The centerpiece of this budget is a fundamental restructuring of how we tax our citizens and corporations so we fortify our state for the journey into the 21st century.
But as we go forth, we must remind ourselves about the appropriate role of government in our society, for this gets at the heart of balancing the goals of lowering taxes while providing services that our citizens expect.
During the past decade, we worked hard together to change how government works in Wisconsin.
State government no longer plays the role of the domineering big brother, but that of a limited partner – subservient to the people; helping us help ourselves; embracing the belief that the people always know best.
Therefore, as we move forward into the next century, we must remain true to our principles of a limited government and the unlimited potential of our people.
Perhaps these principles were articulated most clearly by our friend, Ronald Reagan, who celebrated his 88th birthday this month. I want to share with you a quote from President Reagan that captures the essence of our government philosophy. It ends with three powerful words we must never forget:
"We who live in free market societies believe that growth, prosperity and ultimately human fulfillment are created from the bottom up, not the government down. … Trust the people."
Indeed, this budget trusts the people – putting more power in their hands and more money in their pockets.
And this budget provides the right balance in meeting our priorities of cutting taxes and government as well as the basic demands for services and protection by our people.
As I hand this budget off to this august body of legislators, keep in mind that striking this balance and governing responsibly means we must acknowledge certain realities. Such as:
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We cannot call for tax cuts of any sort while advocating for expanding the role of state government and substantially increasing state spending.
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We cannot pass strong legislation that protects our personal freedoms by taking criminals off our streets and making them serve their full sentences, then criticize the growth of our corrections department and its effect on our state budget.
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We cannot talk seriously about cutting property taxes, then call for the removal of spending caps and cost controls on public schools.
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And we cannot talk about further reductions in property taxes – which I remind everyone is a local tax not a state tax – without also talking about further controls on local spending.
We can all take pride that Wisconsin operates one of the leanest, most efficient state governments in America. State government delivers a remarkable bang for the taxpayers buck -- doing more with less through efficient operations and cutting-edge technology.
The numbers speak for themselves:
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The size of Wisconsin state government is the third smallest in America in terms of total employees and the fourth smallest when you just consider full-time positions. Let me repeat – we have the third smallest bureaucracy in the nation. In fact, we would have to hire nearly 14,000 full-time workers just to hit the national average. This is a dramatic improvement from 1987 when we ranked 18th and were above the national average.
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When it comes to state spending per capita, we're the 14th smallest government in America – again, well below the national average and an improvement of ten spots from 1987.
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Of our state spending, most of it goes back to local government for property tax relief and local services. Sixty-one cents on every dollar the state collects is given to local government. In fact, the state only spends 23 cents of every dollar on its own operations.
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And in the last four years, we cut state agencies by 10 percent when you appropriately exclude the department of corrections and the UW System. The growth in those two agencies comes from meeting two high priorities of our people and this Legislature – keeping our streets safe and our children well-educated.
The budget I present to you today makes permanent those 10 percent reductions to the base of those agencies and improves the fiscal management of state government. To keep our high AA+ bond rating, as well as work toward a AAA rating, we must keep any increases in bonding to 3.5 percent or less. And we should increase the state's 1 percent budget balance to 1.1 percent this biennium and 2 percent by 2002.
Ladies and gentlemen, this is a fiscally conservative and responsible budget that prepares Wisconsin for the 21st century.
And I would gently remind my friends in this chamber that this is the seventh biennial budget I am presenting to the Legislature -- each has included a tax cut and each has come back to me with higher spending than I sent to you.
Wisconsin state government is lean and clean. And it's because of our hard work and determination in transforming Wisconsin into a state that serves its people.
Taxes
Together, in this chamber, we have cut taxes 87 times during the past 12 years, saving taxpayers a remarkable $8 billion.
We reduced income tax rates from 7.9 percent to 6.77 percent, eliminated the gift and inheritance taxes, and remained the only state with a 60 percent capital gains exemption.
We completely eliminated taxes for our poorest citizens, ended the foolish marriage penalty, and indexed our tax brackets.
And thanks to cost controls and two-thirds funding of local schools, we reduced property taxes by $1.2 billion – the only state in America to provide such a dramatic cut without raising other taxes to pay for it.
And last year, we exempted computers and related equipment from the personal property tax – making sure the jobs of tomorrow grow right here in Wisconsin.
Thanks to our aggressive tax-cutting ways, the average Wisconsin family is paying $5,600 less in taxes today. That's real money in the pocketbooks of our families.
Today, the state and local tax burden on our citizens is at its lowest level in 18 years based on ability to pay – since the year President Reagan took the oath of office.
But there is much more work to do. We must build upon our belief that people can spend their money more wisely than government can. The principle that less produces more when it comes to taxes and revenue.
So today, we say loud and clear to the people of Wisconsin: "It's your money. Keep it."
No more backhanded ways at tax relief – taking too much money from the paychecks of our workers then returning a portion in April through a plethora of confusing tax credits and deductions.
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From now on, we're just not going to take it from you in the first place.
We're going to fundamentally change the way we raise revenue in this state through our tax system. It's going to be simpler, fairer and lower. A system that trusts the people.
Here's how our Trust the People Tax Plan works:
Simpler
We start by making our tax system simpler. The average Wisconsin family should be able to do their own taxes without having to hire an accountant.
Therefore, we're going to take the school property tax rent credit, the dependent credit, the working families credit, the elderly credit and an assortment of miscellaneous deductions and roll them into one new personal tax exemption worth $700 for each taxpayer, spouse and dependent. In other words, a family of four would receive a new and simple $2,800 deduction.
