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Increasing Both the Earned Income Tax Credit and the Minimum Wage Would Strengthen Wisconsin’s Families

7:57 am in Uncategorized by WI Budget Project


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.
Earned Income Tax Credit
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 inflation

These 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.

Improving both Wisconsin’s EITC and minimum wage will boost the income of low-paid workers and help keep many Wisconsin workers and their families out of poverty. Doing so would reduce the widening gap between the rich and those working in low-wage jobs, which holds our economy back.

Together the EITC and minimum wage do a better job of getting low-income children on a better path. The increase in family income can mean that kids go further in school and have higher future earnings in adulthood.

Both policies mean that low-paid working households can spend a bit more at local businesses – paying for things like gas, groceries, and child care – which is good for the economy.

Boosting the EITC and the minimum wage could help large numbers of workers. In Wisconsin, an increase in the state EITC could help keep taxes low for the more than 250,000 working parents who received the credit. Increasing the minimum wage to $10.10 would give a raise to more than half a million Wisconsin workers, and improve the family incomes of 234,000 children in the state.

Unfortunately, Wisconsin lawmakers give little sign of using either of these policy tools in the near future to improve the earning power of families with low incomes. Raising the minimum wage is not an issue that breaks neatly along party lines; some prominent Republicans, including 2012 Republican presidential candidate Mitt Romney, have voiced support for increasing the wage floor.  But in Wisconsin, Governor Walker called a proposal to raise the state’s minimum wage a “misguided political stunt,” and the legislature hasn’t taken up the issue. Far from improving the state’s EITC, Wisconsin lawmakers made deep cuts to that credit in 2011, increasing the amount of taxes paid by working families with children by $114 million over the last four years.

Together, a bigger EITC and a higher minimum wage can help struggling Wisconsin families make ends meet, boost the state’s economy, and improve children’s chances in life. Wisconsin lawmakers should use these tools to help working families and individuals achieve economic security.
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New Wisconsin Figures Are a Sobering Reminder of the Need for More Prudent Budgets

6:14 am in Uncategorized by WI Budget Project

Structural Deficit in Wisconsin Calculation Jumps to Nearly $1.8 Billion

Financial charts, a calculator and a folded pair of reading glasses

Wisconsin needs better budgets.

It’s remarkable how quickly Wisconsin’s fiscal picture can turn around, even during a period when the national economy is on the mend. During the campaign season two years ago, GOP incumbents in Wisconsin were making a big deal of the fact that they had eliminated the state’s structural deficit.  Today we learned from the Legislative Fiscal Bureau (LFB) that the structural deficit has returned with a vengeance; the new figure of $1.766 billion is the third largest structural deficit estimated by the LFB since 1997 (for the 10 biennial budgets from 1997-99 through 2015-17).

Although that turnaround in Wisconsin’s fiscal picture is surprising to many people, it shouldn’t be.  Wisconsin lawmakers have a long history of banking on surpluses that are estimated during the first half of a biennium (especially in election years) and promising tax cuts and/or spending levels that aren’t sustainable and that lead to big deficits.  And this year by the time lawmakers were putting the finishing touches on the last round of tax cuts, there were already warning signs that the state’s fiscal challenges could be quite a bit larger than the LFB’s previous structural deficit calculations suggested. (See, for example, this March 3rd Budget Project Blog post.)

The mistake that Wisconsin lawmakers made once again was to rely on projected revenue increases, without an adequate contingency plan for a slower rate of economic growth.  The last tax cut bill suspended a state statute that says that when tax collections increase faster than previously expected, half of the increase shall be deposited into the Rainy Day Fund.  And the 2013-15 budget bill once again postponed a statute requiring an increase in the budget balance the state must aim to have at the end of each fiscal year.

The Fiscal Bureau’s new calculations won’t be the last word on the 2015-17 structural deficit; I assume the new figures will be updated after the state has new tax and spending projections for the current fiscal year and final tax and spending numbers for FY 2013-14.  For now, the LFB is simply assuming that tax growth in the second year of the biennium will fall short of previous estimates by the same amount that growth in the first year fell short: $281 million (which is roughly the same assumption that we made in this blog post on Friday.)

