Like the federal tax code, Wisconsin’s tax laws are filled with exclusions, exemptions, deductions, and credits. Once passed into law, they are often forgotten by lawmakers. Yet, these “tax expenditures” have a variety of impacts, such as shifting the tax burden and putting upward pressure on tax rates. They also have a tax “cost” that is reported biennially in a little-read state publication “Tax Exemption Devices.”
Imagine two state spending programs—one examined critically every other year at budget time, the other routinely continued year after year. Impossible, you say? Then consider a simple example involving legislators eager to boost the number of nurses in their state.
The lawmakers have two options. They can give each resident nursing student an $5,000 tuition scholarship. Or, they can create a $5,000 refundable credit that nursing students could claim on their state income tax.
The two proposals have the same goal, help the same people, and devote the same amount of money to encourage aspiring nurses.
But, as an expenditure of tax dollars, the scholarship approach would be scrutinized every time a state budget was considered; its value would be weighed against other state priorities. The tax credit approach would be “costed out” and debated before enactment, but then largely forgotten, except by nursing students.
Welcome to the little known, little considered world of “tax expenditures.” The nursing example helps explain the term. While the scholarship clearly requires spending of tax dollars, the tax credit accomplishes the same goal through a targeted tax cut—hence the term “tax expenditure.”