State could lose millions under Bush tax plan
7:54 PM 1/09/03
Associated Press

Wisconsin stands to lose more than $100 million a year if it follows President Bush's plan to boost the nation's economy by eliminating taxes on stock dividends, state analysts said Thursday.

Bush's plan calls for eliminating federal taxes on stock dividends, which also are subject to state taxes.

Historically, states have reworked their tax codes to conform with federal codes and to reduce confusion for tax filers.

If Wisconsin follows suit, it could lose $106 million in tax revenue a year as it wrestles with a projected $2.6 billion deficit in its next budget, said Diane Hardt, state Income, Sales and Excise Tax Division administrator.

Wisconsin faces a dilemma if Bush's plan passes, said Todd Berry, president of the Wisconsin Taxpayers Alliance.

"If Wisconsin were to go along, it certainly puts more pressure on the budget," he said.

But if it doesn't, the state would create confusion for taxpayers at filing time because people would need to list dividends on state forms but not on federal forms, he said.

Corporations may stop sending end-of-the-year dividend totals to stockholders because they wouldn't have to send them to the Internal Revenue Service.

"Two headaches result," Berry said. "One for the individual because they no longer have state and federal laws in sync. They're confused when they fill out the state form. And second, even if they can figure out what to do, they may not know what their dividends are."

State officials also are cringing about the effect a lack of dividend taxes could have on bonding, a mechanism many states use for projects such as road or building construction. Some analysts believe eliminating federal taxes on dividends would make stocks so attractive to investors they would shy away from bonds.

States may be forced to offer higher returns on bonds to attract investors, which would also affect Wisconsin's budget, said Frank Hoadley, state capital finance director.