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Wisconsin Legislature passes tax cut (UPDATE)

Associated Press

MADISON, Wis. (AP) — The Republican-controlled Legislature passed another tax cut on Tuesday, a day after Gov. Scott Walker warned that the state’s budget is in such bad shape that emergency cuts may be needed in order to make it balance this year.

Walker and the Legislature are moving ahead with the tax cut bills even though they will only deepen the shortfall expected to be $3 billion by mid-2013. Walker hasn’t released any details about how he intends to come up with the money to pay for the tax breaks, which he argues are necessary to send a bold statement that Wisconsin is a more welcoming place for businesses.

The governor said Monday that the state’s budget for the current fiscal year, which ends in five months, was so bad that immediate action was needed. He said more details about how big that deficit was and how he will deal with it would be revealed later this week or next week.

While lawmakers awaited direction on that, they were planning to move ahead with the tax cut bills, which don’t start affecting the state’s bottom line until next year. Two of the proposals approved by the Senate on bipartisan votes and sent to Walker wouldn’t make the state’s budget woes much worse.

One, at a $1 million cost over two years, would essentially forgive state corporate and personal income taxes on companies that relocate to Wisconsin from elsewhere. The tax break would be good for two years and would only apply to companies that hadn’t operated in Wisconsin within the previous two years, starting this calendar year.

Democratic critics derided the measure as a token gesture that will do nothing to create jobs.

“This is nothing more than a tax cut to a few businesses that’s so small it’s insignificant,” said Sen. Bob Jauch, D-Poplar. “It is empty symbolism, nothing more.”

Senate Majority Leader Sen. Scott Fitzgerald, R-Juneau, said the bill was part of a larger Walker strategy to improve the economy and fix the budget.

“These bills fit into a bigger picture that the governor’s developing and it’s going to be tough,” Fitzgerald said. “It’s going to be a tough budget.”

The tax cut bill passed 24-9, with five Democrats joining 19 Republicans in support.

The other measure, which passed 25-8, would raise the amount of money available in an economic development tax incentive program by $25 million, but that money isn’t expected to be tapped over the next two years. Democrats tried unsuccessfully to put the money into another existing tax credit program so it could be used immediately.

Both bills passed the Assembly last week and now go to Walker who has said he will sign them into law. On Monday, he signed his first bill — a measure that eliminates state income taxes on health savings accounts, which costs $49 million over two years.

A more costly Walker proposal was being taken up in the Legislature for the first time on Tuesday. The bill before the Assembly would extend tax breaks to companies for every new job they create, at a two-year cost of $67 million.

The benefits, which come in the form of a tax deduction for each new job, would be worth between $92 and $316 per job, based on the size of the company and its tax bracket. Democrats have called the incentive a “farce” that won’t be generous enough to spur any new job creation.

The proposal has undergone several changes since Walker promised on the campaign trail to pass a tax break for companies with fewer than 50 employees. The bill before the Assembly bases the size of the tax deduction on whether a company has gross receipts of more or less than $5 million a year.

The Assembly is also scheduled to vote on a Walker bill that would require a two-thirds majority vote in the Legislature to raise sales or income taxes. That means if all members were present it would take 66 votes instead of 50 in the Assembly and 22 votes instead of 17 in the Senate.

Some Republicans want to go a step further and put the higher vote requirement in the state constitution, a move that would take years to accomplish and require approval by a majority of voters.

Democrats argue it’s unwise to make it so hard to raise taxes, especially in tough budget times when such a move may be necessary.

The state’s 5 percent sales tax rate hasn’t increased since 1982. The 7.9 percent corporate income tax rate hasn’t gone up since it was created in 1981. Individual income tax rates vary based on income, with the highest 7.75 percent rate added in 2009.

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