What the LFB calculations mean is that if current trends continue, Wisconsin will need nearly $1.8 billion of revenue growth and/or spending cuts to balance the 2015-17 budget.  Some people who derided structural deficits in the past are now arguing that this isn’t a big deal because the state can grow its way out of this problem.  That’s true in a sense, but also very misleading.  Assuming tax collections increase as expected to about $14.4 billion in the current fiscal year, growth of 4% per year in 2015-17 would close the budget hole if total spending is frozen.  But keep in mind that the spending needed for a status quo or “cost to continue” budget typically increases almost as fast as revenue – because of inflation and population growth.  Thus, freezing spending in 2015-17 at the current level would not be a painless exercise; it would require significant cuts in areas like Medicaid, K-12 and higher education, and the corrections system budget.

It’s also important to keep in mind that the current structural deficit calculations focus only on the General Fund and assume that in 2015-17 the state will stop transferring dollars from the General Fund to the Transportation Fund.  In light of the problems in state and federal financing for transportation, there will be significant pressure to continue to make those transfers.

The other thing that is almost inevitable when the state finds itself facing a budget hole going into the next biennium is that lawmakers postpone making the long overdue increase in the state’s budget balance.  I expect that to happen again next year, which is exactly why it’s important to build budget reserves when the economy appears to be strong – rather than locking in tax cuts or spending increases before projected revenue growth actually materializes.

by Jon Peacock


Photo by reynermedia released under a Creative Commons license.

Budget Shortfall in Wisconsin Shows Downside of Risky Approach to Tax Cuts

1:25 pm in Uncategorized by WI Budget Project


Last week we learned that state tax revenues in Wisconsin fell far short of projections for the budget year that just ended. The shortfall means that next year the state is likely to face another round of budget cuts — cuts that slow economic growth and reduce investment in education, health care, and our state’s workforce.

The irony is that not too long ago, state lawmakers were trumpeting Wisconsin’s budget surplus, which neared $1 billion over two years. But instead of using those resources to build up a meaningful budget cushion, state lawmakers rushed to pass tax cuts. Legislators were in such a hurry to cut taxes that they passed a $100 million property tax cut last October in just four days, leaving little time for public debate. Lawmakers also passed two other major tax cut packages in 2013 and 2014.

The three big tax cut packages hurt the state’s bottom line, but they didn’t do much to lower taxes for Wisconsin’s lowest-wage workers. The 20% of Wisconsin workers who earn the least – a group with an average annual income of $14,000 – received an average tax cut of only $48 in 2014 from these three large tax cut packages. In comparison, taxpayers in the top 1% of earners in Wisconsin, who had an average income of more than $1.1 million, received a tax cut of $2,518 on average.

The tax cuts also didn’t do much to create jobs. Private sector employment in Wisconsin continues to grow more slowly than the national average, and in general, the rest of the Midwest has been out-performing Wisconsin in job creation.

The tax cuts didn’t do much to cut taxes for people with modest incomes, and didn’t help create jobs – but they did make it harder for the state to balance its books. The most recent of the tax cut bills suspended a statutory requirement that when revenue is growing faster than expected (which appeared to be the case in January), half of the increase must be set aside in the state’s rainy day fund.  In addition, the governor and state legislators have repeatedly delayed a statute requiring an increase in the budget balance the state must aim to have at the end of each fiscal year.

For now, the state’s fund balance for the 2014 budget year is enough to cover the revenue shortfall. But Wisconsin has a two-year budget, and next year the fund balance probably won’t be enough to cover the budget hole. The Wisconsin constitution requires that the state’s budget be balanced, meaning that new budget cuts may be needed to make up for lawmakers’ unrestrained approach to tax cuts.

The bottom line is that recent budget surpluses offered lawmakers an opportunity to get the state’s budget on a sound footing, but lawmakers instead chose to enact large tax cuts. The state’s current budget difficulties could have easily been avoided if lawmakers had shown restraint in cutting taxes. Read the rest of this entry →

Wisconsin State Tax Collections Fall Far Short of Projections

12:14 pm in Uncategorized by WI Budget Project

$281 Million Revenue Shortfall in 2013-14 Will Mean a Big Jump in the Structural Deficit

A dollar bill cut into shreds, with a calculator

New revenue figues show a major shortfall in Wisconsin.

Wisconsin lawmakers got bad budget news today, when the Legislative Fiscal Bureau (LFB) released state tax collection figures showing that revenue collections fell $281 million (2.0%) short of projections during the fiscal year that ended on June 30. Rather than growing by 1% as anticipated, state tax collections fell by 1%, and that will cause a substantial jump in the state’s structural deficit.

