The Golden Thread is the Threat of Gold: Article the Second
There’s a simple reason that the U.S. no longer uses the gold standard. The gold standard was a system built on the false assumption that the value of gold could not suddenly drop in value, rendering the commodity relatively useless.
Yet, this is exactly what happened amidst the realities of the Great Depression. The result was the nationwide adoption of fiat money: the U.S. Dollar was born, out of necessity. The issue was that the U.S. government was overestimating the stability of gold.
False assumptions can make any argument seem logical, especially arguments that are backed by a panel of highly trained politicians on both sides of the aisle.
The U.S. assumed that the value of gold wouldn’t plummet, just as Wisconsin legislators assumes it can collect more than $150 million in additional tax revenue from Wisconsinites. The proposed arena deal assumes that the state will be able to recover more than four million dollars in “lost revenue”, each year, for the next two decades. Legislators also assume that no one will notice that a better deal is staring us in the face.
In the conclusion of A Tale of Two Six Seeds, I called on Wisconsin lawmakers to, in a sense, adopt fiat money. I researched past funding, such as the revenue raised by the Bucks’ companion six seed (the San Antonio Spurs), to investigate how their stadium (AT&T Center) was funded. The conclusion was to implement a novel method of public financing: tax individuals who are visiting the state, rather than citizens of the state.
In Article the First, I proposed that Wisconsin’s state Legislature implement this proven method of raising tax revenue without hurting Wisconsin tax-payers: by raising the hotel tax and the rental car tax rates in order to fund the entire arena. Essentially, these two taxes put the tax burden on tourists rather than the classic Wisconsin tax base. They are known collectively as tourist taxes, and the revenues of these industries have been shown to grow regardless of the tax rate.
This type of tax is fiat money, because it is 1) regulated by a well-defined government agency and 2) its expected value (i.e. growth) can be predicted with a high degree of accuracy. Simply put, tourists will always need to use hotels and rental cars, and their decision is most often unaffected by levying an additional 3% tax: If you’re paying for a $150 hotel room, the extra $4.50 in taxes isn’t going to make or break your decision to come to Milwaukee.
I proposed that we raise each of these taxes by 5% to fund the Bucks stadium over the next fifteen years, as this would overwhelmingly tax visitors from out of state.
I sent my proposal to my representative from Milwaukee, Alberta Darling, with excel graphs and bipartisan proposals to boot. I received no response from her office. One month later, I was surprised to read that the Wisconsin Center District chose to raise the hotel and rental car taxes. Guess who is on the board of Wisconsin Center District? Senator Alberta Darling. Ms. Darling also happens to be on the Wisconsin state budget committee.
Other than the chart above, I provided a list of stadiums that had been funded with tourist taxes, the most common figure being a 2-3% increase.
| Teams that have Utilized Tourist Taxation | ||||
| Year | City | Team | Hotel Tax Increase | Car Rental Tax Increase |
| 1999 | San Antonio | Spurs | 2% increase | 5 % increase |
| 2002 | Houston | Texans | 3% | 0% |
| 2006 | Glendale (Arizona) | Cardinals | 2% | 0% |
| 2008 | Indianapolis | Colts | 2% | 5% |
| 2009 | Dallas | Cowboys | 3.20% | 1% |
| 2014 | Charlotte | Bobcats | 2% | 0% |
| 2015 | Atlanta | Falcons | 3% | 2% |
Indeed, Darling and other senators decided on extending the heightened taxes on rental cars by 3% and the hotel tax by 2.5%. This slew of taxes has been in place since 2000, and is now being extended for an additional twelve years.
I’ve been a life long Bucks fan, and I’m entirely alligned with the logic that it is, by all means, cheaper to keep the Bucks. That math is clear: if the Bucks move, the state loses hundreds of millions of dollars in tax revenue. Though I support a section of the $250 million arena proposal (the part that I proposed and am still anticipating newspaper articles to reference my in their hyperlinks), less than $100 million is being paid through three proposed taxes raised by the Wisconsin Center District.
The other $150 million+ is being borrowed from Wisconsinites. Borrowing money from local taxpayers for funding stadiums is the gold standard of public financing. Borrowing doesn’t work, because it is based on false assumptions.
The false assumption in this case is that Wisconsin taxpayers aren’t being burdened by this plan.
