Kooyenga Plan Would Cut Rates by $450 Million More than Governor, and Provide Larger Cuts to the Wealthy

Late today Rep. Dale Kooyenga shared with Jason Stein of the Journal Sentinel many of the details of the income tax tax plan that the Brookfield lawmaker plans to offer in the Joint Finance Committee.  According to a Journal Sentinel article posted this evening, the proposed plan:   

• Cuts state income tax rates by at least $780 million during the 2013-15 biennium, or about $450 million more than the Governor proposed.
• Eliminates about 20 tax credits, which will offset at least a small portion of the additional cost of the rate cuts. 
• Leaves the Earned Income Tax Credit and Homestead tax credit unchanged – meaning the plan neither helps nor hurts most of the low-income families and elderly individuals who utilize those credits.   
• Reduces the number of income tax brackets from five to three.

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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)

Jon Peacock Read more

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.

Jon Peacock Read more

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

The state’s structural deficit is projected to re-open in coming years, thanks largely to the income tax cut proposed by Governor Walker and other recent tax cuts.

In 2013, the state’s General Fund is projected to have a structural balance of $146 million, which means that revenues were greater than state spending by that amount. But in coming years, state spending is projected to outstrip revenues, creating a structural imbalance that rises to nearly $350 million in 2017, as shown in the chart below. Based on these Department of Administration projections, state lawmakers would need to fill a hole of more than $600 million in the 2015-17 budget.

In the past, Governor Walker has placed a great deal of emphasis on the need to bring state spending in line with revenues. In his budget proposal for the 2009-11 budget, Walker pointed out that his budget reduced the structural deficit to an all-time low in the history of tracking this measure. Read more

Mining Bill Reduces Resources for Local Governments to Address Impact of Mine

Local governments affected by a proposed mine in northern Wisconsin might not have sufficient resources to offset the increased public costs associated with the mine. That’s because the proposed mining bill, which has passed the Joint Finance Committee and heads to the Senate Wednesday, diverts part of the revenue from the mining tax away from a fund set to offset mine-related costs of local governments, and instead sends it to the Wisconsin Economic Development Corporation.

Under current mining tax law, all proceeds from the mining tax are set aside to provide financial assistance to local governments experiencing social, environmental, or economic impacts from the mine.

The mining bill currently under consideration in the Senate changes the law and instead allocates only 60% of the proceeds from the mining tax to the fund to address local impacts. The remaining 40% of proceeds would be sent to the Wisconsin Economic Development Corporation, with no specific requirements as to how the money must be spent. Read more

States that follow the economic policy agenda promoted by ALEC risk weakening state economies and harming middle class families. That’s the message of a new report by the Center on Budget and Policy Priorities, which outlines American Legislative Exchange Council’s policy recommendations and their negative effects.

ALEC is a network of conservative state legislators and lobbyists that works to influence state legislation in a variety of policy areas, including budget and tax policy. According to CBPP, ALEC’s proposals would:

 cut taxes deeply for wealthy individuals, investors, and corporations; shift tax burdens substantially from well-to-do to middle- and low-income households; and impose strict constitutional or legal limits on revenues or spending that would severely limit states’ ability to provide adequate funds for education, health care, and other priorities, and impair state economic growth.

Many of the recent changes made to Wisconsin’s tax and budget system follow ALEC’s recommendations. For example, the Wisconsin state legislature has passed several new tax cuts that primarily benefit corporations and well-off individuals. Read more

It’s Déjà Vu All over Again for the Homestead Credit

Over the Groundhog day weekend I was working on the plot for a new version of the Groundhog Day movie – for a remake that I think Columbia Pictures should film in Sun Prairie.  Bill Murray would once again have the lead role, playing a retired former weatherman who now hosts the annual Ground Day event in Sun Prairie, and who has a crush on a Madison-area TV personality, played endearingly by Andie MacDowell.  Sun Prairie’s Jimmy the Groundhog will replace Punxsutawney Phil, of course; and I’ll have a small part as a geeky fiscal policy analyst (a bit of a stretch), in lieu of Ned – the nerdy insurance agent.

The story is set slightly before the next big Groundhog Day celebration.  It’s January 31 and our hero is paying his Sun Prairie property taxes, which isn’t easy for him now that he is retired and living solely on Social Security (after his ex-wife, who ran away with Ned, was awarded his modest pension from the TV station). Read more

New 50-State Study Provides Detailed Profiles and Comparisons of Tax Systems

Like most state tax systems, Wisconsin takes a much larger share from middle- and low-income families than from wealthy families, according to the fourth edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” released today by the Washington-based Institute on Taxation and Economic Policy (ITEP). 

Combining all of the state and local income, property, sales, and excise taxes Wisconsin residents pay, the average overall effective tax rates by income group are 9.6% for the bottom fifth of Wisconsinites; 10.7% for the middle fifth: and 6.9% for the top 1%.  The full report is online at www.whopays.org.

The report’s findings illustrate why state lawmakers need to be very careful about the effects of new tax proposals on the distribution of state and local taxes.  They need to consider the combined effect of all state and local taxes, rather than focusing only on the income tax. Read more