Wednesday, February 11, 2015

Walker Admin's brings back budget lie of "What if?"

This is how zombie lies start, and then continue to live when you have a media that won’t call out bullshit.
[Wisconsin Department of Administration] Secretary Mike Huebsch says should state revenue projection come in higher than anticipated, Gov. Scott Walker's top focus would be cutting taxes…..

The Legislative Fiscal Bureau typically re-estimates state revenues for the upcoming biennium in May if it sees evidence they need to be adjusted. Lawmakers have already suggested any additional revenues should go toward things like boosting K-12 funding, reducing the size of Walker's proposed $300 million cut to the UW System or lowering the amount of bonding for transportation.

Huebsch said after tax cuts, additional revenues would likely be directed toward some of the five largest areas of spending in the state budget, including K-12 education, Medicaid, the university system, shared revenue and corrections.
Here’s why that statement is crap. THERE IS ZERO EVIDENCE THAT REVENUES WILL BE HIGHER, and if anything, are likely to be lower. It’s like saying “well, here’s what I’d do if I hit the $500 million Powerball tonight,” but I sure as hell wouldn’t plan on it happening. And I definitely wouldn’t expect others to think that's how I was planning my future. But the Walker Administration has pulled this hopeful "well, if this happens and this happens and this happens” garbage continually for the last year, and our media sits with its thumb up its ass and lets it waft out there as if it’s going to happen. It never does.

Let’s start by going back to the LFB’s revenue estimates from 3 weeks ago, which is a starting point for this budget. Here’s what the LFB predicted would happen with income tax revenues through June 30, which covers the rest of the 2015 fiscal year, as well as the next fiscal year.
Over the remainder of 2014-15, it is anticipated that collections will increase by 15.1% due to several factors. First, refunds for tax year 2014 will be significantly reduced and final payments will be increased because of the decreased amount of withholding taxes paid since last April. Also, beginning in April, 2015, growth in withholding collections should improve significantly because the current-year receipts will no longer be compared to collections that were based on the previous, higher withholding tables. In addition, it is believed that federal tax increases enacted late in 2012 induced taxpayers to realize additional investment income in that year, which otherwise would have been realized in 2013. This is believed to have artificially suppressed collections last Spring, which should lead to a "bounce-back" this year. These positive impacts will be partially offset by the effects of state tax reductions, primarily the decrease in the bottom marginal tax rate enacted in 2013 Act 145 and the continued phase-in of the manufacturing and agriculture credit. As noted, for the entire year, income tax collections in 2014-15 are expected to be 4.1% higher than in 2013-14.

An above-average growth rate of 6.7% is estimated for 2015-16, primarily because a large one-time revenue loss associated with the withholding table changes will no longer occur. In 2016-17, the increase in individual income tax collections is estimated to more closely approximate the increase in personal income, as a more normal pattern of growth in tax collections returns.
And LFB predicts that increase in 2016-17 to be another 5.2% on top of the increases at the end of 2014-15, and in 2015-16. That’s a huge hill to climb, and is only feasible because the LFB predicts real GDP growth in the U.S. staying between 2.7% and 3.1% for each of the next 3 years, which is faster that the decent growth we've seen in the last three years. The LFB also made that prediction assuming that 7 million additional jobs added, meaning that the Obama Jobs Recovery would keep cooking along, and going on 7 straight years of job growth.

Maybe that happens, and maybe Wisconsin keeps up with that strong growth and fewer Wisconsinites rent-seek on tax breaks and actually pay a fuller amount. But I wouldn’t count on it, and not just because we might be due for some kind of economic slowdown, but also because revenues are unlikely to keep up. Income tax revenues dropped by more than $426.5 million from January-April of 2014 vs the same four months in 2013 (a drop of 17.7%), and only about $55 million of that was due to lower withholdings that hit last April. With extra tax cuts thrown in and accelerated for tax year 2014, and inflation barely over 1%, do you really think we’ll get back to near 2013’s levels for the next 4 months?

In addition, LFB’s prediction that refunds will be lower and revenues higher in early 2015 leads to budget and/or economic problems, regardless of whether that prediction is right or wrong.