State lawmakers banked on revenue growth when they wrote Wisconsin’s two-year budget and followed up with additional tax cuts. It’s not clear at this point what will result from a substantial revenue shortfall, but one potential outcome is the state could face a new round of damaging budget cuts. What makes the state’s new budget challenge very disappointing is that it could have been easily avoided if lawmakers hadn’t rushed early this year to use every bit of increased revenue projections for another round of tax cuts, without setting funds aside for an adequate budget cushion.

Although sales tax revenue nearly met expectations – falling short by $11 million, or 0.2% – individual income tax revenue was almost $179 million below the anticipated level (a 2.5% shortfall), and corporate income tax collections came in $97.7 million (9.2%) less than expected.

The $281 million shortfall is very worrisome for a number of reasons:

  • The budget provided very little margin of error because it left a closing balance of only $165 million at the end of the biennium (which is just $100 million more than the $65 million required minimum balance). Each of the last several budget bills has postponed the statutory requirement that would significantly increase the minimum annual cushion (known as the “statutory balance”) that legislators are required to set aside.
  • The state was expecting 3.5% revenue growth in the second half of this biennium (i.e., the 2014-15 fiscal year); and now that the 2013-14 base level is 2% lower than anticipated, it will take 5.6% growth in tax 2014-15 collections to hit this year’s target of $14.7 billion (without even closing the 2013-14 shortfall).
  • If tax collections do grow by 3.5% in 2014-15, as previously anticipated, the shortfall will grow by about $291 million this fiscal year, for a total shortfall of about $572 million (or $472 million after subtracting the budget bill’s $100 million “net balance”).
  • On top of these problems, the Dept. of Health Services has projected a $93 million GPR shortfall in the Medicaid budget for 2013-15; and the gaming revenue being withheld by the Potawatomi tribe may also exacerbate the state’s fiscal challenges.

The Fiscal Bureau had calculated in May that the state was facing a “structural imbalance” or structural deficit of $642 million GPR in the next biennium (2015-17), and the reduced revenue estimates will probably add substantially to that problem. That figure represents the amount of revenue growth that would be needed in the next biennium simply to freeze spending – without factoring in any of the increased costs from factors such as inflation and rising numbers of people needing state services.

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Breaking with Tradition in Wisconsin: Taxes and Budgeting

8:55 am in Uncategorized by WI Budget Project

Over the next week, the Wisconsin Budget Project will be highlighting a different piece each day from our larger publication Breaking with Tradition: How Wisconsin Lawmakers Have Shortchanged a Legacy of Investment in the State’s Future. You can access the full report on our website.


Wisconsin lawmakers have passed dozens of tax cuts since 2011, many aimed at people who earn the most. Low income taxpayers have received much smaller tax cuts, and some may even be paying higher taxes than they did before 2011. The emphasis on tax cuts has thrown the state’s upcoming budget out of balance, contributed to rising debt, and diverted money that would otherwise go to the state’s rainy day fund to cushion the blow of the next economic downturn or some other unforeseen event.

Many tax cuts, but those with the lowest incomes miss out

Wisconsin lawmakers have cut taxes 43 times since 2011, draining $1.9 billion in revenue for education and other priorities over that period.1

Few of the tax cuts require businesses to create jobs in order to qualify.

 Among the largest tax cuts were:

  • An income tax rate reduction, included in the state’s two-year budget that passed in 2013, which reduced revenue by $648 million over two years;
  • A 2013 property tax cut of $100 million; and
  • A 2014 tax package that further cut income tax rates and also included another property tax cut. The combined package reduced revenue by $507 million over two years.


Those three tax cuts didn’t do much to lower tax bills for Wisconsin’s lowest-wage earners. The 20% who earn the least – a group with an average annual income of $14,000 – received an average tax cut of only $48 in 2014. In comparison, taxpayers in the top 1% of earners in Wisconsin, who had an average income of more than $1.1 million, received a tax cut of $2,518 on average.2

Fully half the value of the three large tax cuts went to the top 20% of taxpayers by income, and the remaining 80% of taxpayers shared the other half. The bottom 20% of taxpayers by income received only 4% of the value of the three large tax cuts.

