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%.
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
Figures released Friday by the Department of Revenue indicate that state tax collections were 21% lower in April than in the same month of 2013 – primarily because of a $332 million drop in individual income tax revenue. Perhaps more importantly, tax collections have been falling for the past several months – to the point that total tax revenue over the first 10 months of the current fiscal year is now a little bit (0.2%) below the total at this point of the previous fiscal year.
Of course, part of the sharp decline in April can be attributed to income tax cuts that took effect at the beginning of tax year 2014, and part is the result of reductions in income tax withholding that took effect on April 1. Those variables and others make it difficult to do the number crunching to assess whether the latest drop in tax collections is cause for alarm – especially on a gorgeous Friday afternoon when I’m anxious to get out of the office and start the holiday weekend. Read more
Walgreens portrays itself as America’s pharmacy, located in communities across the country “at the corner of happy & healthy.” But if a group of hedge funds gets its way, Walgreens could become a “foreign” corporation for tax purposes – operating at the intersection of lawful and shameful.
Report Released Today Recommends State and Federal Reforms to Close Offshore Tax Havens
Maine legislators recently gave preliminary approval to a bill that could make it the third state to pass legislation to crack down on corporate tax avoidance in off-shore tax havens. The proposed legislation would close the so-called “water’s edge” loophole by requiring corporations to report income from a list of 38 known offshore tax havens. Passage of the bill would generate an estimated $10 million per year (in a state less than a quarter of the size of Wisconsin).
Oregon and Montana have already enacted such legislation. In 2010, Montana recovered $7.2 million, and state analysts expect Oregon to recover $18 million this year. The problem costs states about $1 billion, according to a report by US PIRG report. You can read more about the bills in these three states in an April 3 Washington Post blog post. Read more
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. Read more