2015PRIORITIES

LEGISLATIVE

THE INDEPENDENT BUSINESS ASSOCIATION OF WISCONSIN

STATE & NATIONAL ISSUES

Despite enacting three property tax cuts totaling $1.6 billion and personal income tax reductions totaling $750 million since 2010, the State of Wisconsin was recently ranked 43rd by the Tax Foundation in its annual rankings of State-by-State Tax competitiveness. Wisconsin has consistently relied on a high top personal rate of 7.6%, corporate rate of 7.9% and higher than average property taxes. While Illinois has been the subject to much ridicule of late, Illinois actually has a more favorable tax climate (ranked 29th) than the State of Wisconsin. Wisconsin must continue on the path of aggressive tax reform just to keep pace with high tax

States within the region. With an aging population heading towards retirement, taxes such as property taxes are regressive on fixed incomes and a disincentive for people to maintain residences in Wisconsin.

Given relatively low national sales tax ranking (44th with an average sales tax of 5.44%), Wisconsin needs to consider creative ideas on how to create a more favorable blend of taxation in an effort to provide the quality services that the State of Wisconsin residents have come to expect in a more competitive fashion.

DOT Funding and Strategic Visioning The Wisconsin Department of Transportation (WisDot) has reached a funding crisis with a projected shortfall of $680 million for the 2016-2017 Biennial Budget. Secretary Gottleib has recently announced a proposal to include an additional $1.36 billion in funding that would be supported by an additional $750 million in taxes and user fees. The Secretary has floated proposals to close the gap that include; raising the gas tax, raising fees on new vehicles, fees for hybrid/electric cars, tolling, odometer reading, surcharge on diesel fuel, bonding, and transfer payments.

As an example of the challenges that the WisDot is facing, the Wisconsin gas tax was locked at $.33 per gallon in 2006 with no increases or indexing for inflation. As vehicles have become more fuel efficient, and people are driving less, State revenues from the gas tax have naturally declined. Site Selection Magazine recently ranked Transportation and Infrastructure as the Number 1 issue for a business in selecting a location.

The IBAW is a supporter of a modern and robust transportation system and indexing the fixed gas tax to inflation is a sensible consideration; however, several of the solutions being proposed by the Secretary only reinforce the current structural operations of WisDot.

Prior to embarking on an additional $1.36 billion in funding (a 10% increase from the most recent biennium), the IBAW believes that the State of Wisconsin needs to establish a list of key projects, emphasizing dedicating dollars for infrastructure critical for the flow of commerce while reducing or eliminating less critical operational expenses to such as the construction of a brand new headquarter facility in Madison.

Tax Reform

IBAW Legislative Team

Upper left: Jeff Hoffman, The Boerke Company

Middle: Charles Fry, RW Baird

Lower Left: Steve Kohlmann, IBAW

Since 1971, IBAW members have remained committed to being involved in the legislative process and broaden our members education and professional networking opportunities. IBAW continues to be an effective member-driven, grassroots voice in Madison and Washington D.C.,

working closely with state and national legislators on issues impacting small and independent businesses. 

The IBAW membership consists of companies in manufacturing, service, distribution, technology, healthcare, transportation, the financial and banking sector and consulting participate as IBAW members adding to our voice.

A statewide, non-profit association, IBAW members and sponsors employ thousands of Wisconsin workers.

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The State of Wisconsin derives (approximately 60%) its electricity from coal-fired power plants. The EPA has proceeded with implementing new source standards and proposed existing source standards that will arbitrarily aim to reduce carbon emissions by 30% in the U.S. by the year 2030. Due to Wisconsin’s heavy reliance on the usage of coal, the current version of the proposed rules could cost between $3.3 billion and $13.4 billion according to the Public Service Commission of Wisconsin. Energy Ventures Analysis has also released a study that estimates an increase of $485 per month for the average electrical bill per Wisconsin household by 2020.