1. If it is true, then a whole lot of Wisconsinites are in for a negative shock when they get those lower tax refunds, and/or have to pay in. It makes it also less likely to keep sales tax revenues increasing at the level they have in future years (over 3% growth is predicted for the rest of Fiscal Year 2015, and for Fiscal Years 2016-17)

2. But if they’re wrong, and tax refunds due to tax avoidance encouraged through the two rounds of Koo-Koo tax cuts keeps revenues down, then we have a bigger revenue shortfall for this fiscal year (which must be corrected, and little time to adjust). It also makes for a lower base to start the 2015-17 budget with, which makes the already-ambitious growth amounts needed to balance in Walker’s budget become even higher.

Huebsch’s happy talk is also an infuriating reminder of the lies the GOP told during the 2014 election campaign, where Joint Finance Co-Chairs John Nygren and Alberta Darling made up an extremely unlikely scenario based on high revenue growth and no added expenses, and then claimed a “535 million surplus” when the LFB scored it out (because they’re not allowed to say “this will never happen"). I called this “what-if” report out as complete bullshit at the time, as could anybody else that did more than 2 minutes of digging. But there was Scott Walker claiming this “what-if” scenario as fact on the campaign trail, even while Mary Burke and the Dems tried to point to more realistic LFB estimates of a $1.8 billion structural deficit that was coming.

Turned out the Dems’ and LFB’s original assumptions were pretty close to the reality in 2015, as the LFB's January estimates said the GOP’s rosy revenue scenario would fall short by $256 million, and even with Gov Walker’s cuts in the 2015-17 budget, total General Fund expenditures are still slated to be up by nearly $865 million. That’s a $1.12 billion difference from the alleged “surplus” on those items alone. But because our media was too paid off interested in seeming “objective” to examine the numbers closely, they didn't shoot the BS down, and enough rubes fell for the GOP-aganda of a “balanced budget/ surplus,” allowing Walker to slip by with 52% of the vote in the November 2014 election.

This is why you have to push back on garbage like Mike Huebsch’s, because the average citizen doesn’t understand budget numbers and projections, and certainly doesn’t have the time or capability to evaluate who’s lying and who’s likely to be right. Watch for these zombie lies about “upside revenue surprise” over the next couple of months, even if official Department of Revenue figures start to reveal the truth about how much in the tank we are, because the WisGOP-aganda machine has to try keep the outrage down as to just how badly Scott Walker’s trickle-down mentality has failed in Wisconsin.

P.S. Hey Sec. Huebsch, if the budget is doing so well, then why did the Wisconsin Office of State Employee Relations, under your department’s orders, just sent out a letter today saying that they couldn’t afford to give any raises until further notice? Read between the lines, folks!


  1. Jake,

    Great post on a subject that is being totally ignored.

    There are always two sides to every budget: expenses and revenues, and one of the easy ways out of a budget bind is to simply overestimate projected revenues.

    I offer as exhibit A, the "magic rebound" of the corporate income tax projected in the budget. Through some magic asterisk, corporate income tax revenues, which are down sharply this year, are projected to rise dramatically in the next biennium.

    The Koo-Koo tax cuts have provided huge incentives for electing "C" corps to transform into pass-through entities, and yet the GOP seems to think that this isn't happening now, and won't increase in the next biennium as the incentives expand.

    I suspect that these revenue estimates are merely linear projections from past years with a lot of hope that these responsible will be gone and moved on to other, bigger jobs when the truth unfolds.

    I have written before that the faith that Walker has in the withholding effect may be misplaced, and that relying upon taxpayers to use withholding rates that would limit their refunds may fly in the face of tax preparers who do not want to face customers with the news of small refunds. But, the proof on that is due this month, March and April.

    Additionally, the increase in sales & use taxes is driven by the automobile market. Current levels of truck and car sales can only continue if non-prime loans continue to increase significantly--unfortunately non-performing loans in this segment have begun to inch upwards; a very bad sign.

    So you are correct, these revenue expectations, which absolutely no Wisconsin TV, radio or newspapers has even mentioned, will likely become the true "surprise" of the budget.

    Dr. Morbius

  2. Agree Doc, it'll be really interesting to see how this plays out in the next 3 months. We just did our taxes, and we got more back from the state than anticipated. But my wife got a big vacation payout from her former job which had a ton of taxes taken out as a result, so we're an odd case.