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A heavenly tax cut: Act 255 stimulates economic growth

Sometimes, legislators like me can focus too much on the bad things happening in our state. We spend a lot of time talking about our oppressive tax burden, out of control spending by state government, a regulatory scheme that stifles business development and an economy that is growing more slowly than the rest of the country. While all of those things require our immediate attention, we should not ignore the positive things happening in Wisconsin.

For example, last year we cut taxes and something positive happened in Wisconsin. You may not have noticed, because I am not talking about a property tax or an income tax cut. We cut the “angel” investment tax and, according to a report by the Wisconsin Technology Council, this cut resulted in a 54 percent increase in early-stage investment in Wisconsin businesses. Compare that 54 percent increase to the 11 percent national average and you can see that a simple tax cut can have a dramatic impact on Wisconsin's economy.

The increase in angel investing comes from the passage of Wisconsin Act 255, which created a tax incentive for people looking to invest in start up businesses in Wisconsin. According to Tom Still, president of the Wisconsin Technology Council, angel investment totaled $102.9 million in 2006, up from only $66.6 million the year before.

Angelic presence

An angel investor is a person who invests in a business venture, providing money for start-up or expansion. These individuals are looking for a higher rate of return than would be earned by more traditional investments. Angel investors often have business experience as well as cash to invest, and many times they play an active role in managing the company.
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What does that 54 percent increase mean? Of the 55 angel investment deals in Wisconsin last year, approximately 10 percent will end up being medium- to large-sized companies in 10 years. Each one of those companies will be looking for more talent and will create high-paying jobs for our college graduates.

This is the right path for reversing Wisconsin's “brain drain.” Wisconsin cannot keep our best and brightest college graduates without providing exciting opportunities for them to make a good living. Angel investing is the seed from which quality, high-paying jobs are grown.

It is so interesting to me that Wisconsin cut taxes and people's behavior changed. The bill did exactly what we had hoped. People began to consider investing in Wisconsin first because they could get a tax credit and, as a byproduct, make a difference in the local economy. Keeping our investment dollars in Wisconsin should continue to be a primary focus for economic development.

Tax cut magic

Hopefully, this dramatic increase in angel investing will show people in Madison that cutting taxes works. We must make transforming Wisconsin's economy into a job-growth machine our top priority. Cutting taxes is an important piece of the puzzle. That first step was a success and we need to keep walking in the right direction to make Wisconsin's economy great again.

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State Senator Ted Kanavas, R-Brookfield, represents the state's 33rd senate district.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.

WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Comments

Dr. Phil Greenwood, CPA, PhD responded 7 years ago: #1

I want to commend Senator Kanavas, Governor Doyle, the Wisconsin Angel Network and the many others who saw through the development of Act 255 as we have already seen an increase in early-stage funding. I hope the State Legislature will consider expanding the Act to encourage more investment, especially at the later rounds of financing to build on the angel seed rounds. It would be great to see our current venture capital funds increase dramatically and for the development of larger- sized funds (in the $1 billion range) in Wisconsin.

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