Legislators Hope Tax Windfall Rescues Them
If state tax collections don’t go up -- soon -- lawmakers must swallow Walker’s unappetizing budget cuts.
Alberta Darling
Every Wisconsin legislator knows how they want to spend any unexpected windfall in tax collections in the two-year budget cycle that ends in mid-2017. Their wish lists include more money for K-12 schools, especially rural schools; reducing Gov. Scott Walker’s proposed $300-million cut in state aid to the UW System; borrowing less to put more cash into highway construction and maintenance statewide, and maintaining current programs that help seniors and the disabled.
That amounts to 133 elected officials, including Walker, with crossed fingers, eagerly anticipating sharply higher estimates of projected tax collections through mid-2017. Those estimates will come in mid-May.
But here’s a reality check: What if there is no – or not much – additional tax collections in the May report of the Legislative Fiscal Bureau? Those are the numbers on which the 16-member Joint Finance Committee, which started making decisions last week, will base its 2015-17 budget. Sorry to burst anyone’s bubble, but if there’s no unexpected tax-collection windfall in the fiscal bureau’s May report, it will be one grim budget – the ugliest one since 2011, in fact.
It would mean Republican legislators will have to suck it up and go along with Walker’s proposed $127-million cut in state aid for K-12 schools and the governor’s proposed two-year $300-million cut in state aid to the UW System.
Why raise that bad news scenario? Four reasons:
*July-through-February total general-fund tax collections only rose an anemic 0.2 percent, according to the state Department of Revenue (DOR).
Personal income tax collections make up more than half of all general-fund-tax collections, and they actually dropped by 1.8 percent between July and February, DOR reported. Corporate income taxes, the third largest source of tax funds, fell 9.3 percent between July and February.
DOR’s next report, covering July-through-March tax collections, will be made public soon. But it won’t include estimates of personal income taxes paid by the April 15 deadline. Any report that doesn’t include personal income tax totals is unreliable.
*On the verge of formally announcing his campaign for President, Walker and Republicans who control the Legislature will have to cut 2015-17 spending to balance the budget. Why? Republicans refuse to raise taxes or approve the Medicaid expansion that Democrats say could bring in more than $345 million in additional federal dollars.
*The February jobs-created report of the state Department of Workforce Development said Wisconsin gained 27,489 private-sector jobs over the last year – one of the slowest rates of all states.
“If there is no additional windfall, we have some really tough decisions to make,” Sen. Alberta Darling, cochairman of the Finance Committee, said in a WisconsinEye interview last week. “But I am estimating that we are going to have increases in revenues. Everything we have seen to date indicates that we’re going to have some increases. The amount is undetermined.”
Darling said $2 billion in tax cuts approved over the last two years will stimulate the economy, resulting in higher tax collections. Republican Rep. John Nygren, Assembly co-chair of the Finance Committee, also said he expects some additional tax collections to be forecast in May.
Leaders admit they are nervous, however. “So much is really waiting on those (May) revenue numbers,” Assembly Speaker Robin Vos said last week.
But Democratic Senate Leader Jennifer Shilling said it’s irresponsible for Republicans to wait for “May fairy dust” to fall to pay for critical education programs and help for the elderly and disabled.Start with accepting the federal government’s offer to pay for a Medicaid expansion, Shilling said. “That would bring in a lot of general purpose revenue,” she told WisconsinEye. “That would allow us some flexibility, and a little bit of wiggle room.”
Democratic Rep. Chris Taylor said any additional tax collections may have to pay current bills. For example, she said, Walker’s original budget failed to include six months of the cost for the workers’ compensation program – a $15.6 million shortfall.
Can you help? Sure. Buy all those items you’ve been coveting – a newer car, Apple watch, furniture, etc – on which the 5 percent sales tax is charged. Legislators will then use that cash to avoid painful cuts in existing programs.
Steven Walters is a senior producer with the nonprofit public affairs channel WisconsinEye. Contact him at stevenscwalters@gmail.com
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“Darling said $2 billion in tax cuts approved over the last two years will stimulate the economy, resulting in higher tax collections.”
I’m sure the trickle down will be coming any day now….
It trickled right to Alberta and the rest of her River Hills neighbors. I’m sure they are all happy.
When Darling said their $2b in tax cuts have “resulted in higher tax collections” .. people know that’s pants-on-fire bogus, right?
Do people in Wisconsin understand the 2013-15 income tax cats represent $500m in lost budget funds for the 2015-17 budget? (according to LFB analysis..)
Do they understand that all these wildly unpopular education cuts these Republicans are bemoaning are because Republicans enacted tax cuts 24 months ago? Right?
Thanks to Steve for calling attention to this. Remember that Darling and Nygren also produced the “$535 million surplus” lie that Walker peddled the last month of the 2014 campaign, on absurd assumptions that were never going to happen (and didn’t). Same thing is happening here.
The next time these scared fools say that “we’ll have more revenues in May”, ask them how they know that, and tell them to provide actual numbers. They can’t, because those numbers don’t exist. I crunched the numbers, and they’re in line to be no different than when Walker handed in the budget 2 months ago.
http://jakehasablog.blogspot.com/2015/04/can-buckys-run-close-budget-gap.html
And oh yeah, Medicaid enrollments have been coming in higher than what was projected, so there’ll be more expenses on that end as well. I wouldn’t count on much being available to fill Walker’s many budget holes.
It’s a crying shame that Walker’s irresponsible budgeting doesn’t get out to the states where he’s campaigning for the presidential nomination.
