Wisconsin isn’t the only state that has made deep tax cuts on the premise of boosting the economy, only to find out that the promised job growth has not materialized. Kansas and North Carolina also passed large tax cuts and have experienced disappointing job growth. As a result of the tax cuts, these states have fewer resources to support investments in public schools, higher education, and a healthy workforce – investments that have a proven track record for creating jobs.
In Wisconsin, lawmakers have passed a series of tax cuts that total nearly $2 billion over four years. Governor Walker and some legislators have said that these tax cuts will make Wisconsin a more attractive place to do business, but job growth in Wisconsin since the tax cuts took effect has been slower than the national average. Unlike the U.S., Wisconsin has not yet gained enough jobs to replace the ones wiped out by the recession. Read more
A bill under consideration in the U.S. House of Representatives could limit Wisconsin’s flexibility in applying sales tax and make it more difficult to invest in schools and communities, a new report from the Center on Budget and Policy Priorities shows.
A committee in the House recently approved a bill that would prohibit all state and local taxation of Internet access. Currently, there is a moratorium on new taxes on Internet access fees, but seven states with pre-existing internet access taxes – including Wisconsin – were grandfathered in. This new proposal would eliminate the exception for Wisconsin and other states, and permanently ban all taxes on Internet access.
For Wisconsin, this restriction would reduce the resources the state uses to invest in public education, a healthy workforce, and a solid transportation network. Wisconsin would lose $127 million in tax revenue in 2015 if prohibited from taxing Internet access – resources that could be used to make Wisconsin a more attractive place to live and do business. Read more
Revenue Collections Continue to Fall, While Medicaid Deficit Takes Large Jump
The state’s fiscal situation has gradually deteriorated in 2014, and new tax collection figures released late Friday afternoon show a continuation of that trend. That fiscal problem is exacerbated by a couple of areas where spending is growing, including a substantial increase announced today in the estimated Medicaid deficit.
Starting on the revenue side of the state’s budget ledger, here are some of the key figures gleaned from the Department of Revenue’s press release:
- General Fund tax collections fell $26 million in May, compared to May 2013, which is a drop of 2.5% (measured on an adjusted basis).
- Over the first 11 months of the current fiscal year, state tax revenue is down by almost $49 million or 0.4%.
- Although sales tax revenue is up by $186 million or 5.2% over the last 11 months, individual income tax collections are down by almost $290 million – a drop of 4.6%.
If the legislature wants to keep taxes low for people with modest incomes, the best way to do that is to strengthen tax credits that keep taxes affordable for low-income people and individuals, not hand out untargeted tax cuts. That’s the conclusion of a new analysis released by the Wisconsin Budget Project, which takes a look at the distribution of the recent tax cuts passed by the legislature.
Three major tax cut packages passed by the Wisconsin legislature in the last year have delivered relatively little benefit to people who earn the least, according to the analysis. In 2013and 2014, the state legislature passed three substantial tax cuts: A June 2013 cut in income tax rates, an October 2013 property tax cut, and a March 2014 combined property tax cut and income tax rate cut package.
The three tax cuts combined give the bottom 20% of income earners in Wisconsin – those earning an average of $14,000 a year – an average tax break of $48 in 2014. Read more
It’s easy to explore the effect that changing Wisconsin’s tax mix would have on taxpayer groups at different income levels, thanks to a new interactive data feature put together by the Wisconsin State Journal. Users of the website can see how cutting the income tax and raising the sales tax would result in higher taxes for many Wisconsinites, and give big tax breaks to the highest earners.
The website allows you to set the level of the sales tax and the income tax independently, and see what changes result. For example, you can show how increasing the sales tax to 7.5% and cutting the income tax in half would result in an average tax increase of about $250 for people who earn the least, while giving an average tax break of $25,000 to taxpayers in the highest income group. Read more
Several significant pieces of Wisconsin budget data were released late last week:
- Our state is facing a structural deficit of $642 million in the next biennium, which means that $642 million of growth in General Purpose Revenue (GPR) will be needed even if there is no net increase in spending levels in the 2015-17 budget.
- State tax collections were 21% lower in April than in the same month of the previous fiscal year. (See our May 23 blog post.)
- Total Wisconsin tax collections over the first 10 months of the current fiscal year are $21 million less than in the comparable portion of 2012-13.
None of these news items is cause for alarm right now, but the convergence of these facts means the state’s fiscal situation merits watching and might prove to be weaker than some state lawmakers have assumed.
Before taking a closer look at some of the cautionary considerations, let’s start by reviewing several positive perspectives on the state’s budget situation:
- The estimated structural deficit for 2015-17 is substantially smaller than the budget challenges the state faced in most of the other budgets since the late 1990s.
Figures released Friday by the Department of Revenue indicate that state tax collections were 21% lower in April than in the same month of 2013 – primarily because of a $332 million drop in individual income tax revenue. Perhaps more importantly, tax collections have been falling for the past several months – to the point that total tax revenue over the first 10 months of the current fiscal year is now a little bit (0.2%) below the total at this point of the previous fiscal year.
Of course, part of the sharp decline in April can be attributed to income tax cuts that took effect at the beginning of tax year 2014, and part is the result of reductions in income tax withholding that took effect on April 1. Those variables and others make it difficult to do the number crunching to assess whether the latest drop in tax collections is cause for alarm – especially on a gorgeous Friday afternoon when I’m anxious to get out of the office and start the holiday weekend. Read more
Targeted tax credits are far more effective than broad-based income tax cuts in keeping taxes affordable for working families, according to a new report from the Institute for Taxation and Economic Policy. Wisconsin could cut taxes for working families by making improvements to its Earned Income Tax Credit, for a small portion of the cost of the recent across-the-board tax cuts in Wisconsin.
To be eligible for Wisconsin’s EITC, taxpayers must be working and must be parents. The EITC encourages work, helps families lift children out of poverty, and has long-term benefits on school achievement and health for children whose families receive the credit.
In Wisconsin, as in virtually every other state, the taxpayers who earn the least pay a greater share of their income in state and local taxes than taxpayers with the highest incomes. In Wisconsin, taxpayers in the bottom 20% — a group with incomes of less than $21,000 – pay 9.6% of their income in taxes, compared to just 6.8% of income for taxpayers in the top 1%, as shown in the chart below. Read more
Taxes have almost no effect on people’s decisions to move between states, according to a new report. Wisconsin lawmakers should not look to tax cuts as a tool to reduce the number of people moving out of state.
A bond rating agency has downgraded its rating of Kansas’ creditworthiness, citing revenue reductions from tax cuts and slow economic growth, among other factors. There is no indication that a downgrade for Wisconsin is in the works, but the downgrade of Kansas’ creditworthiness should give pause to Wisconsin lawmakers. Tax cuts haven’t done much to create jobs, in either Kansas or Wisconsin, and have led to unintended negative consequences.