$281 Million Revenue Shortfall in 2013-14 Will Mean a Big Jump in the Structural Deficit
State lawmakers got bad budget news today, when the Legislative Fiscal Bureau (LFB) released state tax collection figures showing that revenue collections fell $281 million (2.0%) short of projections during the fiscal year that ended on June 30. Rather than growing by 1% as anticipated, state tax collections fell by 1%, and that will cause a substantial jump in the state’s structural deficit.
State lawmakers banked on revenue growth when they wrote the state’s two-year budget and followed up with additional tax cuts. It’s not clear at this point what will result from a substantial revenue shortfall, but one potential outcome is the state could face a new round of damaging budget cuts. What makes the state’s new budget challenge very disappointing is that it could have been easily avoided if lawmakers hadn’t rushed early this year to use every bit of increased revenue projections for another round of tax cuts, without setting funds aside for an adequate budget cushion. Read more
For the past month or so I’ve been scratching my head wondering when we would get an update from the WI Department of Revenue on state tax collections during the fiscal year that ended on June 30th. I’m not the only one who has been anxiously awaiting those numbers; four Democrats in the state Senate sent a letter yesterday to Secretary Huebsch asking when the FY 2013-14 revenue numbers will be released.
“Given the numbers we’ve seen to date, the delay is already fueling concern that they will show a revenue shortfall. How significant that shortfall is could have a wide ranging impact not only on future budgets but the current budget as well.”
I share the concern about the potential for a revenue shortfall. Read more
Conservatives Critique “Tax Cronyism,” and Progressives Critique the ALEC Report
I was pleasantly surprised to learn recently that the American Legislative Exchange Council (ALEC) has issued a report calling on policymakers to end the wasteful subsidies given to corporations by state and local governments. Their report titled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth criticizes special tax breaks for certain companies, which it points out tend to increase the tax burden on other companies and put them at a competitive disadvantage.
Corporations are very good at extorting costly subsidies from state and local officials, but some of those corporations and a growing number of policymakers are realizing that these incentives aren’t an effective way to promote economic growth. As WCCF intern Jelicia Diggs wrote in a recent WI Budget Project blog post, a number of businesses in the Kansas City area have prevailed on Missouri legislators to call a ceasefire to the use of incentives for pirating corporations across the border with Kansas. Read more
New Report: How Wisconsin Lawmakers Have Broken with Tradition and Undermined a Legacy of Investment
Four years ago Wisconsin was made a promise. The promise was that the best way to generate economic growth was through significant tax and spending cuts. The tax and spending cuts have occurred, but unfortunately for all of us, the promised job growth has not.
That’s the conclusion of a new Budget Project report released today, called “Breaking with Tradition: How Wisconsin Lawmakers Have Shortchanged a Legacy of Investment in the State’s Future.” The new report reviews the many changes policymakers have made recently in how Wisconsin supports it schools, communities, and workforce.
Lawmakers have made dramatic tax cuts since 2011, totaling $1.9 billion over four years. But the value of the tax cuts was not equitably distributed. Half the value of the major tax cuts packages in 2013 and 2014 went to the top 20% of taxpayers by income, and the remaining 80% shared the other half.
The tax cuts have contributed to deep cuts to public schools and higher education in Wisconsin. Read more
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.