The Joint Finance Committee will vote Thursday on whether to divert more funds from the federal welfare reform block grant to help finance unrelated parts of the state budget. The amount of those funds transferred to the Department of Revenue (DOR) has already been increased dramatically in each of the last two budgets. $62.5 million per year from the Temporary Assistance to Needy Families (TANF) block grant is being used to replace state funding for the Earned Income Tax Credit (EITC), and that maneuver reduces the funding available for important programs to assist vulnerable low-income families.
According to a Legislative Fiscal Bureau paper (#215) Read more , federal law would allow the state to transfer up to $12.3 million more to DOR in the next biennium, in order to back out state General Fund dollars for the EITC.Optimally, legislators should decrease the use of TANF funding for the EITC, which is what the Department of Children and Families (DCF) proposed last fall in the budget request they submitted to the Department of Administration.
Legislators Can Avoid Deep Cuts without Raising Taxes Read more
Wisconsin needs a budget that invests in the building blocks of a strong economy. Healthy families, safe and stable communities, and a well-educated workforce are assets critical to helping Wisconsin remain an attractive place to live, raise families, and do business. By strengthening these resources, the state budget can lay the groundwork for broad-based prosperity and an economy that works for everyone.Unfortunately, the budget proposed by the Governor makes deep and unnecessary cuts to investments vital to Wisconsin’s long-term economic success. For example, the proposed budget would reduce resources for public education – a cut that would come on top of dramatic reductions in resources that have already occurred. The budget would also make deep cuts in state support for the University of Wisconsin System, giving a tremendous blow to one of the engines of Wisconsin’s long-term prosperity. The proposed budget would also make it harder for people with disabilities to get the help they need to contribute to their communities.
State Faces Gap of More than $2.4 Billion between Now and June 2017
State officials confirmed today what we have feared for many months – that Wisconsin’s spending needs in the next biennium far exceed the projected revenue, and the state must also close a very substantial budget hole in the current fiscal year. As a result, lawmakers are likely to make cuts that have harmful consequences for Wisconsin children and families and for the investments needed to keep Wisconsin economically competitive. Despite the assurances of Walker administration officials over the last couple of months that the state is in strong fiscal shape, the figures contained in a report released by the Department of Administration (DOA) today confirm that balancing the state budget in 2015-17 will require very deep spending cuts or significant tax increases. Specifically, the DOA document reveals the following:
- Tax revenue for the current fiscal year is now expected to be $82 million below the amount estimated in May (on top of a $281 million tax shortfall in the first half of the biennium), and net appropriations are estimated to be $43 million less.
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 Read more 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.
Wisconsin’s gradual economic recovery still hasn’t substantially expanded economic opportunity for working people and families. Median incomes are still well below their pre-recession level, and our state’s elevated poverty levels have yet to begin declining.
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. Read more
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 inflationThese 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.
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. Read more
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.
Wisconsin is a better place when we all do well. Unfortunately, while the wealthiest have seen their incomes skyrocket in recent decades, incomes have stagnated for the middle class and low-income people. It’s becoming harder to stay in the middle class in Wisconsin.
Our state tax system makes this problem worse. In fact, if you look at who pays taxes in Wisconsin, it turns out that middle-class and low-income families pay a bigger share of their incomes in state and local taxes than the wealthiest households in the state. We call on struggling families to pay 9.6 cents out of every dollar they earn in state and local taxes, while the wealthiest taxpayers pay just 6.9 cents out of every dollar of income. And many large, profitable corporations in Wisconsin pay little or no state income taxes.
Wisconsin’s Earned Income Tax Credit helps address this problem by allowing parents who work at low-wage jobs to keep more of their income, making it possible to afford basic necessities.
On the same day that the state Assembly passed a substantial property and income tax cut package, it declined to reverse a recent tax hike for parents who work at low-wage jobs.
The $537 million tax cut package, which diverts money that would otherwise go to the state’s rainy day fund, has already been approved by the Senate and now goes to the governor for his signature. (For more about the tax cut, read our March 4th blog post, Five Things to Know about Wisconsin’s Proposed Tax Cut Package.) “That’s exactly what taxpayers want — giving their money back to them rather than keep their dollars here in Madison,” Assembly Speaker Robin Vos said in this Milwaukee Journal Sentinel article.Despite the Assembly’s enthusiasm for cutting taxes, it missed a chance yesterday to roll back a recent tax increase for families with low incomes. The Assembly failed to advance a bill Read more that would repeal changes made the Earned Income Tax Credit in 2011 that resulted in working parents with low incomes paying higher taxes.
The FY 2015 budget proposal unveiled by the President this week addresses an issue that many politicians, researchers and commentators across the political spectrum have recently been talking about – providing assistance to low-income working adults who don’t have dependent children. We were very pleased to see the part of his budget that would help that long-overlooked population by making more “childless” workers eligible for the federal Earned Income Tax Credit (EITC) and increasing the small credit for those who are already eligible.
The EITC encourages and rewards work, offsets federal payroll and income taxes, and boosts living standards. As the Center on Budget and Policy Priorities (CBPP) points out: “Next to Social Security, the EITC combined with the refundable portion of the CTC [child tax credit] constitutes the nation’s most powerful anti-poverty program Read more .” However, the federal EITC currently provides little or no benefit for adults who don’t have dependent children, and the Wisconsin EITC doesn’t apply to that population.