Report: Tax hike would cost jobs
9:49 PM 1/20/03
Todd Richmond Associated Press

Increases in state sales or income taxes to repair Wisconsin's budget deficit would force thousands of people out of work, according to a study released today.

The Wisconsin Policy Research Institute report assumes a $1.6 billion deficit in the first year of the 2003-05 budget. An increase in the state sales tax to fill the hole would cost more than 50,000 people their jobs, the study said. An increase in the income tax to fill the deficit would put about 84,000 people out of work.

Gov. Jim Doyle has pledged repeatedly not to raise taxes to solve the deficit. The governor so far has asked his Cabinet secretaries to revise their agencies' budget requests to ask for less taxpayer money than in the previous state budget.

He also has ordered agencies to cut $7 million in salary budgets and suspend building projects.

Doyle stuck to his no-tax increase promise Monday.

"We're not in this mess because the taxpayers haven't done their fair share," Doyle said.

State analysts have said Wisconsin faces a $2.6 billion deficit in the 2003-05 budget because spending commitments have outpaced revenue. Doyle has said that number is based on overly optimistic revenue estimates and the deficit is closer to $4.3 billion.

The institute used computer simulations at Suffolk University in Boston to predict the effects of raising both the sales and income tax to fill a $1.6 billion hole in the budget's first year.

If lawmakers raised the sales tax from 5 percent to 7.4 percent, the state would bring in $1.6 billion in additional revenue in the first budget year, enough to fill the deficit, the study found.

But the sales tax increase also would cost 55,514 jobs as it drains money from the economy, said economist David Tuerck, who led the simulation. Employers wouldn't be able to meet demands for wage increases to compensate for the tax increase, the cost of living would increase and goods would become more expensive, he said.

Disposable income would decrease by 0.5 percent per person, the study said. Investment would drop by $465 million.

In the second scenario, personal income taxes would have to rise by 2 percentage points to generate an additional $1.6 billion in revenue, the study said.

Workers again would demand higher raises and employers couldn't meet them, resulting in the loss of 84,015 jobs.

"Employers will kill those jobs rather than pay that price," Tuerck said.

Each person's disposable income would drop about 0.6 percent and investment would decrease by about $509 million, the study said.

The conservative, nonprofit Wisconsin Policy Research Institute, Thiensville, studies public policy issues.