When you hear a policymaker advocating for “tax reform,” it’s worth checking the fine print.
There’s nothing wrong with the goal of improving Wisconsin’s tax structure. But two recent “tax reform” proposals would shift the responsibility for paying taxes away from those who are well-able to pay and toward everyone else, according to a new report from the Wisconsin Budget Project. Instead of true tax reform, these proposals are actually tax shifts – shifts that would require families with low and moderate incomes to pay more in taxes so we can give tax cuts to the highest earners.
The most recent tax shift proposal comes from the Wisconsin Policy Research Institute, which recommends extending the sales tax to a number of goods and services that are not currently taxed and using the revenue to lower other taxes. Among the 24 things that would be newly taxed are basic necessities such as food, water, and fuel for residential use. Read more
Governor Walker floated the idea this week of replacing the current gas tax with a sales tax on motor fuel. It’s an interesting idea, but I don’t think it would be good public policy because it would replace a stable revenue stream with a tax source that is far less predictable. (You can read more about the idea in this Journal Sentinel article.)
Although we don’t have details of what the plan would look like, the Governor said it would be revenue neutral – at least at first. But clearly the intent is that the sales tax approach would generate more revenue over time, as gas prices increase, and I think that’s a reasonable assumption to make. However, fluctuations in gas prices mean that in any given year this source of revenue could fall well short of the anticipated level.
From a political perspective the chief virtue of the plan, perhaps the sole virtue, is that it offers a way of potentially raising more revenue for transportation projects without periodically asking elected lawmakers to vote on gas tax increases. Read more
TANF Funding Squeeze Creates a Substantial Budget Challenge
The Department of Children and Families (DCF) budget proposes a very large cut in the portion of funding for the Earned Income Tax Credit that comes from the federal welfare reform block grant, which is known as Temporary Assistance for Needy Families (TANF). Specifically, the department’s 2015-17 budget proposes cutting $55.8 million from the TANF funding that gets transferred to the Department of Revenue, which would mean that state General Purpose Revenue (GPR) has to fill the very substantial gap.
Assuming the Walker Administration isn’t planning to cut the EITC, I applaud DCF for wanting to use state funds rather than TANF funds to finance that credit for low-income working families. Unfortunately, the Department of Revenue (DOR) budget proposal doesn’t currently include an increased GPR appropriation for the EITC. Taking both agency proposals together, we have a $55.8 million hole that needs to be filled by state policymakers, and that problem is on top of the other structural budget challenges that have gotten more media attention. Read more
The best way to create jobs and build a broad-based prosperity in Wisconsin is to invest in excellent schools, safe communities, and a solid transportation network.
But a new report released today takes a different approach, claiming that giving big tax cuts to the rich and raising taxes for others would help the Wisconsin economy. The report, released by the conservative Wisconsin Policy Research Institute, repeats the myth that tax cuts create jobs, despite growing evidence to the contrary.
The report advocates changing the state’s tax mix to rely less on the income tax and more on the sales tax, a change the group says would boost the state’s economy. But what the report fails to mention is that the result would be big tax cuts for people with the highest incomes and higher taxes for everyone else. If Wisconsin eliminated the income tax and raised the sales tax to make up for the resulting revenue loss, the top 1% of earners in Wisconsin – a group with an average income of $1.1 million – would get a tax cut of a whopping $44,000 on average. Read more
Policymakers Should Make Investments that Help Put People on the Path to Economic Security
Today’s U.S. Census Bureau report shows that our state’s gradual economic recovery still hasn’t substantially expanded economic opportunity for working people and families in Wisconsin. Median incomes are still well below their pre-recession level (adjusted for inflation), and our state’s elevated poverty levels have yet to begin declining.
According to the new Census Bureau data, Wisconsin’s overall poverty rate edged up slightly last year to 13.5%, which is roughly one in seven state residents. Although the small increase from 13.2% in 2012 is not statistically significant, the change over the last five years is very clear. There were about 755,000 Wisconsinites living in poverty last year, an increase of 186,000 since 2008, when the overall poverty rate was 10.4%.
