Very Slow Tax Growth Suggests Budget Difficulties Ahead
New tax collection numbers that were released late on December 23 do not bode well for the Wisconsin budget. The November tax figures released by the Department of Revenue (DOR) late last Friday – a week after negative job numbers – suggest significant challenges ahead for state budget writers.
I’m not sure whether DOR released the tax collection data just a couple of hours before the Christmas break in order to avoid public notice, but if that was their plan it worked very well. There doesn’t seem to have been any media coverage of the new numbers. Read more
This Year’s Tax Collections Are Expected to be $351 Million below Original Estimate
A new state report about projected state revenue and the agency budget requests reinforces concerns that the upcoming 2017-19 Wisconsin budget will be another difficult one to balance. The primary problem is that tax revenue growth is well below the level anticipated when the budget bill was enacted in July 2015.
I’ll get to the specific numbers in a moment, but the bottom line is that the state’s large tax cuts, coupled with lower-than-anticipated job gains and revenue growth, mean that as state policymakers develop the next state budget they are going to have to either continue to squeeze spending or close some tax loopholes. Read more
The Combined Effects of Two New Budget Reports Create Significant Fiscal Challenges
New tax collection numbers released yesterday are the second dose of worrisome budget news in Wisconsin this week. Right on the heels of a report showing that the budget balance was well below the anticipated level after the close of the 2015-16 fiscal year, new tax collection figures reveal that revenue fell well short of the projected level during the first quarter of the current fiscal year.
Taken together, the two documents released this week indicate that it could be very challenging to finish the 2016-17 fiscal year in the black. Read more
Despite Delay in Debt Payments, Budget Remains Very Tight
An annual budget report issued yesterday has a little bit of good news for the state, but also disappointing news. The bottom line is that the state’s budget balance grew this year, but by less than the budget bill was counting on. As a result, it could be difficult to keep this year’s budget in the black if tax revenue continues to fall short of the expected level. [See the update below about the new tax collection figures.]
The new Annual Fiscal Report shows that Wisconsin finished the 2015-16 fiscal year with a balance of almost $314 million. Although that’s pretty good news, it’s also a bit disappointing because even though the balance grew by $87 million this year, the budget bill had assumed the state would have about $77 million more in its balance at the end of the 2015-16 fiscal year. Read more
Governor Walker has said he will include a back-to-school sales tax holiday in his proposed budget, a gimmick that would reduce the resources available to support Wisconsin’s schools, university system, and communities, without providing any real economic benefit.
The sales tax holiday would exempt purchases of school supplies, computers, and clothing from the sales tax for two days in August 2017 and again in August 2018. That change would cost the state an estimated $11 million a year in lost tax revenue.
A sales tax holiday would do little to boost consumer spending or give a tax break to Wisconsin families with low incomes. There are a whole host of downsides to a sales tax holiday, including:
- Instead of encouraging consumers to spend more money, sales tax holidays simply shift the timing of the spending;
- A sales tax holiday on back-to-school items involves lawmakers picking winners and losers among types of goods that are exempt from the sales tax; and
- Sales tax holidays are not an effective tool for giving a tax cut to individuals with low incomes, since a large amount of savings is given to people in higher income groups as well.
Disappointing Tax Collections Could Cut into the State’s Small Reserves
State policymakers got some disappointing budget news this week, when the Department of Revenue (DOR) released state tax collection figures late Thursday. The revenue shortfall doesn’t pose imminent budget problems, and I’m somewhat relieved that the shortfall wasn’t larger, but the drop in the 2015-16 tax revenue might pose a problem in the second half of our biennial budget, particularly if the drop is repeated this year.
The new DOR figures show that revenue growth for the last fiscal year (ending on June 30) was $85 million (0.6%) short of the amount projected by the Legislative Fiscal Bureau (LFB) back in January. That January estimate had already been lowered by $29 million below the amount anticipated when the 2015-17 budget bill was enacted a little over a year ago. Read more
Anti-poverty Programs Lift about 830,000 Wisconsinites above Poverty Line
Speaker Ryan and other conservatives are calling for sweeping changes that would seriously weaken safety net programs, and a core argument for those changes is way off the mark.
In early June, Ryan and other House Republicans issued a report about reforming public assistance programs that contends that despite decades of substantial federal spending for safety net programs, “the official poverty rate in 2014 (14.8%) was no better than it was in 1966 (14.7%), when many of these programs started.”
At first blush, that sounds like a compelling argument, but it’s a red herring. Speaker Ryan’s claim is based on the official poverty measure, which seems logical. But that gauge of poverty, established by the Census Bureau in the 1960s, measures cash income only and excludes many forms of public assistance. As the Center for Budget and Policy Priorities points out about this poverty measure:
“…it ignores virtually all anti-poverty assistance created or expanded over the past half century, while counting the main form of assistance cut sharply over this period – cash assistance for families with children.
A new tax break that has cost much more than originally anticipated has resulted in enormous tax breaks for the very wealthiest, according to a new report from the Wisconsin Budget Project.
The Manufacturing and Agriculture Credit nearly wipes out state income tax liability for manufacturers and agricultural producers in Wisconsin, with most of the money winding up in the pockets of millionaires. Tax filers with incomes of $1 million and more – a group that makes up just 0.2% of all filers – claim a remarkable 78% of the credit amount that is paid through the individual income tax. Filers in that income group receive an average estimated tax break of nearly $28,000. That stands in sharp contrast to the average tax cut for filers with incomes of under $250,000: just $4.
Other than millionaires, few people in Wisconsin get any value from this tax break. Among filers with incomes of $1 million and more, 1 out of every 4 tax filers receives the credit. Read more
Wisconsin got a very positive jobs report last week, but the apparent good news from the preliminary May data did not carry over to last month’s tax collections. As a result, the state may finish the current fiscal year well below the revenue target included in the budget bill – creating a more precarious situation in the second half of the 2015-17 biennial budget.
The Department of Revenue released the May tax collections figures at about 4:00 on Friday, June 17. As is often the case when those numbers are released late on a Friday, the news wasn’t good. The new DOR figures show the following:
- Tax collections fell by $17.5 million (1.5%) in May, relative to the amount in May 2015.
- Although sales tax collections increased by $25 million compared to the same month of 2015, individual income tax revenue dropped by 6.3% ($31.5 million) last month, and corporate income tax revenue was off by $8.5 million (almost 35%).
Three years ago, Minnesota implemented a new, higher income tax bracket aimed at requiring wealthy Minnesotans to pay their fair share. Now, new figures show that the number of very rich taxpayers in the state increased in the period after the tax increase – not decreased, as detractors predicted would happen.
This article in the Minnesota StarTribune sums up the results:
“Critics predicted that the ultra-affluent would flee after Gov. Mark Dayton secured 2013 passage of a new income tax tier of 9.85 percent on individuals who make more than $156,000 a year. But the latest data show that the number of people who filed tax returns with over $1 million in income grew by 15.3 percent in the year after the tax passed, while the new top tier of taxpayers grew by 6 percent.”
The tax increase on top earners helped Minnesota make investments in the state’s schools, communities, and infrastructure. Read more