Those suffering include kids in public schools, the UW System, BadgerCare recipients [his rejection of Federal Medicaid funds},
and food stamp recipients. Republicans ought to be reminded of the implications of his budget choices.
It is kind of puzzling just how silent Conservative press and pundits get when articles like this come out. I read a few notable websites and none have even attempted at discussing the Kansas disaster, and no one is tackling Wisconsin either.
Why do so many people bring up the Medicaid expansion? That money wouldn’t help the budget at all… it would only go towards covering people on medicaid that are covered by Obamacare anyway.
Any projected increases in tax collections are fairy dust. The LAB should be expecting very small tax collection increases (1-2%) and here’s why.
Conservatives keep talking about how government programs create incentives for people and then never mention any of the negative incentives they have created. So let’s talk about one: the Manufacturer’s & Agricultural Credit.
Passed with little fanfare in 2011, Walker himself touted it to the WMC as a means of “tax exemption” for business people http://host.madison.com/business/biz_beat/windfall-rich-will-get-richer-from-new-tax-credit/article_bfe745dc-a44a-11e1-a1b6-001a4bcf887a.html
Properly structured through some rather inexpensive legal filings to convert corporations into a LLCs, LLPs, etc. This stealth tax bomb has been revving up since then to the point where it now can provide complete tax exemption from Wisconsin personal income taxes for all owners of manufacturing and agricultural concerns. Yet the Legislative Fiscal Bureau has repeatedly underestimated its impact and it is now twice the original anticipated amount http://host.madison.com/business/factory-owner-tax-cuts-cost-million-more-twice-original-projections/article_81c2fae4-c387-11e4-99d4-1f24e8b06319.html
And it’s not merely a Wisconsin problem, Kansas is getting socked as well on their own tax exemption for business (although it is broader than Wisconsin’s). http://www.miamiherald.com/news/politics-government/article19091628.html
The problem is the same in both cases. Neither fiscal bureau anticipated wide-spread changes in business entity organization to take advantage of the new tax exemption. One of course needs to wonder why no one thought that a business might go through the trouble to achieve total 100% exemption from taxation that can be passed on THROUGH TO THE OWNERS FOR USE AGAINST THEIR PERSONAL INCOME TAXES. But then recent history of GOP thinking has been pretty astonishing to me.
I would anticipate the impact will double and then double again, to total about $1-billion by 2016-2017. Only publicly traded corporations will continue to use the corporate entity form, all others will be LLCs. So long corporate tax collections.
Also, someone should note that sales taxes in Wisconsin have increased because of sub-prime auto lending; a bubble which is rapidly deflating.
Anyone projecting tax collections increases in the 3-4% (and above) range in this environment should not be taken seriously.
This might help, AG.
http://www.jsonline.com/news/statepolitics/wisconsin-loses-206-million-by-not-fully-expanding-badgercare-b99331674z1-271552321.html
Dave, it does help. It helps make my case.
If you look at the details of Walkers plan, the extra cost doesn’t come from him moving people to Obamacare, it comes from the poor individuals w/o children who were added to Badgercare. If they had expanded medicaid using the federal funds it would not have covered these individuals and the costs would still remain. (or those people would be without coverage) However, by moving some individuals that qualify for Obamacare, the state was able to bring those individuals w/o children onto Badgercare. Did it cost the state more money to cover these people? Yes. Are there more people covered by health insurance now? Yes, definitely. Would the state have spent even MORE money if we accepted the medicaid expansion AND brought in the new enrollee’s to Badgercare? Yes.
The people who say we lost money b/c we didn’t accept the medicaid expansion either don’t want people without children on Badgercare or they don’t understand where the additional “lost” revenue is coming from/going towards.
Where is Bruce Thompson to back me up on this one? BT, are you here?
Didn’t Kansas turn to Arthur Laffer for guidance some 30 or so years after he was discredited by pretty much every Economist with half a brain? That state is a mess.
All advancements in Scott Walker’s political career has been based on this very phenomenon. People outside of Milwaukee either didn’t know, or didn’t care what he did as County Executive and elected him anyway. Shame on the whole country if they fall for it again…
AG, it doesn’t seem like you read the article. It has to do with reimbursements for care from the feds increasing from 60% now to 100% in Obamacare until 2020 & then continuing at a 90% reimbursement rate.
That’s where the state could be saving hundreds of millions of dollars; this year, last year, next year & beyond.
The numbers are from the Legislative Fiscal Bureau which I tend to trust, AG. I will admit, though, it is a little confusing and could use some clarification.
Tim, I’m sorry but it appears you’re the one that didn’t read (or understand) the article. What you’re saying is incorrect. The 100% coverage (and 90% after the reduction) is only for new enrollee’s under the expanded program. That being said, those 97k childless adults would NOT fall under that expansion, just as all previous people enrolled would not either. So technically speaking, Walker’s program costs the State more… but because of his plan more people are covered by a plan (Badgercare or Obamacare) than would have if they had just followed the basic Badgercare expansion.
The higher costs to the state are not due to the reimbursement rate but because more people are in programs now than if he had just accepted the basic expansion.
Dave, I have to agree, it’s quite confusing the way it’s written in that article. Bruce Thompson did a better job when he discussed it in his Data Wonk column.
To understand what was is occurring in Walker’s Wisconsin read Thomas Frank’s book, The Wrecking Crew…How Conservatives Rule.
AG, the legislative research bureau seems to have taken those concerns into account. I haven’t finished reading this document in full, but have spent a little time looking it over & it seems to confirm that.
http://legis.wisconsin.gov/lfb/publications/Miscellaneous/Documents/2013_02_15WILeg_EP_SA.pdf