It’s also important to note that Wisconsin taxpayers with the lowest incomes pay a larger share of their income in state and local taxes than do taxpayers with the highest incomes. In other words, under our state’s tax laws, those who can least afford it devote a bigger share of their income to pay for services such as schools, roads and bridges, and public safety.


It’s also important to note that Wisconsin taxpayers with the lowest incomes pay a larger share of their income in state and local taxes than do taxpayers with the highest incomes. In other words, under our state’s tax laws, those who can
least afford it devote a bigger share of their income to pay for services such as schools, roads and bridges, and public safety.

Tax hikes on working families and seniors
Policymakers raised taxes on working families and low-income seniors.

In 2011, the Governor and Legislature made significant cuts to two tax credits: one aimed at helping working parents lift their families out of poverty, and one that keeps property taxes affordable for people with low incomes, particularly seniors. Those cuts effectively raised taxes by reducing tax refunds for people who qualified for the credits. Combined, these tax increases resulted in an additional $170 million in taxes paid over the last four years by working families and people with low incomes.3

Rising debt levels
By borrowing money, the state can spread out the costs of big road, building, and other capital projects over many years. But if the state issues too much debt, future repayments will rise, it will be more difficult to balance future budgets, and high debt repayment costs will leave fewer resources for making other investments in Wisconsin.

In 2011, state lawmakers delayed debt payments and pushed those borrowing costs into the future. As a result of decisions like that over the last four years and even earlier, debt repayments reached a record high in 2014. The state has traditionally tried to keep principal and interest payments under 4.0% of tax revenues, but in 2014, they consumed 5.26% of General Fund tax revenues.4

Some progress, but state’s budget cushion still too low
Over the past four years, Wisconsin has made significant progress toward establishing a meaningful budget reserve, but levels are still too low. Lawmakers used money that would normally be deposited in a budget reserve to fund tax cuts.

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Corporations to ALEC: Stop Us before We Extort Again

8:16 am in Uncategorized by WI Budget Project

Conservatives Critique “Tax Cronyism,” and Progressives Critique the ALEC Report

Protester with sign: ALEC Buys Legislators

ALEC wants corporations to pay even LESS taxes.

I was pleasantly surprised to learn recently that the American Legislative Exchange Council (ALEC) has issued a report calling on policymakers to end the wasteful subsidies given to corporations by state and local governments. Their report titled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth criticizes special tax breaks for certain companies, which it points out tend to increase the tax burden on other companies and put them at a competitive disadvantage.

Corporations are very good at extorting costly subsidies from state and local officials, but some of those corporations and a growing number of policymakers are realizing that these incentives aren’t an effective way to promote economic growth. A number of businesses in the Kansas City area have prevailed on Missouri legislators to call a ceasefire to the use of incentives for pirating corporations across the border with Kansas. The ALEC report reflects that many other large corporations have also come to realize that selectively handing out incentives to businesses is an inefficient and inequitable use of government resources.

Although I’m pleased that a conservative group like ALEC is speaking out against “tax cronyism,” the group that has been leading the fight against wasteful subsidies, Good Jobs First is leery of the report – which it says was written by an organization that “is essentially a front for powerful corporations to transmit their state legislative wish lists to business-friendly legislators.” In a recent blog post, Phil Mattera of Good Jobs First wrote a critique of the report that makes a number of interesting and important points.

Mattera notes that ALEC is guided by corporate backers, including 10 companies represented on its Private Enterprise Advisory Council. The Subsidy Tracker database maintained by Good Jobs First indicates that all but one of those 10 companies have received state and local subsidies – including $89 million to Koch Industries, $133 million to United Parcel Service, $202 million to Pfizer, $278 million to Peabody Energy, and $340 million to Exxon Mobil.

Mattera criticizes the ALEC report for blaming policymakers for “tax cronyism” without faulting the recipients of the subsidies or even acknowledging their role in extracting giveaways from state and local lawmakers. He wrote that “the report also fails to acknowledge that big subsidy giveaways are common in states celebrated in the Rich States, Poor States,” which is an annual report written for ALEC by supply-side economist Arthur Laffer.

The other major criticism leveled by Good Jobs First at the ALEC report is that: “their alternative to ‘tax cronyism’ or targeted corporate tax giveaways is generalized corporate tax giveaways. That is, after decades of declining corporate tax rates and corporate contributions to state treasuries, they want big business to pay even less of a fair share of the cost of public services.”