“We simply can’t accept three quarters of a million Wisconsinites living in poverty as the ‘new normal,’ ” said Ken Taylor, executive director of the Wisconsin Council on Children and Families (WCCF). Read more
Concerns about increases in income inequality were voiced from a surprising perspective today, when Standard and Poor’s (the bond rating agency) issued a lengthy report titled “Income Inequality Weighs On State Tax Revenues.” The report concludes that “disparity is contributing to weaker tax revenue growth by weakening the rate of overall economic expansion.”
The authors offer this explanation for the correlation between income disparities and economic growth:
“…rising income inequality is a macroeconomic factor that acts as a drag on growth. There is evidence, although not conclusive at this point, that the higher savings rates of those with high incomes causes aggregate consumer spending to suffer. And since one person’s spending is another person’s income, the result is slower overall personal income growth despite continued strong income gains at the top.”
An article in today’s Washington Post sums up the findings in clearer terms:
“Even as income has accelerated for the affluent, it has barely kept pace with inflation for most other people. Read more
Increasing Both the Earned Income Tax Credit and the Minimum Wage Would Strengthen Wisconsin’s Families
State lawmakers who want to help Wisconsin families recover from the recession should move to boost both the state’s earned income tax credit and its minimum wage. Each policy on its own helps make work pay for families struggling on low wages, but improving them at the same time goes further to putting working families on the path to economic security and opportunity, according to a new report from the Center on Budget and Policy Priorities.
Low wages make it hard for working families to afford basics like decent housing in a safe neighborhood, nutritious food, reliable transportation, quality child care, or educational opportunities that put families on a path to greater economic security.
But, state lawmakers have tools that can help address stagnant low wages. One, increase the state Earned Income Tax Credit. Two, raise the state minimum wage and make future increases automatic to keep up with inflation
These policies both are targeted to assist only those who are working, helping them to better afford basic necessities, including the things that allow them to keep working, like car repairs and child care. Read more
Structural Deficit Calculation Jumps to Nearly $1.8 Billion
It’s remarkable how quickly the state’s fiscal picture can turn around, even during a period when the national economy is on the mend. During the campaign season two years ago, GOP incumbents were making a big deal of the fact that they had eliminated the state’s structural deficit. Today we learned from the Legislative Fiscal Bureau (LFB) that the structural deficit has returned with a vengeance; the new figure of $1.766 billion is the third largest structural deficit estimated by the LFB since 1997 (for the 10 biennial budgets from 1997-99 through 2015-17).
Although that turnaround in the state fiscal picture is surprising to many people, it shouldn’t be. Wisconsin lawmakers have a long history of banking on surpluses that are estimated during the first half of a biennium (especially in election years) and promising tax cuts and/or spending levels that aren’t sustainable and that lead to big deficits. Read more
Budget Repair Bill May be Needed to Bring Budget Back into Balance
It’s been widely reported that state tax revenues fell well short of projections for the budget year that ended in June. But the nature of Wisconsin’s two-year budget means that the budget hole is likely to be bigger than many commentators realize, if current trends continue.
We already know that tax revenues fell $281 million short of projections for budget year 2013-14. That’s not good, but the end-of-year fund balance is enough to cover the shortfall, so it the shortfall doesn’t present any immediate problems.
The shortfall is likely to lead to bigger difficulties in 2014-15, the second year of the budget. Tax revenues for 2014-15 were projected to grow by 3.5% over 2013-14 amounts. But with 2013-14 revenues coming in so much lower than expected, 2014-15 revenues will be growing from a lower base. If 2014-15 revenues grow the originally projected 3.5% from the new, lower base, then at the end of the next budget year, Wisconsin would have a second shortfall of about $291 million. Read more
Last week we learned that state tax revenues fell far short of projections for the budget year that just ended. The shortfall means that next year the state is likely to face another round of budget cuts — cuts that slow economic growth and reduce investment in education, health care, and our state’s workforce.
The irony is that not too long ago, state lawmakers were trumpeting Wisconsin’s budget surplus, which neared $1 billion over two years. But instead of using those resources to build up a meaningful budget cushion, state lawmakers rushed to pass tax cuts. Legislators were in such a hurry to cut taxes that they passed a $100 million property tax cut last October in just four days, leaving little time for public debate. Lawmakers also passed two other major tax cut packages in 2013 and 2014.
The three big tax cut packages hurt the state’s bottom line, but they didn’t do much to lower taxes for Wisconsin’s lowest-wage workers. Read more