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Tax Issues Fly under the Radar in Mining Controversy

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Mining Bill Reduces Resources for Local Governments to Address Impact of Mine

Local governments affected by a proposed mine in northern Wisconsin might not have sufficient resources to offset the increased public costs associated with the mine. That’s because the proposed mining bill, which has passed the Joint Finance Committee and heads to the Senate Wednesday, diverts part of the revenue from the mining tax away from a fund set to offset mine-related costs of local governments, and instead sends it to the Wisconsin Economic Development Corporation.

Under current mining tax law, all proceeds from the mining tax are set aside to provide financial assistance to local governments experiencing social, environmental, or economic impacts from the mine.

The mining bill currently under consideration in the Senate changes the law and instead allocates only 60% of the proceeds from the mining tax to the fund to address local impacts. The remaining 40% of proceeds would be sent to the Wisconsin Economic Development Corporation, with no specific requirements as to how the money must be spent. As a result of this change, fewer resources will be available to compensate local governments for mine-related costs, such as the additional wear and tear on roads from heavier traffic loads.

The mining tax may not even generate much revenue in the first few years of the mine’s operation. That’s because the mine will be required to pay a tax on its net proceeds, and the significant investments in machinery and equipment required at the beginning of the mine’s operations will reduce the mine’s proceeds and therefore the amount of tax owed by the mine. Some other states, such as Minnesota, tax mines based on their output.

A proposal by Senators Tim Cullen, Bob Jauch and Dale Schultz to create a tonnage tax here got the attention of anti-tax crusader Grover Norquist, president of “Americans for Tax Reform.” He sent a letter to 21 Wisconsin legislators warning that they would be breaking their pledge not to raise taxes if they support Cullen’s proposal for a more robust mining tax.

In addition to the mining tax, the proposed mine would also be subject to the Wisconsin corporate income tax – at least in theory. But a new tax credit for manufacturers, agricultural producers, and mines gradually reduces Wisconsin income tax rates for corporations in these industries from 7.9% down to 0.4% in 2016. That means a corporation, such as a mine, with $10 million in taxable Wisconsin income would go from paying $790,000 in 2012 in corporate income tax to paying just $40,000 in tax in 2016.

Advocates have already raised significant concerns about the environmental impact of the mine. We should also be concerned about the social and economic effects the mine will have on local communities. Generating mining tax proceeds and keeping them in communities affected by the mine would help offset negative effects. And undoing some of the changes to corporate income taxes would help the state make the sorts of investments in training and infrastructure that will produce sustainable economic growth.

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WI Budget Project

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