Reality Check: Walker’s Plan For Small Business Tax Cuts

This We the People Wisconsin Fact Finder report question comes from Friday night’s gubernatorial debate between Republican Scott Walker and Democrat Tom Barrett.

Donna from Adams sent in a question, asking: “I heard Scott Walker state that owners of small businesses file personal, not corporate, taxes. Is that true? Are his tax cuts really incentives to small businesses?”

Walker said cutting taxes on small businesses can help create jobs in the state but that he’d have to create a new tax provision in Wisconsin to do it.

“Right now, small businesses and owners, the vast majority of them pay individual income taxes, not corporate income taxes in this state,” said Walker during the debate. “By giving those small businesses with 50 employees or under a tax break, you’ll be giving them a tax incentive to put more money back into the work force.”

A WISC-TV analysis found that this needs clarification.

Many small businesses in the state do in fact file income taxes, not corporate taxes, in the form of sole proprietorships, WISC-TV reported. How many have fewer than 50 employees is impossible to know because there’s no place to note that on the tax form.

Walker would like to create a provision on the tax form for number of employees, and for those business owners with fewer than 50 employees, he wants to cut the tax rate on the business part of their income by 1 percentage point.

In Wisconsin, most “sole proprietorships” fall into the lowest or the middle tax bracket, where they’re taxed at either 4.6 percent or 6.5 percent, WISC-TV reported.

WISC-TV found that cutting the lowest tax bracket to 3.6 percent would only save those business owners who make less than $14,000 up to a few hundred dollars.

For those in the middle bracket, a 1 percent cut could save up to $2,000, so it’s questionable as to whether that would motivate someone to create a new job, WISC-TV reported.

Andrew Reschovsky, a public affairs and economics professor, said the net effect of the proposal isn’t simply job creation, but that loss of revenue to the state and those effects would have to be considered. He added that many businesses may not create any jobs and simply keep the money or spend it on other things.

Editor’s note: Since the original publication of this story on Sept. 28, We the People/Wisconsin has learned that UW Public Affairs and Economics Professor Andrew Reschovsky donated $150 to Tom Barrett’s campaign in June 2010.