On top of the tremendous impact to Wisconsin families, the increase in electricity rates could be devastating to

the global competitiveness of Wisconsin manufacturing. Wisconsin is a leader in the U.S. for manufacturing with 455,000 jobs and an annual output of $50 billion and energy consumption is one of the largest line item operating expenses for a manufacturer.

To stop overzealous interpretation of the Clean Air Act, Wisconsin should join in the D.C. Circuit Court of Appeals lawsuit with West Virginia, Alabama, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Carolina, South Dakota, and Wyoming.

State of Wisconsin Joining the Lawsuit against the EPA

Establishing Wisconsin as a RIGHT TO WORK State

Right to Work status is consistently ranked at the top of an expanding company’s list of priorities when evaluating a State’s business climate. Wisconsin is long overdue to become the 25th State to pass Right to Work legislation. Wisconsin will remain at a competitive disadvantage within the region as facts show that job growth follows in Right to Work States.

According to an analysis from the Labor Department, private employment grew 4.9% in right-to-work states (versus 3.9% in non-right-to-work states) from 2010-2012 and the trend in manufacturing was even more divergent. Employment in manufacturing grew 4.1% in right-to-work states compared with less than 3% in non-right to work states. In the same time frame, 809,000 residents moved into Right to Work states and conversely, 823,000 residents left states without Right to Work.

In addition to positively contributing to the business climate, personal choice and freedom is advanced. Private sector workers will now actually be able to make an individual choice as to whether or not they want to participate in the organizing union for a company.

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“...809,000 residents moved into Right to Work states and conversely, 823,000 residents left states without

Right to Work.”

“...proposed rules could cost between $3.3 billion and $13.4 billion..”

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Advancing Wisconsin Education & Workforce Development Reform

A paradigm shift is occurring in the demands of our state’s labor force. With over 64,000 jobs currently posted at the Job Center of Wisconsin website, there is clearly a disconnect between job seekers and job providers. In the past four years, the State has dedicated over $100 million in additional funding to workforce development and progress is being made. Moving forward, Wisconsin needs to continue to build on the foundation building upon the reforms that have been put in place. These ideas include: performance-based enforcement benchmarks to drive ongoing annual funding for individual programs; ensuring the Labor Market Information System is successfully launched; marketing the value of Wisconsin technical schools to high school students; and further expansion of the Department of Workforce Development’s Wisconsin Fast Forward program. While four-year degrees are a necessity for a dynamic economy, Wisconsin has an aging population that accounts for nearly 17% of its workforce in manufacturing. Without the development of a skilled technical workforce, Wisconsin employers will lose a key competitive advantage over the next decade based on sheer demographics.

Workforce development cannot occur without a fundamental knowledge base being developed within our students and the State must continue to push forward with education reform. Through Act 10, the State has implemented substantive reforms in the education system and ACT test scores have actually gone up since the passage of the legislation.

IBAW supports accelerating education reform by increasing access to voucher and charter schools, bending the cost curve of a four-year degree, having greater accountability and consequences for poor performing schools with the establishment of a grading system, and establishing greater collaboration with technical training programs, such as GPS partners.

The U.S. needs a robust economy to assist in providing a dynamic marketplace in which businesses and jobs are created and the middle class of America can grow. The IBAW supports an overhaul of the tax code in which overall rates are lowered and itemized deductions are either simplified or removed all together. Lower rates would attract more capital from abroad, encourage more domestic investment, and increase economic growth and jobs. It would also minimize the loopholes that lead to a misallocation of national resources.

Many small businesses operate as S-Corps or LLCs that pass through income to the individual and the individual business owner then re-invests his or her earnings back into the company. Considering an average State and Federal rate of 40%, the U.S. currently possesses the highest tax rate in the industrialized world. The U.S. is also one of the few countries in which taxation needs to even be paid on earnings that have already been taxed in foreign jurisdictions, an antiquated practice given the global economy and which has led to several tax inversion deals in which companies with headquarters in the US try to purchase a foreign business in an effort to relocate their corporate headquarters to a more favorable tax environment. The Tax Foundation has projected that the economy could grow an additional 1.5% per year and impact American wages by up to 10% over 10 years. This would mean an extra $5,000 in the pockets of families making the median income of $50,000 per year after 10 years.

