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
Wisconsin residents strongly favor raising taxes on the wealthy and large corporations to reduce income inequality, a new poll shows. But instead of raising taxes on these groups, Wisconsin lawmakers have taken steps to give significant tax breaks to taxpayers with high incomes and corporations.
Two-thirds (66%) of survey respondents support raising taxes on the rich and big businesses, according to the spring 2016 Wisconsin Survey conducted by the Strategic Research Institute at St. Norbert College. Another 28% of respondents did not support raising taxes, and seven percent weren’t sure.
The poll results show that Wisconsin residents are alarmed about growing levels of income inequality and the widening chasm between the highest earners and everyone else. Wisconsin residents are right to be concerned. The share of income in Wisconsin going to the top 1% has reached its highest level ever, exceeding even levels reached prior to the Great Depression, and has more than doubled over the last 40 years. Read more
New tax collection figures released yesterday by the Wisconsin Department of Revenue (DOR) show a nice upturn in revenue in March, and that comes as a relief after a worrisome drop in February. After the rebound last month, the state is only modestly (0.4%) below the growth rate for the current fiscal year that the Legislative Fiscal Bureau projected in January.
According to the new DOR data, General Fund tax collections grew by $55 million last month, compared to March 2015, an increase of 6.2%. That follows a drop of $91 million (14%) in February. Read more