Assembly Republicans unveil sweeping transportation funding, tax policy proposal

By Jessie Opoien, The Capital Times 

A multi-pronged Republican proposal to fund Wisconsin's roads would cut the state's gas tax and apply a sales tax, reduce the minimum markup on fuel and put the state on track for a flat 4 percent income tax.

Rep. Dale Kooyenga, R-Brookfield, released the details of his plan on Thursday with the backing of Republican members of the state Assembly. Assembly Speaker Robin Vos, R-Rochester, emphasized that the proposal is a "starting point, not an ending point" that he hopes will be met with openness by state senators and Gov. Scott Walker.

"We want to solve this problem by leaving all options on the table to make sure we have a comprehensive plan that moves the ball down the field," Vos told reporters.

The proposal would cut the state's gas tax by 5 cents per gallon while applying the state's 5 percent sales tax to fuel.

Applying the sales tax to gasoline would result in $300 million per year in additional revenue, according to the plan. That money would go toward reducing the level of borrowing from the $500 million initially proposed by Walker. The bonding reduction would save taxpayers an estimated $150 million over the course of a typical financing period, said Kooyenga, a member of the Joint Finance Committee.

"It puts more tax on the item, but it’s not a tax increase," Kooyenga said of the adjustment to gas pricing, arguing the plan eliminates a loophole exempting fuel from the sales tax. "We’re lowering the gas tax and now there’s no longer an exemption for sales taxes."

The plan would cut the minimum markup on gasoline down from just over 9 percent to 3 percent. Under current law, certain products, including gasoline, are required to be sold at a percentage above cost. That change would help offset any price changes for consumers made by the sales tax application, Kooyenga said.

Owners of hybrid vehicles would pay an additional registration fee of $30 per year, while owners of electric vehicles would pay $125 per year. Limits would be placed on local governments' ability to enact a wheel tax.

"We believe this is a solid step in the right direction that is neutral to the taxpayer but solves the long-term sustainability problems we’ve been seeing in our transportation funding," said Joint Finance Committee co-chairman Rep. John Nygren, R-Marinette.

Compared to the governor's budget proposal, the proposed changes to transportation funding would increase general fund revenue in the 2017-19 biennium by $124.4 million and increase transportation fund revenue by an estimated $314 million over the same time period, according to the nonpartisan Legislative Fiscal Bureau.

All told, the proposal includes a minimum of $450 million in tax cuts, Kooyenga said. The plan makes sweeping changes to the state's tax code, all of which Kooyenga said align with his party's conservative principles.

One of the most substantial changes is a gradual adjustment to the state's income tax, culminating in a flat 3.95 percent rate for all taxpayers in 2029. Current law places taxpayers in four brackets, with rates ranging from 4 percent for the lowest earners to 7.65 percent for the highest earners.

Democrats say that amounts to a tax break for the state's wealthiest residents.

Joint Finance member Sen. Jon Erpenbach, D-Middleton, said Assembly Republicans are using the transportation crisis to introduce conservative income tax policy, arguing a flat tax has "nothing to do with transportation."

"The second you talk about cutting income taxes and getting to a flat tax, what will happen is our schools will end up starving, our social programs will end up starving," Erpenbach said.

Kooyenga argued a flat tax would make the state more competitive and encourage more people to live and work in Wisconsin.

The state's 6.5 percent alternative minimum tax, which applies to a small percent of the state's highest earners, would be repealed, along with the working families credit, which applies to taxpayers earning less than $10,000 per year. The current general exclusion for capital gains income would also be eliminated, along with credits for renters, married couples and taxes paid to other states.

According to a Legislative Fiscal Bureau memo, the tax changes would increase the balance of the state's general fund by $15.4 million over the 2017-19 biennium, compared to the governor's budget.

The proposal includes several policy changes, including granting priority to transportation projects where at least 10 percent of the cost would be covered by the private sector and eliminating 180 Department of Transportation engineer positions in favor of working with private-sector engineers.

It would also allow the state to consider establishing tolls with approval from the federal government.

Under the plan, prevailing wage requirements, which set minimum pay requirements for construction workers on public projects, would be completely eliminated. Democrats have been critical of this proposal, which they say would lead to lower wages and unsafe work conditions.

"Instead of focusing on a solution, Republicans have proposed even more ways to make workers and businesses pay for their lack of leadership," said Joint Finance member Rep. Katrina Shankland, D-Stevens Point, in a statement.

Shankland and Assembly Minority Leader Peter Barca, D-Kenosha, urged Republicans to bring their colleagues in the minority party to the table for discussions. Barca said the plan doesn't get elected officials any closer to a solution to the state's transportation woes.

The proposal is full of "complete non-starters for Democrats" and "leads us to more gravel roads and less sustainable transportation," Barca said.

Kooyenga said he was disappointed Democrats were immediately critical of the proposal. Vos said if the minority party offered their own proposal, Republicans would look at it and be willing to consider adding elements to the final plan.

Erpenbach said Democratic members of the budget-writing committee don't have a shared position, but he would personally support a 5 cent gas tax increase, along with indexing the tax to correspond with inflation, to "solve our problems in the short-term and give us enough time to come up with a long-term solution."

Senate Majority Leader Scott Fitzgerald, R-Juneau, said the plan includes "a number of good ideas that are worth a closer look."

"I plan to review the proposal in its entirety to determine how closely it reflects Senate transportation priorities as discussions on infrastructure funding continue," Fitzgerald said in a statement.

Meanwhile, Sen. Steve Nass, R-Whitewater, said the proposal would increase gasoline costs for consumers and increase the tax burden for the middle class.

"I can’t support adding the state sales tax on gasoline and won’t support any budget that increases state income taxes on middle class families," Nass said in a statement.

The Republican-led Joint Finance Committee dropped Walker's transportation proposal from the 2017-19 budget last month, signaling the committee would essentially build its own proposal from a blank slate. Transportation funding looms as one of the budget's most pressing issues.

Walker's $76.1 billion budget would have allocated about $6.1 billion for transportation funding, including a $40 million increase in general transportation aids to counties and municipalities. The proposal included $500 million in borrowing.

A Walker spokeswoman did not immediately respond to a request for comment on the proposal. The governor was noncommittal when asked on Tuesday about details from the plan released earlier this week.

"Obviously I've made it consistent from day one that I didn't think we needed to raise the gas tax or the vehicle registration fee, and I remain consistent to that. We'll see what's ultimately in there in the proposal," Walker told reporters on Tuesday.

Asked whether there are any provisions that must remain intact in order to make the plan effective, Kooyenga said he has priorities in mind, but won't "draw a line in the sand."