Yes, I’m trying to implement some shock value to make an article about budgeting seem as riveting as the collapse of an entire financial system. Yet there is something deep to this metaphor: let’s understand that when forecasting economic landscapes, assumptions need to be analyzed very carefully. The current proposal is difficult to understand because it’s divided into complicated chunks.
So let’s break down the proposal into the sum of its parts. In what ways does this proposal succeed? In what ways does it unfairly burden Wisconsinites?
Most importantly, is there a way to improve upon this deal, so that Wisconsin citizens are not stuck paying the bill for the stadium over the next dozen years? Can we avoid another Miller Park financing deal?
Yes, and the solution is actually surprisingly simple.
Scott Walker is a Liberal? Democrats Want to Tax the Poor?
When I emailed Senator Darling, the actual proposal I explicitly suggested was to increase both the hotel and rental car taxes by 5% each. Relative to the current plan, this would raise an additional $100 million. If we extended the plan for an additional five years relative to the current proposal, the entire stadium would be funded via this increase. AGAIN: the tourist tax doesn’t burden Wisconsinites!
This deal will be a black mark on Scott Walker’s budgetary record for a single reason: he’s actually using a tested tactic that Democrats love!
Here’s why: We can consider Wisconsin, or any state in America, as a microcosm for the nation at large. Under this framework, Scott Walker (or any state’s governor) functions as the “president” of that state. The state’s legislature functions similarly to the national legislature, where district congressmen and congresswomen are elected to represent the interests of their respective district’s constituents.
Part of the budgetary proposal is to finance $55 million of the $250 million with money from the state budget. This can be equated with the national government subsidizing the economic efforts of a single state (in this case, a single county). If Walker were a Democrat, this wouldn’t be the least bit surprising, as liberal politicians are much more likely to use centralized funds.
Even more surprising is that Walker originally proposed funding the stadium with $220 million dollars in state bonds, meaning that he proposed that the stadium be financed almost completely with public debt.
That’s about the most liberal proposal I’ve ever seen. Oh, the union-busting, debt-raising irony!
In the last article, I dug up the fact that San Antonio subsidized more than 80% of their stadium with public financing raised by the hotel and rental car taxes. The plan was vetted and approved by a Republican mayor in a traditionally deep-red state. The governor at the time also happened to be George W. Bush.
It doesn’t make sense that Walker would want to borrow rather than follow the lead of San Antonio by raising tourist taxes, unless we understand the current political landscape. It’s an issue of doing what’s best for the campaign, not what’s best for Wisconsinites
It boils down to the age-old marketing slogan: “No New Taxes”.
Under the current plan, the WDC taxes would strictly be counted as an extension, and therefore, wouldn’t need to be approved by the state budget. Thus, technically speaking, Walker would deliver on his stated goal.
If however Wisconsin went with the fiscally responsible deal that I proposed, which alleviates the entire tax burden from Wisconsinites, then a new budget measure would be required. Thus, the increase of taxes, would be counted as a technical tax increase and a black mark on Walker’s presidential campaign.
So in order to save face, the proposal has scraped together four different methods of raising tax revenue without technically raising taxes.
If you think that sounds incredibly illogical, then you’re starting to understand that politics and budgeting is all about image. Understand that the current bipartisan proposal for the Bucks arena has simply used a clever batch of wording to cover up the tracks of some shifty political maneuvering on both sides of the aisle.
From a liberal economic perspective, it was once again shocking to discover that the most popular proposal from a Democrat was to simply raise the county sales tax by one percent. Basic economic analysis shows that sales taxes, which are a subset of regressive taxes, inflict the most damage on the poorest of citizens. Despite this confusing proposal (Democrats usually promote progressive rather than regressive taxation), the current deal was reached in part by extending the food and beverage tax in Milwaukee County by .5%. Though many Democrats oppose the current proposal, the deal will likely pass.
In political terms, here’s why the current deal was implemented: extending the tourist taxes and food and beverage tax (which account for $16.5 million dollars in tax revenue) doesn’t need to be approved by the Wisconsin Legislature. Since the taxes are being “extended” rather than “created”, only the Wisconsin Center District’s Board needs to approve the tax. But by settling for a tax extension, rather than a tax overhaul, only $93 million of the $250 million is being raised by taxing tourists. The other 62.8% of the public funding falls on Wisconsinites.