There seems to be a growing number of policymakers on both the left and the right who agree that special corporate tax breaks are wasteful and inequitable. As that agreement broadens, so does the argument about alternative uses for the revenue that is at stake. Let’s have a robust debate about that topic (in the context of broader tax and budget challenges and priorities), but let’s not allow that debate to become an intractable obstacle to the elimination of wasteful subsidies.


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Job Growth in Wisconsin Still Slow, Despite Numerous Tax Breaks

11:35 am in Uncategorized by WI Budget Project

For more information, go to

Wisconsin continues to perform poorly in private sector job growth, according to new employment figures released today.

The number of private sector jobs in Wisconsin grew by 1.2% in 2013, compared to 2.1% nationally. The new jobs figures come from the Quarter Census of Employment and Wages, which this Milwaukee Journal Sentinel article calls “the most credible and comprehensive” figures available.


Wisconsin job growth has been slower than that in neighboring states, according to the Journal Sentinel:

In the first three years of Walker’s term, the data show that Wisconsin ranked 35th of 50 states in the rate of private-sector job growth. That puts it behind the nearby states of Michigan (sixth of 50), which is bouncing back from a searing downturn in the auto industry; Indiana (15); Minnesota (20); Ohio (25); Iowa (28), and Illinois (33).

State lawmakers have passed dozens of tax cuts since 2011, but that hasn’t spurred job growth. Despite nearly $2 billion in tax cuts over four years, job growth in Wisconsin continues to be slower than anyone would like, and our growth in gross domestic product is also well below the national average.

Tax Cut Passes Wisconsin Legislature, but Tax Increase Stays in Place

2:33 pm in Uncategorized by WI Budget Project

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A dollar bill cut into shreds, with a calculator

The Wisconsin legislature’s tax cuts don’t help the working poor as much as the alternatives.

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 that would repeal changes made the Earned Income Tax Credit in 2011 that resulted in working parents with low incomes paying higher taxes. The bill to improve the EITC would have cost $54.5 million over two years, or about 1/10 of the amount of the larger, untargeted tax cut package.

That 2011 tax increase on low-income families is particularly harmful because Wisconsin taxpayers with the lowest incomes pay a higher share of their income in state and local taxes than taxpayers with the highest incomes.  As a result of the 2011 tax increase, a single mother who has three children and works full time at minimum wage has paid about $1,500 more in taxes over the last three years than she otherwise would have.

The budget surplus has presented Wisconsin with a number of opportunities to invest our state’s workforce needs, close budget holes, set aside money for an economic downturn, as well as roll back tax increases on working families. Instead, lawmakers have chosen to pass an unaffordable tax cut that gives a great deal of the benefit to the top earners, and digs a deep hole in the next budget.

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Are Tax Cuts the Way to Attract Start-ups to Wisconsin?

12:43 pm in Uncategorized by WI Budget Project

Insights from a New Survey and the “Epic” Growth in Dane County

A dollar being cut with scissors

Can states attract business without corporate welfare and tax cuts?

In recent years, many policymakers have set their sights on trying to attract entrepreneurs and new start-ups to their communities and states. In some cases they have used that goal to justify tax cuts, which some lawmakers think will be an inducement for innovative entrepreneurs. Scott Walker is among the Governors who are seeking to promote development of new businesses and employing tax cuts as a tactic to pursue that goal.

But are tax cuts an effective strategy for attracting entrepreneurs and boosting the number of start-ups?  A new report adds to the evidence that reducing taxes is not what entrepreneurs are looking for, and is likely to be a counterproductive strategy. And if we turn our attention to the Dane County economy, the extremely dynamic growth of health care IT companies, led by the explosive growth of Epic, reinforces the conclusion that the playbook of conservative politicians pushing for lower taxes and reduced regulation is not what drives the growth of small businesses.

The new report was released a couple of weeks ago by Endeavor Insight – the research department of the non-profit Endeavor, which strives to foster and mentor “high-impact” entrepreneurs. Their report is based on surveys and interviews with 150 founders of some of the fastest-growing American companies. Some of the report’s key findings include the following:

  • The top rated factor by far was access to talent, which was mentioned by nearly a third of those surveyed as a key factor in their decisions for where to live and work. Many specifically cited access to technically trained workers.
  • Similarly, many said they were drawn to places with cultural amenities and a strong quality of life, which will attract a larger talent pool.
  • Two other key factors in the location choices of entrepreneurs are major transportation networks and proximity to customers and suppliers.
  • Very few said taxes were a factor.  In fact, only 5% of those surveyed mentioned low taxes.
  • A mere 2% named business-friendly regulation as a factor in their location decisions.

