Wisconsin tax revenues, Dec. 2014 vs Dec. 2013
Income taxes -3.2% vs Dec 2013
FY 2015 Year-To-Date -6.4% vs FY 2014 YTD
Sales taxes +3.7% vs Dec 2013
FY 2015 Year-To-Date +4.7% vs FY 2014 YTD
Corporate taxes -11.2% vs Dec 2013
FY 2015 Year-To-Date -8.0% vs FY 2014 YTD
Excise taxes -2.1% vs Dec 2013
FY 2015 Year-To-Date -2.6% vs FY 2014 YTD
Total taxes collected -2.6% vs. Dec 2013
FY 2015 Year-to-Date -2.6% vs FY 2014 YTD
To control the damage from that report, the DOR quickly followed with this document, which tries to indicate that revenues are doing juuuuust fine, and that there’s nothing to worry about. However, a quick look inside the numbers shows that there is plenty to fear from what our current and future budget numbers are likely to hold.
Let’s start with the income tax figures, since those make up the majority of the state’s General Fund revenues. These figures have been down compared in Fiscal Year 2015 compared to Fiscal Year 2014 in no small part due to two rounds of Koo-Koo tax cuts, and the moving of withholding tables in April 2014 that have reduced the amount of money that was coming in to the state (what, you didn’t notice the extra $10 a paycheck you got?). The Legislative Fiscal Bureau estimated this change in withholding tables to be equivalent to about $55 million a month (as noted under Provision 16 on Page 10 of this PDF). As a result, it is only fair to adjust the income tax figures accordingly, to make an apples-to-apples comparison, which means that we should add $330 million to the income tax totals for FY 2015 at this time.
Adjusted income tax revenues YTD, FY 2015 vs FY 2014
FY 2014 YTD $3.617 billion
FY 2015 YTD $3.714.8 billion (+2.7%)
A 2.7% increase in income taxes looks good on first glance, and that $330 million in added revenue also means the adjusted overall tax revenue increase is just under 2.3%. But this hides a second concern that will become more apparent in the coming months, because what goes down must come back up when it comes to adjustments for this. And the LFB spells out how that’ll happen.
In 2014-15, withholding taxes will be reduced for twelve months, which will be partially offset by lower refunds (and larger remittances) paid in the Spring of 2015. However, the lower refunds will reflect only nine months of reduced withholding taxes in calendar year 2014 (from April through December), which means there will be a second one-time loss in 2014-15. Beginning in 2015-16, the reduced withholding taxes will be offset by lower refunds and higher remittances during the tax filing season [in Spring 2016].That’s right, we’re looking at lower tax refunds for this year, so I hope you didn’t blow all of that $10 a paycheck already.
As a result, income tax collections should go up compared to 2013-14 solely on the basis of these lower tax refunds. Here’s my crude calculation of how that adjustment will work:
Jan ‘15 adjust -$55 million due to lower withholding vs 2013-14
Feb ’15 adjust -$55 mil for withholding, +$165 mil for lower refunds
Mar ’15 adjust -$55 mil for withholding, +$165 mil for lower refunds
Apr ’15 adjust NONE for withholding, +$165 mil for lower refunds
May- June 2015 no adjustments either way.
NET CHANGE IN ADJUSTMENTS +$330 million
So now that we know the adjustments for income taxes, let’s go back to the DOR projection of revenues, and see what needs to happen to hit the target by the end of June.
Jan-June 2015 change needed to hit DOR income tax target
Adjusted income tax change needed +9.9%
Current adjusted income tax change FY 2015 +2.7%
PROJECTED SHORTFALL $247.5 MILLION
We can do the same analysis for the other 3 main taxes in Wisconsin as well, and you’ll notice corporate taxes are especially lagging (calling Dr. Morbius!).
Jan-June 2015 Sales tax change needed to hit DOR target
Sales tax change needed +3.7%
Current sales tax change FY 2015 +4.7%
PROJECTED SURPLUS $26.3 MILLION
Jan-June 2015 Corp. tax change needed to hit DOR target
Corp tax change needed +16.1%
Current corp tax change FY 2015 -8.0%
PROJECTED SHORTFALL $118.4 MILLION
Jan-June 2015 Excise tax change needed to hit DOR target
Excise tax change needed +3.7%
Current excise tax change FY 2015 -2.6%
PROJECTED SHORTFALL $24.6 MILLION
I’ll be generous and assume all of the remaining minor taxes add up to the DOR projections, so based on these four categories, here’s what we get.
Projected budget revenue pace vs DOR projections, FY 2015
Income tax -$247.5 million
Sales tax +$26.3 million
Corporate tax -$118.4 million
Excise tax -$24.6 million
ESTIMATED TOTAL SHORTFALL $367.6 MILLION
And remember, the DOR estimated a $132 million budget shortfall for this fiscal year even with their rosy revenue projections, so add $367 million onto that, and you are right at $500 million that has to be made up in the next 6 months. And with another $735 million or so that must be added onto the $2.2 billion deficit for the next budget, because the revenue shortfall means a lower base to start from, you're looking at a looming 2015-17 deficit near $3 billion.
Yep, we're still in the ditch, and no matter how the Walker appointees try to spin it, we’re going to stay there, barring some miraculous boom in revenues between now and the end of June. And as Sunday's Packer debacle reminded us, the only miracles in these parts recently seem to be the negative kind.