An All-Cuts Budget is a Choice

Friday, May 6, 2011 at 9:35 PM by

The Governor’s proposed budget relies almost exclusively on cuts to bring it into balance. These cuts would negatively impact K-12 education, health care for working families, local government services, human services, and higher education, among others

In outlining these and other cuts in his Budget in Brief, the Governor said “Our state is broke,” and “We have no choice to reduce state spending.” In other words, he and other policymakers are promoting the idea that the state must rely solely on cuts to balance the budget, because adding new sources of revenue simply isn’t an option.

It doesn’t have to be this way.

Connecticut is blazing a very different budgetary path. This week Governor Malloy signed a budget that combined spending cuts, concessions from public employees, and new revenue to cover their $3.2 billion deficit. (Keep in mind that’s an annual figure, which means that Connecticut’s deficit dwarfs Wisconsin’s $3.6 billion biennial one.) A New York Times article quotes Governor Malloy as saying, “I think there was a recognition that it was too big to cut our way out and too big to tax our way out, and that required a commitment to going down a different road.”

It’s not too late for Wisconsin to take a different road, one that uses a balanced approach and relies on both cuts and new revenue. The Institute for Wisconsin’s Future (IWF) has released a catalogue of new revenue sources that could be used to help fill our budget gap. The catalogue outlines possible revenue sources, describes who would be affected by the change, classifies the distributional effects of the change (ie regressive or progressive), and quantifies the annual fiscal effect.

For example, we can use the IWF catalogue to see what would happen if we increased the top marginal income tax rate from 7.75 percent to 9.0 percent. This change would affect about 27,000 high income taxpayers who make more than $224,000 for single people or $299,000 for married couples. The average tax increase for these people would be $4,650, or about 0.7% of their income. (A portion of the tax increase would be offset by lower federal taxes due to the federal deduction for state income taxes.) This change alone could increase revenue by $250 million over the biennium.

Given the current political climate, the revenue increases outlined by IWF are likely to be a very tough sell. But the work done by IWF and the example set by Connecticut remind us that even in the midst of a difficult budget period, Wisconsin continues to have options. If we wind up with an all-cuts budget, it will be because policymakers chose that route, and not because we had no other alternative.

Tamarine Cornelius

Categories: 2011-13 biennial budget, Blog, income taxes | Comments Off on An All-Cuts Budget is a Choice

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