One of the factors contributing to a larger-than-anticipated state budget surplus is a decline of about $11 million in spending for the Homestead tax credit in fiscal year 2012-13. Considering how the surplus was bolstered by that spending reduction, and also by a sharp cut in state General Fund support for the Earned Income Tax Credit, it’s very disappointing that the large tax cuts enacted this year have done little if anything to help low-income households.
Shifting Federal Funding for Low-income Families to DOR Leaves Very Large Gap in W-2 Budget
New Legislative Fiscal Bureau (LFB) papers reinforce concerns raised several weeks ago in the Budget Project’s issue brief about the federal funding being siphoned away from programs supporting low-income families. The LFB papers, which are on the May 21 agenda for the Joint Finance Committee, examine the budget bill’s proposals for the use of federal block grant funds intended to serve low-income families.One of our concerns was that the budget makes deep cuts in the funding for W-2 based on the unrealistic assumption that W-2 participation and spending would drop by 1% each month from the level in December 2012. Although we noted that participation has been increasing, rather than decreasing, LFB paper #196 Read more shows that the difference is even more substantial than we thought because the cost per family has also grown. As a result, W-2 expenditures have increased 8.5% since September of last year, whereas the Dept.
Governor Walker and state legislators have said that cutting income taxes is high on their priority list for Wisconsin’s next budget. But before making new tax cuts, state policymakers should consider rolling back the tax increases in the last budget –tax increases that largely hit working families and seniors on fixed incomes.
UWM Study Examines Income Challenges for Single-parent Families in Milwaukee County and Inner City
Shortly before Christmas, researchers at the UW-Milwaukee Employment and Training Institute (ETI) released a very interesting and sobering analysis of income trends and challenges for Milwaukee’s low-income families, particularly single mothers raising children. Their report includes an analysis of the income tax records of Milwaukee County family tax filers (with dependents) from 2007 through 2011. One of the key findings of the report by Lois Quinn and John Pawasarat is that the cut to the Wisconsin earned income tax credit (EITC) in the 2011-13 budget bill cost Milwaukee County families $7.7 million when they filed their 2011 tax returns. Some of the other findings relating to the EITC include the following:
- Inner city Milwaukee “working poor” families were hit the hardest, losing $4.3 million, which was a drop of 25% relative to their 2010 credits (compared to 22% for EITC recipients in the county as a whole).
Supplemental 2011 Award Adds to New 2012 CHIPRA Bonus
The federal government announced today that Wisconsin is receiving an additional $32 million in bonus awards for the state’s success in improving children’s access to health care through the BadgerCare program. Wisconsin is one of 23 states getting bonuses for 2012 under a portion of the Children’s Health Insurance Program Reauthorization Act (CHIPRA), which provides payments to states that are particularly successful in cutting red tape and removing administrative hurdles to enroll more uninsured children in their Medicaid programs.If you saw the 2012 bonus awards chart from the Department of Health and Human Services (HHS), you might think that the $32 million figure is a typo, because the chart shows that Wisconsin will receive a 2012 bonus of $23.3 million. That’s correct, but if you study another HHS document Read more you will see that the 2011 CHIPRA bonus is now shown to be $33.2 million, which is $8.7 million more than had previously been announced ($24.5 million).
The bill for more than a billion dollars in tax cuts will be coming due in the coming years, thanks to actions by the state Legislature that postponed the full implementation of several large tax cuts. That approach made the tax cuts seem affordable at the time they were passed, but will reduce the resources available to invest in our schools, roads, and communities when the full cost of the tax cuts comes due.
Over the next five years, these phased-in tax breaks Read more mean that the state will collect $1.2 billion less in revenue than it would if tax breaks had stayed at the 2012 level. In 2013, $89 million in phased-in cuts will go into effect, an amount that rises each of the following four years until the amount reaches $323 million in 2017. The chart below shows that the tax cuts are fairly evenly divided between individual income tax cuts and corporate income tax breaks, with a much smaller amount in sales tax cuts.
State Finishes Fiscal Year with $342 Million Balance
The annual fiscal report released Monday by the state’s Department of Administration (DOA) contains some good news, as expected. It confirms the Department of Revenue report from early September that General Fund tax collections of $13.5 billion were $126.6 million (0.9%) above the department’s May projections for fiscal year 2011-12. Tax collections increased 4.7% relative to the amount in 2010-11. That’s by no means an exceptional year, but the improvement since the May projection will allow the DOA to deposit almost $109 million into the state’s rainy day fund. And the combination of higher than expected taxes and almost $27 million (GPR) less in the “gross appropriations” line of the General Fund budget yields a closing balance of $342 million GPR (after accounting for the transfer to the rainy day fund). A copy of the Annual Fiscal Report is available online Read more . Jon Peacock
For many years, a state law required the Legislature to provide schools enough funding through grants and the school levy credit to cover two-thirds of school costs (excluding the federal share). Even after that statute was repealed in 2003, lawmakers sought to come as close to possible to the two-thirds level. However, a paper released Thursday by the Legislative Fiscal Bureau (LFB) illustrates that the state level of support for K-12 education fell well below that level in 2011-12.
According to the LFB paper Read more , the state share dropped to 61.7% in the last fiscal year, compared to 63% in 2010-11, and 63.9% in 2009-10. The non-federal share of school financing (referred to as “partial school revenues”) fell by $501 million in 2011-12, or 5.1% – as state support dropped by $432 million and local property tax revenue declined by $69 million. The reduced property tax revenue can be attributed in large part to the state-imposed cut in the per student revenue caps, but it also reflects local political pressure not to raise levies at a time when property values were falling in many communities.
Big Change #7: Reduced Funding in a Time of Sharply Rising Demand
We wrap up this seven-part series by taking a look at a large budget cut that I did not expect last year – the sharp reduction in funding for the Wisconsin’s technical colleges. The magnitude and timing of the cut came as a surprise for me because the very weak economy has generated tremendous demand for education and training in the technical college system. As Paul Gabriel, Executive Director of the Wisconsin Technical College District Boards Association, wrote in a guest blog post for WCCF:
“Record numbers of young people recently out of high school and older displaced or underemployed workers are looking to Wisconsin’s technical college system as their best option for getting education and training that will qualify them for well-paid jobs. Businesses have also shown keen interest in the technical education system, as they grapple with a mismatch between the types of skills they are looking for in employees and the qualifications of Wisconsin’s jobless workers.”
Despite the growing demand for technical college education, the 2011-13 state budget slashed their general state aid by 30%, or about $36 million annually. Read more
Big Change #2: Corporations and Well-Off Are Paying Less in Taxes, and Working Families are Paying More
One year into the state’s two-year budget period, corporations and well-off individuals are paying less in taxes than they did before the budget, and working class individuals and families are paying more.
The budget included two significant tax breaks that have already kicked in. One tax change that benefits multi-state corporations partially rolls back a recent law that made it difficult for big businesses to shift their income between different states to avoid taxation. This tax break reduced the state income tax these corporations pay in Wisconsin by $9 million in fiscal year 2012 (which ended on June 30, 2012), and will cut their tax liability by another $37 million this fiscal year. A second tax cut in the budget reduced the tax that individuals pay on their capital gains, or profits from investments.