Business Climate Rankings Consistently Fail to Reflect States’ Economic Vitality
A new business climate ranking released last week has gotten little or no press attention in Wisconsin. Perhaps that’s because the conservatives in our state who often publicize these rankings are hesitant now to draw attention to the finding that Wisconsin continues to rank 43rd in this particular analysis. But I hope the actual reason is that reporters have gradually learned that these rankings have no correlation with how states are doing economically or will be doing in the coming years.
The latest version of the Tax Foundation’s annual State Business Tax Climate Index (SBTCI), which was released on Nov. 17, says Wisconsin is ranked 43rd for the fifth year in a row (2012 through 2016). That’s down from 41st in 2011. However, you shouldn’t be alarmed because these rankings reflect little more than the Tax Foundation’s skewed wish list for corporations. Read more
Wisconsin lawmakers have passed tax cuts totaling $4.8 billion over six years, according to a new legislative memo released this week. These tax cuts have done little to boost job growth and have forced damaging cuts to Wisconsin’s public schools, universities, and health care system.
Lawmakers have passed dozens of tax cuts since January 2011, including millions of dollars in tax cuts that primarily benefit people with high incomes. And lawmakers aren’t slowing down – the total value of tax cuts has increased each year since fiscal year 2012, and is slated to go even higher, to nearly $1.7 billion per year in the two-year budget period that starts in July 2017.
Among the tax cuts passed since January 2011, according to the memo:
- A 2013 income tax rate reduction that gave an average tax cut of $1,440 to taxpayers earning over $300,000 but an average of just $86 for taxpayers who earn under $100,000.
If you look at a new memo from the Legislative Fiscal Bureau (LFB) that itemizes the tax and fee changes in the biennial budget bill, you wouldn’t know that the net effect of the bill is to cut taxes. The fact that the budget bill does cut taxes isn’t obvious in the latest LFB document for a couple of reasons:
- First, the LFB memo summarizes the state-level tax changes and doesn’t examine the reductions in local property taxes that result from increases in state spending for property tax relief and restrictions on local spending.
- Second, the bill uses short-term tax increases to provide a temporary offset to larger long-term tax cuts (and the latter are beyond the two-year time horizon of the LFB analysis).
Lawmakers included four major tax cuts in the 2015-17 budget, at the same time as they were limiting resources for critically important institutions like the University of Wisconsin system and public schools. When fully implemented, the tax cuts will reduce tax revenue by more than $250 million a year.
The Department of Revenue (DOR) issued its report on December tax collections today, and at first blush the numbers look bad; however, I think they may actually suggest a modest upturn – relative to the November estimate for the current fiscal year (FY). Whether that assessment is accurate will become apparent later this week when officials release updated state revenue estimates for FY 2014-15 and for the next biennium, which begins on July 1.
What the short new report reveals on its face is that tax collections were down by 2.6% in December, compared to the same month in 2013, and tax collections for the first half of the current fiscal year were down by 2.7% compared to the last six months of 2013. Individual income tax collections for the last half of 2014 were down by 6.4% or $232 million, and corporate income tax revenue was down 8.0% or $38 million. Read more
A prominent conservative advocacy group is asking Wisconsin legislators to pass additional tax cuts for the richest residents. New tax cuts for people with the highest incomes would do little to create jobs, and would undermine Wisconsin’s ability to build the strong schools and communities necessary to support a strong state economy.
Wisconsin Manufacturers and Commerce is making tax cuts for the rich a high priority, but state lawmakers have already done quite a bit to cut taxes for people at the top. The top 1% of Wisconsin taxpayers – a group with an average income of $1.1 million – got an average tax cut of $2,518 in 2014, thanks to a combination of three major tax cut packages lawmakers passed in 2013 and 2014. In contrast, taxpayers in the bottom fifth of earners, a group with an average income of $14,000, received an average tax cut of just $48 this year. 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
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
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.
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%.