Thursday, May 9, 2013

It's a surplus, but it ain't working for most of us

   I'm sure the righties are all pointing their fingers and claiming vindication with the Legislative Fiscal Bureau's release of revenue estimates that add another $575 million in revenue by the end of FY2015, resulting in a projected surplus of $524 million that can now be played with. Well, since revenues are up, it must mean that Walker policies are "working" after all, and that this state's going in the right direction economically, despite the bad jobs stats.

Umm, not exactly. Let's check out HOW we got that revenue upside surprise.
At the time the January estimates were prepared, income tax collections through December, 2012, (after adjusting for timing impacts) were running 4.3% above collections for the same period in the previous year. However, this growth rate was a significant improvement over the preceding months. In November, 2012, year-to-date collections were only 2.8% higher than in the previous year, and in October, they were 1.9% higher. The January estimates assumed that the 4.3% growth rate would not be sustained, because of a relatively large indexing adjustment for tax year 2012 and tax reductions that were taking effect or being phased in in 2012.

To-date, the expected deceleration in collections has not occurred. As of the end of April, year-to-date income tax collections are running 7.0% above last year's amount. April was an especially strong month, with growth of 12.4% over April, 2012. The main area of strength has been quarterly estimated payments of taxes on non-wage income, primarily business and investment earnings. Estimated payments in April, 2013, were 35.9% above last April's amount, and the year-to-date amount is 24.4% higher. Another, much smaller component of income tax collections is withheld taxes on profits distributed to the owners of pass-through entities (partnerships, limited liability companies, and tax-option corporations). These collections were also very strong in April, with monthly growth of 49.1%. Year-to-date growth in pass-through entity withholding is 45.7%. Income tax refunds (net of payments with returns) are almost identical to last year.
And this is also reflected in increases in corporate taxes as well.
Compared to the previous estimates, the revised estimates represent increased corporate income and franchise tax revenues of $55 million in both 2012-13 and 2013-14, and $80 million in 2014-15. The new estimates reflect year-to-date corporate income and franchise tax collections, particularly corporate pass-through entity collections, which are over 40% higher than last year. In addition, corporate profits are forecast to increase over 4% in 2014.
Looks like the profits and stock gains and those types of business and investment revenues are going gangbusters (kind of like the stock market is right now). Looks like we should be booming. So why aren't we doing so? Here's why.
In contrast to the strength in estimated payments and pass-through entity withholding, revenues from withheld taxes on wage income have shown weakness. Since the previous estimates were prepared, withholding taxes have increased by 0.9% compared to the same four-month period last year. The year-to-date rate of growth in withholding collections has fallen from 3.8% at the end of December to 2.5% at the end of April. Withholding taxes are the largest component of individual income tax collections, and will likely account for more than 90% of the income tax revenues that will be collected over the remainder of 2012-13.
OOOPS! Wages are basically flat for the start of 2013 vs. 2012 in Wisconsin, and the rate of wage growth is slowing down. MAJOR problem. In addition, sales taxes weren't revised at all, and are projected to barely grow above 2% during fiscal 2013. And that number is NOT adjusted for inflation, meaning total sales also are basically flat over the last 12 months. Not that I needed any reminding, but this shows NONE OF THESE PROFITS HAVE TRICKLED DOWN, and real Wisconsinites are falling rurther and further behind, even as the aggregate numbers on the surface look good.

And those revenue numbers don't take into account the needed increases in spending for the last two months for Logisticare, or the increased monthly costs that'll go to new provider MTM (who will start on August 1, as was announced this week). Also, it doesn't account for the tens of millions of dollars that will be needed to make up funding for the sequester cuts, since it seems unlikely that it will be repealed. And oh yeah, there's still a sizable deficit in the Transportation Fund lurking, and still needs to be fixed.

So while the GOPs may brag on the numbers, the reality on the ground is that those numbers further illustrate the increase in inequality and wage stagnation that have been a hallmark of Fitzwalkerstani policy. And that's a trend that isn't going to change any time soon.


  1. CES for the first three months of this year shows a year-on-year total job gain of 1.0%. So the 0.9% rise in withholding taxes suggests per-job wages are slightly down in real terms and down by nearly 2% in real terms.

    Sales tax projections... up 2.1% for FY13, 2.7% in FY14, 2.4% in FY15 or in real terms about 0.4% in FY13, 1.2% in FY14, 0.8% in FY15. Clearly we're either going to enter a very localized jobs recession (in absolute numbers) and/or jobs are going to continue to pay less, perhaps causing the former anyway.

    You know, I used to think that the tepid national recovery would create sufficient upwards pressure on Wisconsin's figures that we'd avoid actual year-on-year job losses. Now... I'm not so sure any more.

  2. Well written, as always, although I am disappointed that the large increase in projected tax revenues was not caused by burgeoning sales. I had hoped that increased demand would require increased employees; that's not happening.
    I still wonder why the disconnect is so dramatic and whether our job stats will ever break out of the bottom quintile. I think not.

  3. Thanks for the kind words from both of you. It's not only Wisconsin that the "higher profits, lower wages" economy is happening, but I'd argue Walker policies are INTENDED for this kind of result. When you diminish unions, cut corporate taxes, and de-emphasize education and entrepreneurship, this is what's going to happen.

    I just wish the Dems would step up and tell this truth. Witch did some of it at Joint Finance today, but it doesn't happen enough. And until people's improved productivity is rewarded with the wages they deserve, this bifurcated economy will continue in Wisconsin, and we won't drag ourselves out if the job doldrums

    1. I meant to say "Wirch". Stupid iPhone Autocorrect

    2. "Witch"? I thought you meant Ms Darling. Ha.
      IMHO, the austerity track does lead to a balanced budget but certainly is not a catalyst for job growth. So Walker is caught between two promises that conflict each other and he has no choice but to trumpet the one that seems to have worked and wonder how to resolve our job growth embarrassment. I continue to believe that neither economic theory works in isolation but the Keynesians are taking all of the criticism.

    3. I'm going to wait for the DWD to pre-release the 2012Q4 QCEW figures next week with baited breath: if they do, it's bound to be bad news for Walker.

      If they don't then it'll be an abandonment of the pre-release policy and make the Wednesday, May 16th, 2012 pre-release of 2011Q4 data look undeniably opportunistic.