Just Fix It Wisconsin

William L. Holahan and Charles O. Kroncke: Higher gas tax wouldn’t violate Scott Walker’s ‘no new tax’ pledge 8/26/2016

8/26/2016, The Cap Times – Wisconsin is growing relatively slowly, ranking 32nd in new jobs compared to 10th for Michigan and 20th for Minnesota. We are 50th in new business start-ups, and our poverty rate is at a 30-year high. Last year the state Department of Workforce Development received more than 10,000 layoff notices.

To improve Wisconsin’s economic climate, it is crucial that pro-growth investments be made, especially in our transportation infrastructure and the UW System.

It is imperative that our roads be in good working order and that the UW System’s reputation for excellence remain unquestioned. At present, our roads are in very poor condition, among the worst in the nation, contributing to congested traffic, productivity loss, and costly car repairs. On July 27, Patrick Marley of the Milwaukee Journal Sentinel reported a two-year funding gap of nearly $1 billion in the state’s transportation funding needs.

Meanwhile, just as roads have deteriorated due to deferred maintenance and repair, the UW System — the key Wisconsin source for the high-tech talent desired by so many leading-edge employers — has experienced severe budget cuts since the year 2000. The combination of these cuts and election-conscious “tuition freezes” threatens the competitive position of the university in faculty hiring and in continued quality and variety of its educational offerings. These efforts to limit costs to students are backfiring: The cuts and tuition freezes are actually raising costs for some students who take longer to graduate because essential courses are offered less frequently.

Disinvestment in these two vital areas is the result of poor decision-making, especially in the choice of appropriate taxes and in the amount of new indebtedness. The governor’s insistence on bond financing for roads and his obstinate refusal to raise the gas tax (a user charge) weaken efforts to improve the state’s economy. User-charge financing frees up tax dollars for investment in those state functions that must be financed with more general taxes: Raising the state’s gas tax rate should immediately replace the governor’s counter-productive borrowing strategy. This action would require those who use the roads to pay for them, a conservative public finance principle.

Of course, Gov. Walker is a young man with hopes for greater success on the national stage. Raising the gas tax will result in some Neanderthals hurling the charge that he raised taxes in violation of the “no new taxes” pledge put forward by limited-government guru Grover Norquist. This pledge requires “revenue neutrality,” i.e., if revenue collected by one tax is increased, then revenue from another tax must go down to keep the total “tax burden” constant.

The economic bankruptcy of this pledge is shown in its inevitable result: a slowdown in road maintenance and repair projects and a resort to borrowing for roads, which “crowds out” other capital investment, such as higher education.

Because user charges are a price for publicly provided services, they are not part of the “tax burden.” The user can avoid the tax by simply driving less, just as they would avoid the burden of higher bread prices by buying less bread. In economic logic, government infrastructure spending financed with revenue received from user charges should not be considered part of the “no new taxes” pledge. By implementing user charges for roads, borrowing capacity would be freed up to provide the increased funding needed to maintain the competitiveness of the UW System.

With proper financing, Wisconsin could have both better roads and a superior university system. Of course, UW-Madison has always been world class. Let’s keep it that way. In just 50 years, UW-Milwaukee has earned recognition by the Carnegie Foundation as a top-tier research university. Other campuses in the system have also achieved national recognition for their work. It is folly to put the achievements of these campuses at risk when a more sensible solution for improving the state’s business competitiveness is readily at hand. Financing roads with user charges and universities with more general taxes will permit the state to improve its current slow-growth trend.

William L. Holahan is emeritus professor and former chair of the Department of Economics at the University of Wisconsin-Milwaukee. Charles O. Kroncke served as dean of the School of Business at UW-Milwaukee and the School of Management at UT-Dallas. They are co-authors of “Economics for Voters.”