Seniors would receive an additional $250 as part of their exemption for a total of $950.
And the Department of Revenue is going to produce a new state income tax form that makes it easier for people to understand and file their returns.
The result will be a much simpler and less confusing system.
Fairer
Next we make the system more fair.
From Washington, D.C., to Washington state, everyone talks about cutting taxes for the middle class. Unfortunately, no one's ever really done it in a simple, constructive manner.
Until today.
Our tax cuts are going right smack to the middle. Here's how:
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We create a fourth bracket at $150,000 so that we can redirect most of the money for tax cuts to middle- and lower-income families.
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We federalize the standard deduction and raise those eligible for it to $80,150 for couples – pouring money right into the heart of the middle-class.
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Then we increase the standard deduction by nearly $4,000 for couples and $2,000 for individuals, further helping the middle-class.
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And finally, we raise the maximum married couple credit from $385 to $480 to provide greater assistance to our lower-income couples.
These changes will put in place a more fair and progressive tax structure so that all future tax cuts go directly to the people who need them most.
Lower
And then we cut the rates -- for each and every taxpayer in Wisconsin.
We cut tax rates from 6.77 to 6.75 for the new top bracket and 6.50 for the new main bracket.
And the two bottom brackets would drop to 6.15 and 4.60, respectively.
In all, we slice income taxes by $300 million and give the average taxpayer a 5.2 percent tax cut. This plan puts us well beyond our promise to cut taxes 10 percent by 2002.
And it pours a remarkable 95 percent of the money into reducing taxes for families earning less than $75,000.
Finale
What does this all add up to for Wisconsin families? The largest income tax cut directed at the middle-class in our state's history.
As you can see, the tax relief flows right to the middle. The greatest number of filers in Wisconsin fall between $30,000 and $50,000 – and they reap the greatest rewards.
Real relief for real families like the ones joining us today. Please help me welcome three families who put a face on the need to cut taxes.
Marty and Julie Yeager represent the greatest percentage of filers in Wisconsin, those with earnings in the 50s. They will see a $225 tax cut.
And we welcome the John and Fran Rudig family of Wauwatosa and the Mike and Marty Hussey family of Columbus. Each family works hard for earnings in the 40s. They and other families in this income range will reap the biggest benefit -- a $332 tax cut. This represents a 15 percent decrease in their tax liability as a percent of their income.
We promised our families a middle-class tax cut. Today, we deliver. Let's get it passed together.
And we're not done cutting tax rates. While this plan puts us ahead of pace to meet our promise of cutting the main rate to 6.28 by 2002, it remains my goal to push that rate below 6 percent. Doing so means that the first draw on any new revenue generated by economic growth must go back to the taxpayers through deeper cuts.
Let's continue to make sure our taxpayers profit the most from our strong economy.
We seek to spur greater economic growth not just by restructuring our income tax system but our corporate tax system. We must make Wisconsin more competitive with its industrial Midwest peers by moving to combined reporting with sales as the single factor to apportion corporate income taxes.
Our neighboring states already use these systems in some form. And our intention to switch to single factor already is paying dividends by the decision of Rockwell to move its corporate headquarters to Milwaukee. Surely, more companies will follow and that means more jobs.
Let's also spur business development by further whittling personal property taxes. My budget proposes a $12 million property tax exemption for ATMs, cash registers, fax machines and copiers – the basic tools of business and commerce.
Make no mistake about it – Wisconsin is the state where companies are coming to grow and prosper. We've gone from the state that lost Kimberly Clark to Texas to the state that lured Rockwell away from California and Illinois. And it's because of our unwavering commitment to cut taxes and government red tape.
While our tax policies are providing families with good-paying jobs, they're also helping them buy homes and stay in them.
Although property taxes are a local tax, the state can still take steps to further help control and cut them. So let's:
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Add $12 million to the Homestead tax credit.
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Maintain our commitment to funding two-thirds of public schools, cost controls, and assistance to local governments through shared revenue.
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And pass the constitutional amendment on April's ballot that will direct the lottery credit solely to Wisconsin homeowners.
So there you have it – the most fundamental and dramatic restructuring of our tax system in generations. Simpler, Fairer, and most of all, Lower.
This tax reformation etches in stone our state's abiding faith in its people. It invests in our future by trusting the people to build a stronger society in the frontiers of possibility.
Agriculture
For good reason, we have made farmers among the greatest benefactors of our tax cuts through the years. Fortifying the state's economic base for the next century includes strengthening our bread and butter – agriculture.
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Therefore, we should replace an outdated Farmland Preservation program with a new initiative that ties tax relief directly to sound conservation practices.
The old system was largely based on property tax rates. But since we've reduced taxes on farmland, the value of the credit has diminished. Our plan creates a new $35 million Conservation Tax Credit program which provides participating farmers an average tax break of $625.
This plan achieves two very important goals: keeping valuable farmland in production and providing important property tax relief for farmers.
Today, record crops are being harvested, farmland values are up, and our proud dairy farmers experienced record high milk prices last year…while corporate farms in California stumbled.
Quality, it seems, does count for something.
Wisconsin farmers produce the highest quality products in the world and we must make sure they are on every store shelf and dining room table from Stevens Point to San Francisco to Singapore.
Therefore, we should provide the International Agricultural Exports Initiative with $300,000 to market our products abroad, opening new opportunities for our farmers in the global marketplace. Our farmers deserve it.
