The first problem comes from bills passed in the last GOP-run Legislative session- corporate tax cuts which will explode in cost for the coming years. Remarkably, the Walker DOA budget request projects corporate taxes to go UP during the 2013-2015 budget, despite these cuts. It says corporate tax revenues will rise from $865 million in FY2013 to $897.6 million in FY2014 and $887.1 million in FY2015. The Wisconsin Budget Project estimates the cost of 2013-2015 tax cuts at $439 million, with much of that coming from the corporate tax side, and they described some of the giveaways that will increase over the next two years.
- The start of a nearly total phase-out of income taxes for manufacturers and agricultural producers, $102.2 million over two years.
This new credit is based on income derived from manufacturing or agricultural property, and can be claimed through the individual or corporate income tax. It phases in over four years -- starting at 1.9% of business income in 2013, and gradually increasing to 7.5% in 2016 and beyond.
The corporate income tax rate in Wisconsin is 7.9%, so when the credit is fully phased in, businesses receiving the credit would be paying an effective income tax rate of 0.4% on income that qualifies for the credit. A business with $1 million in taxable income could see its taxes drop from $79,000 to $4,000.
When the credit is fully phased in, businesses will be paying an estimated $129 million less in income tax each year. The cumulative ten-year cost of the credit is $874.5 million. The credit does not require businesses to create any jobs. In fact, even businesses that initiate massive worker layoffs could qualify for this tax break.
In tax year 2012, individuals can deduct up to $3,000 in child and dependent care expenses, up from a maximum of $1,500 in 2011. For tax year 2013, the maximum deduction rises to $4,500. It was originally enacted as part of the 2007-09 budget, but the phase-in was later postponed.
- A deduction for child care expenses, $9.2 million over two years
A law that went into effect in April 2012 made changes to the parameters for businesses that investors may invest in to get this income tax credit, and relaxed rules on how long investors must hold investments to qualify for the credit.
- Loosening restrictions on investments that qualify for angel investment credits, $9.1 million over two years
Corporations who expand or modernize a dairy farm are eligible to receive a credit for up to 10% of the cost of the activities. This credit was originally set to sunset at the end of 2011, but legislation was passed that extended the credit through the end of 2016. So THAT'S why all those huge farms had "Thanks Walker" signs along the interstate.
- A credit for expanding a dairy farm, $4.4 million over two years
- Allowing corporations located in multiple states to shift prior losses to the state with the most favorable tax treatment, $3.8 million over two years
Multi-state corporations can shift businesses losses incurred before 2009 to other states. Starting with tax years beginning in 2012, a corporation can use up to 5% of its business loss to offset its total income, for the next 20 years.There are a few items that would help actual people, like the expansion of a write-off for people who pay for their health insurance premiums, and breaks for businesses that hire veterans and produce biofuels. But on the whole, these are tax cuts that will do little to nothing for Wisconsin small businesses, and will cost the state revenues that could be built into infrastructure and services that generate economic development.
Wisconsin corporate taxes are already off to a slow start in FY2013, down 8.5% for the first 5 months of the new fiscal year, while the Walker DOA only projects a 4.6% drop in their budget. A 4% shortfall in corporate taxes is about $35 million a year, not a lot in the big picture, but it also doesn't include the coming tax breaks that'll make that shortfall bigger.
The Walker DOA also built its budger request under another wrong assumption- that all aspects of the fiscal cliff would hit, and that Wisconsin's estate tax would fully kick in for 2013. Well the deal that was struck in Congress during New Year's takes that revenue out of the equation, as an article from the Wisconsin Reporter (!) explained
...Congress did, indeed, pass this week a deal to avert major tax increases for most Americans and spending cuts economists said would threaten the economic recovery.
In doing so, Congress kept about $219 million from coming to Wisconsin in the form of estate taxes, money the Department of Administration was counting on in projecting that tax revenues would grow by $1.5 billion over the coming biennium.
Already, however, the DOA said state agencies’ requests for funding exceed expected revenue for the biennium by $171.4 million, with the $219 million factored into the equation.And the Wisconsin DOA concurred, saying the state estate tax is gone under the deal. So strike another $219 million from that "balanced budget." The other part of the fiscal deal Congress struck put off the mandatory spending cuts from the feds for another 2 months, but they are still looming for March. The DOA estimated the effect of this cut as follows:
The fiscal tightening – also known as the fiscal cliff – compels a sequestration of funding streams that Wisconsin receives from the federal government, absent some other agreement. Medicaid and many other programs were exempted from thes equestration order. Initial reports indicate that Wisconsin has about $94 million at stake in fiscal year 2013-14 with the sequestration agreement. About one-half of this reduction would affect federal education transfers to Wisconsin and, therefore, would not be felt until next fall's school year and after passage of the 2015-17 Biennial Budget.I assume the DOA means the 2013-15 budget for school aids, but regardless, that's another $188 million you take away from the revenue estimates, though I'll take $16 million away from that for the 2 months that are funded through March. So combine the restoration of the estate tax credit and the drop in corporate taxes and the threats from Congress cutting state aids and you get.
Estate tax gone - $219 million
Sequestration - $172 million
Corporate taxes down- $70 million
Total revenue shortfall for biennium- $461 million
I'm not even figuring in the fact that revenue growth has slowed for the first 5 months of this fiscal year, which projects to revenue figures that would be below the DOA's estimates. I am also going to go with the DOA's assumption that the U.S. economy will continue to grow at its present pace - around 2 million jobs being added a year and growth of 1.8-2.8 % a year. If Baggers in Congress decide to crash the economy due to the debt ceiling, this obviously goes out the window. So ironically, for the Wisconsin GOP to claim a decent fiscal picture, they have to hope the Congressional GOP is prevented from screwing things up by installing austerity that would drive the economy in recession.
Needless to say, there's a whole lot of Fantasyland in WisGOP's claims of a balanced budget, and we'd better be ready to state these facts as the new legislative session begins, with the Republicans sure to be trying to continue inflicting destructive policies and tax breaks that would send the Wisconsin budget past the point of repair.