Tuesday, December 23, 2014

Hidden revenue report shows Wisconsin still in the budget ditch

With the acquittal in the killing of Dontre Hamilton taking up a lot of the interest of the media in Wisconsin’s largest media market, it allowed the Walker Administration to drop the report of the state’s November tax revenues on Monday. And as I figured, the reason they were hiding the numbers are because they're not good, as overall tax collections were down even more in November, and for the fiscal year as a whole. We’ll use the adjusted figures from the Department of Revenue, as they reflect end-of-the-month money that was earned in November, but wasn’t counted until December due to the 30th being over a weekend.

Wisconsin Gen. Fund Tax Revenues, FY 2014 vs FY 2015, YTD
FY2014 $5.258 billion
FY2015 $5.113 billion (-2.8%)

Income taxes have been really off, down 7.3% in November 2014, and 6.3% for the first 5 months of Fiscal Year 2015. That being said, some of that can be explained due to the decrease in withholdings that was done to "show" people the effect of the Koo-Koo tax cuts from 2013, along with other gimmicks. Based on LFB projections, this means that $55 million a month is not being taken out at this time in FY2015 vs FY2014, so we should add that to the income tax totals to get a true idea on how things look (it's also fair to adjust upwards because tax refunds will be less in early 2015 to make up for the lower withholdings. Cool, huh?).

When you add $275 million in income taxes to the total, it turns that number to a positive, but not by much (2.3%). This is well behind the 6.21% increase in income taxes for 2014-15 that the DOR projected in its estimates last month. That report still projected a $132 million shortfall between now and June 30, even with the rosy revenue figures.

Let’s plug in the adjusted year-to-date 2.3% increase in income taxes along with the strong 4.94% increase in sales taxes (this is the one good part of the revenue report), and assume corporate taxes get out of its current 5.9% hole and wind up being even with 2014’s figures. With excise and other taxes largely barely below predictions (I'd estimate them to be $20 million above last year's total, which would be $4.1 million short of the DOR estimates in total), here’s what revenues end up being in comparison with the DOR estimates.

Income tax -$276.0 million
Sales tax +37.2 million
Corporate tax -$41.1 million
Excise and al other taxes -4.1 million
TOTAL SHORTFALL $284.0 million

Add that $284 million shortfall on top of the $132 million we're already short, and that number becomes a $416 million hole that must be made up in the next 6 1/2 months. It also leaves us further in the ditch for the next budget, above the $2 billion in deficits that I estimated at the end of last week.

Can't say we didn't try to warn you when it happened, and when the election campaign was going on. But apparently too many people were paid off to tell the truth, and too many others were too gutless to ask when the bill was going to come due from these Election-based tax cut stunts. And now we're all going to suffer the consequences for this fiscal recklessness.


  1. Impressively concise but still a lot to absorb. I think people care but don't and/or can't connect the dots. Some of these reports are so obtuse and laden with special language that people give up.

  2. That's a big reason I write what I do, Bill. Because there is a whole lot to deal with, and budget geeks like us have a hard enough time getting through it. The average Joe/Jane just sees a number and doesn't know where it comes from or what it means.

    But it's a big deal, because politicians rely on the ignorance of the masses in budgets to sneak things by them.

  3. HI Jake,

    I, like you, was awaiting the "hiding in plain sight" release of this data. Don't know if the news even made the Capital Times.

    As I predicted months ago (over at Econbrowser) the restructuring of Wisconsin businesses in the wake of the Manuf. & Farmer's credit is showing up in earnest now. The decrease will only gather speed after the first of the year.

    Also I don't think the corporate tax revenues are coming back any time soon, as it is part of a secular trend (see Tim Taylor's blog http://conversableeconomist.blogspot.com/2014/12/opting-out-of-us-corporate-income-tax.html) that is slowly eliminating corporate income taxes as a government revenue source.

    I don't think a $3-$3.5 billion biennial deficit is out of the question come June. It certainly won't be good times for schools, the UW, Medicaid, or shared revenues.

    But, elections have consequences, as the people of Wisconsin are about to discover.

    Dr. Morbius

  4. Get ready for huge social services cuts.

  5. Im not so sure anyone will "discover" anything.
    They will cut slash and burn their way through every program they can find and the faithful will say "Its good that Scott Walker did that!"
    Meanwhile they will also raise taxes and fees around the margins that will also be framed as sticking it to those freeloaders like those jerks who use our highways for free with their electric cars.
    Orwell will be laughing.

  6. Hi Jake! I've also tried to study this stuff, and here's what I came up with: http://www.isthmus.com/forum/viewtopic.php?f=35&t=57071&p=774320&hilit=one+stop+shop#p774320

    ,,, also wrote an article in the easiest terms I could cop with for the Wisconsin Media Co-op. It was difficult precisely because the Walker Admin. set it up as a mask behind a mask behind a mask: http://wcmcoop.com/2014/10/20/smoke-mirrors-wisconsins-actual-debt-and-the-fabricated-surplus-and/

    I emailed this article to WSJ to help them understand what they're missing, perhaps intentionally. Although I was surprised that they finally made the distinction between the Cash Accounting method Walker is using and the GAAP deficit in their December 19 editorial, they still left out all of the other gimmicks Walker is using...

  7. Seems like this post grabbed a lot of attention, which I view more as a reflection of how little the "legit" media is talking about it. And I agree with Bernie that the deficit may be a good excuse for privatization measures and other gutting of services, which is what a certain segment of right-wing world wants.

    But there is one drawback in Walker World to this- a huge part of Walker's argument for president will be "see, you can cut taxes, screw unions, and the budget will still be balanced and things will be just fine." And that's where we have to come in and tell the unsuspecting just how false that argument is.

  8. I'm afraid Bernie is correct about the "It's good Scott Walker did that" mentality. I was recently talking to a neighbor at a local pub. Knowing his political bent I avoided politics until he made the comment that he thought Walker was doing a good job so far. When I told him I would let that go as long as he could come up with a reason for his statement. He just got mad and ignored me. I am rural Wisconsin and it is ignorant out here. This guy is respected in the community and the better portion of the community is the same way. I hope the brick they need to smack them in the head isn't too big because it affects us all even though we didn't vote for it.

    1. Good story, Anon. You're describing classic authoritarian behavior from a "big fish, small ponder" who truly needs the damage to effect HIM to see why it's a bad idea.

      And as I mentioned in another post, that type of mentality drives young people with talent out of those communities, making them wither in power and economic growth. The question is "Do they want to fix it, or is the ignorance easier?"

  9. Has the Milwaukee Journal Sentinel weighed in yet on the report released on 12/23?

  10. Makes you wonder about the type of world we would be living in if Scott Walker were elected POTUS like which national park he would sell off. Hard to believe that this ditch once you strip away all the smoke and mirrors has been dug with a recovering economy in the US as a whole. I remember during the debates that Burke tried to up the issue money troubles with with the short fall in revenue and the growing deficit and Walker just blew it off as something that would naturally take care of it's self. At least in the Jim Doyle days he had a tanking economy to point to with his fiscal woes what do we have now? We got the flim flan man in a cheap suit and a bald spot running a shell game taking in the rubes. We're going to wish we were in Kansas by the time things are done. No disrespect to Kansas they've got their own problems which are very similar to Wisconsin's.