There have been several plans that have been discussed over the past several years such as the Camp Plan and Ryan Plan that provide critical components to substantive tax reform. With the President and Congress having paid lip service to a bipartisan interest in addressing tax reform, it is time for action.

Pro Growth Tax Reform

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Photo credit: Google Images

A National Energy Policy Capitalizing on our StrengthsThe Fracking/Shale Oil and Gas Industry has been an economic miracle for the U.S. during a time of experts predicting an era of “peak oil.” At the end of 2014, an average gallon of gasoline has dropped $.51 in the past year to $2.74 per gallon. Goldman Sachs projects that this drop equates to a $75 billion tax cut over the past six months alone for U.S. consumers. To illustrate the profound breakthrough that fracking technology has produced, only 12 months ago the U.S. was projected to produce 700,000 barrels of oil in 2014. Actual production has surged to 1.2 million barrels, which has collapsed the pricing for a barrel of oil from the low $100’s to just under $60 in the past six months. The cost of natural gas has decreased nearly 60% over the past decade due to the abundant supply that has been discovered. This has allowed for U.S. businesses and consumers to realize $110 billion in lower energy costs. The Shale Revolution has positioned U.S. manufacturing to experience a renaissances era as we level the playing field with a cheap and abundant supply of oil and natural gas. The U.S. is on the cusp of true energy independence, yet we have not attempted to coalesce around a plan that embraces our abundant natural resources.

The IBAW supports the following to be incorporated in a sustainable energy policy:

• Approval of the Keystone XL Pipeline.

• Congressional checks and balances established for the EPA which roll back new source standards, existing source standards, and changes to ground level ozone limits.

• Revocation of Congress’s 2007 Renewable Fuels Mandate of 36 billion gallons by 2022.

• Enhancing incentives for Fracking and Shale Companies to improve industry research and technology and sustain development as OPEC attempts to drive U.S. producers out of business.

While mindful of the need for necessary environmental protections, the IBAW supports an “all of the above” comprehensive encompassing energy policy in which the United States reaches true energy independence by capitalizing on our natural strengths and resources.

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Limitations on Executive Action and Administrative RegulationsThe United States remains the most dynamic economy in the world for many reasons. However, the consistent upholding of rule of law and a court system which protects intellectual, and private property rights, is one of the fundamental underlying strengths of our economic freedoms. There has been a trend towards the strengthening of the executive branch through Executive Orders and agency heads crafting onerous administrative regulations that circumvent the legislative process. Recent decisions to re-craft provisions of the Affordable Care Act through Health and Human Services, Executive Orders on immigration policy, an EPA that is finding new interpretations to advance enforcement codes of the Clean Air Act, and the NLRB advancing re-writing labor laws are troubling trends that are undermining the foundation of predictability that our economic system depends on. Agencies have also been known to complete subjective studies that inflate the projected public health benefits while underestimating the dramatic effect that

stifling rule changes have on a dynamic economy. These practices need to be altered and significant rules that affect the economy should be subject to congressional approval.

The IBAW supports an environment in which key aspects of law are not subject to re-write, based upon the whims of an individual as this type of environment will continue to hinder entrepreneurialism in the U.S. While large corporations can afford the legal expertise to navigate through the uncertainty that this practice creates, small businesses are ill-equipped to combat an assertive federal agency that can fundamentally change a market overnight with the crafting of a new administrative enforcement guidelines and regulations.

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Sustainable Healthcare ReformThe full effects of the Affordable Care Act (ACA) are starting to work through the United States health care system. The IBAW has contended since the passage of the bill that the ACA was misguided, however given current political dynamics there needs to be a focus on incremental changes to truly bend the cost curve in medicine. Trends that are already playing out that small business need to be concerned about:

• Many private plans sold by the healthcare exchanges are coming with high out of pocket costs for deductibles and co-pays, plans for 2015 are projected to have an average deductible of $5,181 which is up from $5,081 in 2014. The Kaiser Family Foundation recently released a report that since 2009 the average deductible for private sponsored plans has increased 47%.

