Walker’s Latest Corporate Tax Break: Massive Loophole or Empty Promise

MADISON, Wis. — Milwaukee County Executive Scott Walker, as part of his three-page agenda, has called for making “Wisconsin a highly attractive place to start a business by eliminating corporate taxes for the first two years of operation.” Analysis by One Wisconsin Now shows the plan would either be a budget-busting corporate loophole or would apply to few, if any businesses.

“Once again, Scott Walker offers talking points, but no real solutions to create jobs in Wisconsin,” said Scot Ross, One Wisconsin Now Executive Director. “Scott Walker already has a $7-billion hole to fill because of the $3-billion deficit and his $4-billion in tax breaks to the rich and big business, and now he offers sound-bites masquerading as policy proposals.”

The analysis by One Wisconsin Now, based on Walker’s “plan,” featured on his website and reiterated in statements and the recent gubernatorial debate, shows the following:

• Walker’s two-year corporate tax holiday is either hopelessly expensive because it eliminates so many taxes, or utterly irrelevant because it eliminates virtually no taxes.
• If Walker is talking about “corporate” taxes, his proposal would not apply to any business structured as a partnership, or a sole proprietorship, or an LLC, or even an S-corporation, all of which pay taxes through the individual income tax and not the corporate tax. Therefore, Walker’s “plan” sounds grand, but its scope is actually quite narrow. Only a small number of true start-ups are structured as regular corporations subject to the corporate income tax.
• If Walker’s “plan” is truly aimed at startups, few of them make money during their first two years, so they would have no income tax to pay under the current system. In fact, under the current system they are able to use losses in the first two years to offset profits in subsequent years. If Walker’s proposal exempts them from taxes it might very well eliminate their ability to carry these losses forward. This means Walker’s “plan” would actually cost the companies money when they do start being profitable.
• If Walker’s “plan” is actually broader than just true startup – for example, it includes new operations in the state set up by existing firms — then it opens an enormous loophole for profitable companies simply to re-incorporate every two years in order to enjoy a perpetual tax exemption. Given that the corporate income tax brings in well over a half-billion dollars a year, Walker’s loophole would be devastating to state finances.

Walker has recently offered additional business tax break plans, while providing neither a cost amount, nor a mechanism to pay for them, including one to cut manufacturing taxes and reducing small business taxes by 20 percent. [Milwaukee Journal Sentinel, 9/20/10, 11/2/09]

“Scott Walker will say anything to get elected and this proposed corporate tax break is a grand-sounding idea with absolutely no meaningful content,” said Ross. “Unless Walker’s real intention is to open up the biggest corporate loophole in Wisconsin history and bankrupt the state.”

More information about Scott Walker’s record of mismanagement and the disastrous results can be found at www.ScottWalkerFailureFiles.com.