million for the effort, but Doyle slashed the figure to $500,000.

Lee Sensenbrenner, a spokesman for Gov. Jim Doyle, said the budget contains “an amazing amount of tools to drive economic development. And that’s one of the things that really hasn’t been discussed that much.”

Regarding the change to the capital gains law, he stressed the 100 percent exclusion for investments in certain Wisconsin start-ups.

In addition, he noted a payroll tax refund and the expansion of enterprise zone tax credits as business boosters.

At Commerce, Executive Assistant Zach Brandon echoed Sensenbrenner and said the enterprise zone enhancements may well be the most important parts of the budget for the business community.

“The governor’s objective was to front-load the budget with economic development programs that help companies grow in what is a difficult economic time,” he said.

He said initiatives in the budget will strengthen manufacturing, agriculture and high-tech sectors, but will also Wisconsin help companies consolidate so they can grow when economy recovers.

He said the most powerful program deals with enterprise zones, which were focused on recruitment by providing incentives for new payroll. Now, he said it has been expanded to include a 7 percent refundable credit for retention for companies that are original equipment manufacturers or ones that have more than 500 employees.

Assembly Speaker Mike Sheridan, D-Janesville, said the budget’s main focus was job creation and economic development aimed at increasing “opportunities for Wisconsin business owners and workers.

“Our budget plan has increased funding for worker retraining programs at Wisconsin’s technical college system to $5.2 million,” he said.

“We are supporting businesses of all sizes with millions in grants and tax credits for research, development and innovation. We have established tax credits for companies that create or sustain jobs and invest in Wisconsin facilities."

But Sen. Ted Kanavas, R-Brookfield, wasn't buying any of it.

In a letter to constituents on his website, he labeled the spending plan “nothing short of a job killing, taxpayer harming, disaster of a budget, complete with billions of dollars in new taxes and fees” that will force companies to leave Wisconsin.

He wrote of a recent meeting with a Milwaukee-area business attorney who specifically mentioned "Doyle's budget" as the reason why two executives he knows are making plans to move their firms to the Texas, which Kanavas said has a much friendlier business climate.

“People have to take a long hard look at the policies being pursued in Madison and realize they just don’t work,” he wrote.

“Our state is going to experience a net out-migration of producers and a net in-migration of people who are more dependent on government. We are killing our economy and our future.

“If we don’t change and change soon, I may bump into my lawyer friend again, but it just might be in Texas," he said.


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