• “Obama Care” premiums have been kept somewhat in check by risk corridors and reinsurance being established for the insurance companies. Taxpayers are currently backstopping the insurance companies for spending more on higher risk customers and these programs both expire on January 1, 2017. Insurance consumers will then be paying for the increased risk pool.

• Plans that were considered noncompliant through the letter of the law of ACA were granted a waiver of additional requirements through January 1, 2017. This consumer group is estimated to be nearly 1.5 million policy holders.

• The U.S. Supreme Court will rule in the spring of 2015 about the intent of the letter of the law for consumers to receive federal tax credits. As acknowledged by several of the ACA architects, the law specifically provides that a State must have established its own exchange in order for the consumer to qualify for the federal tax credit. Currently thirty-six States do not meet this requirement. If the Supreme Court upholds the letter of the law, the consequences could lead to complete chaos in health care markets.

The IBAW supports that the following improvements should be considered for the ACA in 2015:

• Repeal of the Medical Device Tax.

• Changing the definition of a full time equivalent employee (FTE) from 30 hours of work per week to 40 hours of work per week.

• Allow States to opt out of the ACA requirements and create a system where consumers that do not have coverage provided by an employer can still qualify for federally funded tax credits if the plan is approved by the State.

• Allow States to enter into cross-State competition for insurance providers

Health care spending in the U.S. has hit 18% of the annual GDP and with the aging baby boomer population that is going to stress the health care system, continuous improvements to the ACA need to be achieved in order to remain globally competitive.

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"IBAW has been a terrific facilitator in providing the feedback I need from the business community in order to make changes to our tax code that support business expansion.  Wisconsin is a more business friendly

state because of IBAW and their members engagement."

- Rep. Dale Kooyenga, 14th Assembly District

Photos at right:

1: In Madison for the Tax Relief & Reform Roundtable with Lt. Gov. Kleefisch and Secretary of Revenue Chandler.

2: IBAW Executive Director Steve Kohlmann gives Senator Johnson Legislative Priorities for 2014.

3: Steve Kohlmann and Karen Kerrigan of the SBE Council meet in Washington D.C. discussing the latest bills being introduced.

4: IBAW leaders discuss the latest policy and regulation issues while in Washington D.C.

5: IBAW Board members receive a conference call from Karen Kerrigan of the SBE Council in Washington D.C.

6: Congressman Ryan poses with Steve & Sue Kohlmann during a legislative briefing during the 2014 Washington trip.

7: The IBAW support decal on the steps of the Nation’s Capitol.

Supporting a Free Market InternetUntil recently, the concept of an open Internet has been one of the few areas in which bipartisan agreement was achieved. A recent push via Executive Order will effectively transform the Internet into a public utility, which has created tremendous uncertainty over the future of a fast and free flowing internet. Much like the control levied over the electric utilities by governmental agencies, enacting “Net-Neutrality” would empower the FCC to establish pricing structure and approve or ban current and new digital content and offerings. The costs of the new regulations can be calculated both in tangible dollars in the form of a likely surtax on consumers, and as an intangible providing a disincentive for carriers to innovate and invest.

Proponents of Net Neutrality believe that if the internet is not reclassified as a public utility, leading Internet service providers will continue to grow and gain market share to the point where they will be able to charge exorbitant fees and control content in a monopolistic fashion. While consumer choice is limited, service providers need to position themselves to deliver the fastest product at the cheapest price or they will lose market share. The evolution of the speed of the technology and increased offering of services in the past five years alone is a testament to the market forces that are shaping the industry.

Reclassifying the Internet as a public utility could result in an average annualized increase between $67 and $72 in state and local fees and $17 in federal fees per household which will be passed onto the end consumer. In total, this is tantamount to a $17 billion tax increase on Internet users. The Internet has been a breeding ground of innovation since its inception, and a foundation of our economic freedom and prowess as a nation.

The IBAW is a strong proponent of keeping our Internet free and severely limiting the oversight of the FCC.

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