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Construction industry needs voice in tax talks

Jerry Deschane is the president and owner of Deschane Communications LLC, a lobbying, consulting and communications firm specializing in the construction industry.

All the political signs are pointing toward a major rejiggering of state and local taxes in 2015.

Gov. Scott Walker has pledged to keep property taxes flat through 2018 and drop them if possible. Lt. Gov. Rebecca Kleefisch has been on a town hall road trip, asking businesspeople how the state can boost the economy by reducing or eliminating the income or property tax.

If Walker wins re-election, count on a major tax change as the centerpiece of his 2015-17 state budget. Even if he is not re-elected, the topic still is relevant. Big ideas, especially tax breaks, tend to develop their own momentum.

But the construction industry needs to be an active participant in the discussion. Inevitably, when legislators debate tax changes, someone brings up the idea of charging a sales tax for construction labor.

Why? Because that would raise a lot of money, and legislators and bank robbers are driven by the same motivation: Go where the money is.

Wisconsin charges sales taxes on most goods but only a few services. Construction is the largest “service” that is exempt from sales taxation. Construction labor alone would generate about $500 million annually in sales tax revenue. That’s real money.

But is construction labor really exempt from taxes? Workers pay income taxes. In Wisconsin, they pay about $6 of state income taxes for $100 in wages. Add to that about $12 in federal income taxes and another $7 for Social Security and Medicare. That’s $25 off the top, and it doesn’t stop there.

Employers pay taxes that workers never see on their pay stubs. First, there’s the employer contribution of 6.2 percent for Social Security and another 1.45 percent for Medicare. Unemployment compensation adds another 3.6 percent on the first $14,000 of pay. Oops, no, that’s wrong. All industries except construction pay 3.6 percent. Construction, which has more unemployment than other industries, pays 6.6 percent.

And then there is workers’ compensation insurance. I realize it is insurance and not a tax, but it is required by law, and government establishes the rates. That’s close enough.

Once again, the sometimes-dangerous construction industry pays on average twice what other employers pay. Workers’ compensation varies by trade, with roofing contractors paying as much as 35 percent. A good average is 8 percent.

Adding it all up, $100 worth of construction labor is paying $43 in taxes.

I’m all for tax changes because Wisconsin needs an economic game changer. Property taxes are too high. Income taxes are too high. There’s room to negotiate sales taxes. The whole system should be rebalanced.

But before we go too far down the road of “broadening the sales tax base,” let’s be careful. The goal of any tax change is job creation, and it would be hard to persuade employers to create jobs when every dollar in wages costs another 50 cents in taxes.

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