The report says the top business creators generally gravitate towards cities with at least a million residents in the metro area. Madison appears to be an exception in that regard, but it offers the amenities and vitality of many larger urban areas.

Another finding is that a city needs to be able to appeal to the young and the restless because entrepreneurs are highly mobile in the early phases of their careers, “following personal ties or certain lifestyle amenities while also seeking the right environment to launch their enterprises.” However, the report says 80% of respondents had lived in their current city for at least two years before starting their companies, and once they launched their first company they rarely moved.

The report concludes: “The magic formula for attracting and retaining the best entrepreneurs is this: a great place to live plus a talented pool of potential employees, and excellent access to customers and suppliers.”

I was reminded of the report’s findings when I read an article in the latest Isthmus about the tremendous boom in employment in Dane County from EPIC and the numerous health IT companies created in recent years by former EPIC employees.They are starting and expanding those businesses in the Madison area for all of the reasons cited by the entrepreneurs interviewed for the Endeavor report. Our state and local taxes and spending contribute to the quality of life, the pool of talent, and the growth of well-paid jobs in the IT sector.

Start-ups and other small businesses account for a large percentage of job growth, so it makes sense for state and local policymakers to want to assist them. But some lawmakers have a bad habit of assuming that entrepreneurs want the same low tax, small government agenda advocated by people like the Koch brothers. The Endeavor report and the health care IT growth in Dane County indicate that not only is that a mistaken assumption, it could also be a counterproductive way of trying to court new entrepreneurs and the well-paid jobs that those small businesses can generate.

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Wisconsin: Increased Tax Revenue Creates Opportunities to Close Budget Gaps and Invest in the Future

2:17 pm in Uncategorized by WI Budget Project

A big jump in state revenue that will be announced soon gives lawmakers an excellent opportunity to invest in Wisconsin’s economic future and to put the state on a sounder fiscal footing by filling budget holes.

Wisconsin State Capitol

Wisconsin State Capitol

In an interview today, Governor Walker said that new revenue estimates for the 2013-15 budget, which will be released soon by the Legislative Fiscal Bureau, will be hundreds of millions of dollars above the projections that the current budget bill was based on.  According to a Journal Sentinel article today, sources said the revenue increase “could approach $1 billion through mid-2015.”

A big increase in revenue is very welcome news, but not a huge surprise.  State tax collections reported by the Dept. of Revenue have been strong in recent months, and as I noted in a previous blog post, Minnesota announced in early December that it now anticipates an increase of about $1 billion in its budget surplus.

Under current statutes, after the Wisconsin budget is passed, half of any revenue increase has to be allocated to the state’s Rainy Day Fund, and the Governor acknowledged today that some of the increase would be used to build up that fund.  However, Governor Walker said he will propose a plan next week to cut income and property taxes, and to adjust the state’s income tax withholding tables (to reduce the amount withheld, which would also reduce tax refunds).

Before lawmakers decide to use the increased revenue for tax cuts, some other ideas merit their attention.  First, legislators and the Governor should start by putting the state’s fiscal house in better order by reducing debt and filling holes in current budget commitments.  For example, the state has a deficit of about $93 million in its Medicaid budget, and a potential hole of at least $19 million in funding for the welfare to work program.  Lawmakers could also use the increased revenue to pay down state debt, which has increased by more than a fourth during the last five years.

The improved revenue picture also provides an opportunity for lawmakers to make responsible investments that will improve our state’s future economic competitiveness.  In particular, we should invest in the K-12 and higher education systems, and also in early education where the long-term payoff is the greatest.

Another high priority should be to reverse the tax increases for low-income families enacted in the 2011-13 budget, when lawmakers cut the state Earned Income Tax Credit and ended the annual inflation adjustments for the Homestead Tax Credit.  (Read more here about the need to reverse those tax increases.)

In short, let’s seize this opportunity to develop a bipartisan, fiscally responsible approach that helps all Wisconsinites.  That approach should close budget holes, invest wisely in Wisconsin’s infrastructure and our people, and undo recent tax increases for some of our state’s most vulnerable households.

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