Omnibus Motion on DCF Issues Frees Up Additional TANF Funds to Address Recent W-2 Growth

The Joint Finance Committee (JFC) approved an omnibus motion (#364) late today that makes a few improvements in the Department of Children and Families (DCF) budget, but which is nonetheless very disappointing in many important respects.  We’ll take a closer look at that motion soon, but here’s an overview of the good and bad news – starting with the positive parts of the motion: 

• It cuts state GPR support for the EITC by less than the Governor recommended.  His budget would have used an additional $27 million per year of federal TANF funds to replace state funding for the EITC.   The motion reduces that funding shift to $19 million per year, thereby not siphoning off as much of the TANF funding to use elsewhere in the budget. 
• The motion reduces the cut to Wisconsin Works (W-2) by $18 million, which reflects the fact that W-2 spending has grown by 8.5% since last fall, instead of declining by 5.9 %, as DCF anticipated.

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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 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. Read more

Every $1 Invested Generates $6 in Additional Revenue

Governor Walker has made it clear that he is a fan of smaller state government. That’s why it’s notable that he has proposed adding 32 full time equivalent (FTE) positions at the Wisconsin Department of Revenue. The positions would focus on improving delinquent tax collections, reducing fraud, and following up on federal audits of state tax filers.

The legislature’s budget committee is scheduled to make a decision on Wednesday on whether to add the positions.

Here is the breakdown of how the new positions would be allocated by purpose:

• Delinquent tax enforcement, 15 FTE. Staff filling these positions would encourage or force individuals and businesses to pay delinquent taxes.
• Tax fraud enforcement, 13 FTE. Staff filling these positions would review income tax returns and tax claim forms for errors and fraud. Special scrutiny would be paid to returns claiming the Earned Income Tax Credit or the Homestead Credit, both of which benefit low-income Wisconsinites.

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The second Joint Finance Committee (JFC) meeting this week will be on Wednesday, May 15, starting at 10:00.  A full list of the items being considered can be found here, with links to each of the papers.   

One of the significant areas of discussion will be the Department of Revenue (DOR) budget, which includes a net increase of 32 positions to improve tax collections and fight fraud.   In another Budget Project Blog post today, Tamarine Cornelius explains that the new positions are expected to generate more than $6 in state tax revenue for each dollar invested.    

Other agencies on the agenda Wednesday include DOA, DNR, a few DHS issues (Care Facilities and Quality Assurance), and Ag (DATCP).  The outline below includes links to all six of the papers on DOR issues, as well as a very incomplete listing of other issues coming up Wednesday, with links to additional information and to some of the many Legislative Fiscal Bureau papers on those issues: 

Revenue — Tax Administration

• Audit Bureau and Compliance Bureau Revenue Collection Personnel (Paper #555)
• Increased Resources for Debt Collection (Paper #556)
• Federal Audit Reports Enforcement Activities (Paper #557)
• Increased Resources for Delinquent Tax Collection Activities (Paper #558)
• Tax Fraud Enforcement (Paper #559)
• Veteran Employment Tax Credit (Paper #560)

Administration — General Agency Provisions

• Capital Investment Program (Paper #100)
• Community Development Block Grant Administration (Paper #101)
• Regional Intergovernmental Affairs Positions (Paper #103)
• Low-Income Weatherization and Energy Assistance Program Allocation Changes (Paper #105)

Administration — Procurement

• Cost-Benefit Analysis Exceptions, Business Ownership Certifications, and Bidders List (Paper #126)

Health Services — Care Facilities and Quality Assurance

• Contracted Services for Mental Health Clients (Paper #362) 

Natural Resources — Stewardship

• Stewardship Debt Service (Paper #450)
• Stewardship Bonding Allocations (Paper #451)

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Will Lawmakers Use the Increased Revenue in Ways that Reduce the Structural Deficit or Exacerbate It?   

State legislators working on the 2013-15 budget got some very good news today.  A new paper from the Legislative Fiscal Bureau estimates that tax collections in the current fiscal year (which ends on June 30) will be $215 million more than previously anticipated.  That stronger base of revenue is pushing up the amount anticipated in each of the next two years by $180 million, for a total (three-year) increase by the end of the 2013-15 biennium of $575 million. 