The headline from the bipartisan announcement regarding the most recent arena proposal was “Cheaper to Keep Them”. Yes, that’s a true statement. What’s also true is this “It’s Cheaper to Keep Them and Cheaper for you and me if we leave Wisconsin Taxpayers out of the Equation.”
To the Republicans: borrowing money from Wisconsinites (as proposed) is the opposite of fiscally conservative!
To the Democrats: Blocking public financing for a project that will help the state’s economy is the opposite of fiscally liberal!
Wisconsin legislature: be sensible and fund the Bucks’ arena just as San Antonio did, by increasing tourist taxes to 5% for the next fifteen years.
“Cheaper to Keep Them” Doesn’t mean this is a Good Way to Keep Them.
The Math: What Actually Adds Up
In terms of inflation, the problem of funding the Bucks is actually quite simple. Some people have proposed that the stadium is actually going to cost the Wisconsin District Center much more than $93 million, because the organization will have to pay back compounding interest on the issued bonds. With an estimated interest rate of 4.5%, a recent Milwaukee Journal Sentinel article argued that the WDC will actually be on the hook for $190-200 million.
What this estimate ignores, and what the proposed plan accounts for, is the increase in tax revenue that will rise in each subsequent year that these taxes are maintained. So, in terms of real dollars, the public’s funding cap truly is $250 million.
The proof is clear if we look at annual changes in WDC tax revenue. For instance, between 2012 and 2013. the change in the Wisconsin State District’s tax revenue was 5.2%. In this case, tax revenue grew at a faster rate than the interest rate. This simply means that even though the WCD will be paying back debts with interest, the annaul increase in tax revenue can be expected to rise with interest rates (at about 5% annually).
A recent article from the Milwaukee Journal Sentinel claimed that diverting these taxes away from the stadium would demolish the hopes of expanding the WDC. This, however, isn’t true.
If 100% of the Wisconsin Center Districts extended taxes were being completely dedicated to the new arena, then the stadium would be paid off within six years. The math:
Time(to pay off debt) = total debt (real dollars) / annual tax revenue (real dollars)
= $93 million / $16.5 million = 5.64 years to pay off debt
The Bucks’ arena plan gives the WCD twelve years to pay off the debt (the fiscal year of 2016 through December 31, 2027). This shows that less than half of the money being raised by these taxes will go towards financing the arena.
To be exact: 5.64 years / 12 years = 47%.
The other 53% will be retained in order to pay off the Wisconsin Center District’s expansion from 2000.
So actually, by extending these taxes, the WCD will still accumulate approximately $100 million in additional tax revenue that otherwise would not have been collected, and can subsequently be used to renovate and expand the WDC.
Again, tourist taxes are like fiat money: they have predictable patterns of growth. The
This is the portion of the deal I support. Though under the most sensible plan, one that would be the most fiscally responsible thing for Wisconsin, the tourist taxes would be the only taxes utilized for paying off debt. This is exactly what San Antonio did. Yet, per usual, the issue is politics.
A Tale of Two Six Seeds: Where We’ve Been and Where We’re Going
By now, the term 5% tourist tax should be branded into your memory.
What I really want you to realize is how this we can demand a revolution that shifts taxes away from locals. I’ve paralleled my articles with A Tale of Two Cities, mirroring Book the First: Recalled to Life with Article the First: The Bucks are Recalled to Life, and The Golden Thread: Book the Second with The Golden Thread is the Threat of Gold: Article the Second.
The last article will mirror the classic novel’s third book: The Track of a Storm. The Storm is whether Wisconsin’s legislature will approve the current deal, or be logical and demand that Wisconsinites be left of the financing plans. Milwaukee County Residents are still paying off Miller Park Debt. Here’s the summary and petition synopsis going forward:
Dear Wisconsin Legislator,
If you’re reading, it might not be too late.
Raise the hotel and rental car taxes by 5%, because it’s “cheaper to keep them”, and it’s much, much cheaper for us to tax tourists in order to keep them.
I bet you’ve always questioned norms, such as wondering “if I have my cake, why the hell wouldn’t I also eat it too? Isn’t eating the cake the whole point of having it?”
For once, let’s have the cake (fund the stadium) and eat it too (use out of state tax revenue in order to achieve that goal).
“When it’s not about the money…it’s about the money.”