Although today’s news could trigger fights about the best ways to use the increased revenue, the rosier revenue picture should nonetheless make it easier for the majority party to fashion a compromise that addresses the competing priorities of various Republicans, including adding to the meager K-12 education funding increase recommended by the Governor.  

The biggest question in my mind is whether lawmakers will use the added revenue in ways that reduce the $664 million budget hole (“structural imbalance”) that the Legislative Fiscal Bureau said the Governor’s budget would create for the 2015-17 biennium. Read more

A careful analysis of the four most prominent “business climate” ratings of state tax systems finds them to be “deeply flawed and of no value to informing state policy.”  A report published today by Good Jobs First (“Grading Places: What Do the Business Climate Rankings Really Tell Us?”) concludes that business climate studies are actually “politicized grab-bags of data” that contradict each other wildly.

The “Grading Places” report is authored by Dr. Peter Fisher, an economist who has written extensively on economic development.  According to Dr. Fisher:

“When we scrutinized the business climate methodologies, we found profound and elementary errors.  We found effects presented as causes.  We found factors that have no empirically proven relationship to economic growth.  And we found scores that ignore major differences among state tax systems.”

You can find the complete report and the executive summary here.

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Income taxes are on the minds of many people today, at least among those scrambling to meet the April 15 deadline for filing their tax returns.   We’ve been thinking of taxes as well, including the Governor’s proposal to cut the state income tax by an estimated $343 million over the next two years.   See, for example, our recent fact sheet about the state income tax, our infographic on where your state tax dollars go, and this column in the Milwaukee Journal Sentinel.

Today is a good occasion to ponder the key questions about the proposal to cut income tax rates, and I’m going to focus primarily on one of those questions:  Is the proposed income tax cut equitable? 

Tax equity is a subjective term, but by many measures the Governor’s plan falls short.  Although some of the proposal’s proponents have said on various occasions that it will provide tax relief for all Wisconsin taxpayers, that’s not the case.  One needn’t look any further than the Dept. Read more

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Low-income people will continue to face steadily increasing property taxes unless the Legislature takes action to adjust an important property tax credit for inflation, according to a new analysis from the Wisconsin Budget Project.

The Homestead Credit lowers property taxes for owners and renters of limited means who are generally ineligible for the state’s Property Tax Rent Credit. More than a quarter of people receiving the Homestead Credit are 66 years old or older, and more than half of all recipients have income of less than $15,000 per year, according to the Wisconsin Department of Revenue. Unlike almost all of the state tax code, the Homestead Credit is not adjusted for inflation.

Because it is not adjusted to keep up with the cost of living, the value of the Homestead Credit has been significantly eroded by inflation and will continue to erode further unless policies change. As a result of the gradually decreasing value of the credit, low-income owners and renters are paying higher property taxes. Read more

Vote on Non-binding Resolution Shows Bipartisan Support to Require Internet Retailers to Collect Sales Taxes

Increasingly in recent years, there seem to be few tax issues on which liberals and conservatives can agree.  So it was refreshing last Friday when there was strong bipartisan support for requiring large Internet merchants to collect state and local sales taxes – just as Main Street retailers do. 

Perhaps the bipartisan support shouldn’t come as a surprise because the proposal isn’t primarily about taxes; it’s about fairness.  People with a broad spectrum of views about taxes and spending agree that it’s unfair for our local businesses and bad for the Wisconsin economy to allow large Internet retailers like Amazon and Overstock to put their local competitors at a huge competitive disadvantage by not collecting sales taxes.

The 75-24 vote last Friday was on an amendment to add the Marketplace Fairness Act to the Senate’s 2014 budget resolution.  That resolution isn’t going to be approved in the House, and in any case it is only intended to be a budget outline, not a piece of binding legislation.  However, the lopsided vote for the Marketplace Fairness Act strongly suggests that when the act comes to the Senate floor it is very likely to have enough votes to overcome a filibuster. 

A blog post yesterday by Michael Mazerov of the Center on Budget and Policy Priorities explains the legal history of the current exemption for interstate commerce, and the need for the proposed legislation.  He notes that an estimated $11 billion per year in taxes on Internet Sales is uncollected each year. Read more