As Fed starts meeting, more proof of inflation settling

Just as the Federal Rerserve began its 2-day meeting to decide next steps in its flight against inflation, we got information that showed employment costs were moderating at the end of 2022.

American employers spent just 1% more on the wages in the fourth quarter 2022, as compared to the third quarter. This marked a decline from the additional 1.3% they’d spent from the second to third quarter, and from the additional 1.4% they’d spent from the first to second quarter.

Two quarters of consecutive decline shows that employer costs are falling, and that they will thus have fewer reasons to raise prices—a good sign for anyone worried about inflation. It also means, though, that workers currently have less leverage to negotiate higher wages for themselves.

Absent further changes in the economy, employer spending on wages looks to be headed back to the prepandemic trend. In 2018 and 2019, the average increase in this kind of spending was 0.75% per quarter.

A 1% increase for Q4 is still a 4% annual rate, which means workers are still able to get decent raises. But it’s cooling enough that there shouldn’t be a major cost burden for employers, or boost inflation for consumers.

And digging further into the report itself, it looks like the rapid increases in wages and benefit costs that happened over the last two years in the lower-wage service sector faded at the end of 2022.

That indicates the shortages in that sector may be fading, after losing a large number of employees at the start of the COVID pandemic, and then struggling to find people as business came back strongly in 2021 and 2022.

However, one key sector had its compensation cost increases stay high in Q4, indicating that it’s still tough to hire and keep employees in these jobs.

But even in health care, that's not a runaway increase. And what’s also intriguing is that even with overall inflation fading as 2022 ended, the year-over-year increases in employment costs in both 2021 and 2022 weren’t as high as overall inflation.

So as profiteering other types of inflationary pressures ease off in late 2022 and early 2023, we should see workers claw back some of the losses they took on as prices spiked up in late 2021 and early 2022. But the increases aren’t so high that inflation should be reignited, and instead, would indicate a relatively balanced jobs market as this year began.

Most telling is the 3.7% annualized increase in wages for private workers x incentive pay. This is the best window into underlying wage growth. More evidence that inflation is headed in the right direction and the Fed should soon pause its rate hikes.

— Mark Zandi (@Markzandi) January 31, 2023

I agree with this thought, and the Employment Cost Index report should tell the Fed that we are in a different situation than we were a few months ago, and that it is time to ease off on rate hikes. We’ll see if they get the hint, or if the central bankers think workers need to suffer more in order to make cost increases and inflation go even lower than the already-calming situation they are in today.

So were jobs gained or lost in America last Spring? And what does that mean for 2023?

There was a national economic report that offered a major surprise in it. It's known as the Business Employment Dynamics report, and it tracks a large number of private employers over time, seeing if they are adding employees, or if jobs are being lost. And the newly-released numbers from Q2 made me do a double-take.

From March 2022 to June 2022, gross job gains from opening and expanding private-sector establishments were 8.3 million, a decrease of 185,000 jobs from the previous quarter, the U.S. Bureau of Labor Statistics reported today. Over this period, gross job losses from closing and contracting private-sector establishments were 8.5 million, an increase of 1.6 million jobs from the previous quarter. The difference between the number of gross job gains and the number of gross job losses yielded a net employment loss of 287,000 jobs in the private sector during the second quarter of 2022.

Net employment loss of 287,000 private sector jobs?? That’s quite a difference between what monthly jobs reports from the BLS were saying. It listed seasonally-adjusted job growth of more than 1 million jobs in those 3 months.

Both can't be true, so what do we got? And how does the "gold standard" Quarterly Census of Employment and Wages (QCEW) play in, which also has released their Q2 numbers? Fortunately, the Business Employment Dynamics report has a whole section that gives the universe of respondents for all 3 surveys, and it fills in some of the blanks.

Employment and wage data for workers covered by state UI and Unemployment Compensation for Federal Employees (UCFE) laws are compiled from quarterly contribution reports submitted to the [State Workforce Agencies] by employers. In addition to the quarterly contribution reports, employers who operate multiple establishments within a state complete a questionnaire, called the “Multiple Worksite Report,” which provides detailed information on the location of their establishments. These reports are based on place of employment rather than place of residence. UI and UCFE coverage is broad and basically comparable from state to state.

Major exclusions from UI coverage are self-employed workers, religious organizations, most agricultural workers on small farms, all members of the Armed Forces, elected officials in most states, most employees of railroads, some domestic workers, most student workers at schools, and employees of certain small nonprofit organizations.

So are we seeing a huge increase in people that are “self-employed” in some way in the post-COVID world, or a massive increase in start-ups that the Employment Dynamics Report isn’t catching? On the flip side, have we been missing a lot of the layoffs that happen as the COVID-related boom in tech and other areas, possibly because these individuals have funds and aren’t filing unemployment?

UW-Madison's Menzie Chinn took on this question at Econbrowser, and includes this chart which shows the seasonally-adjusted trend of a few employment indicators since September 2021.

That private-sector QCEW is something I'm keeping an extra eye on, because there is certainly a disparity between what happened in that report in Q2 2022, and what the monthly job reports indicated. For background, Q2 in general adds a lot of jobs in the US as the weather warms, with many of those gains being adjusted down in the seasonally-adjuted monthly jobs reports.

But in Q2 2018 and Q2 2019 (the last 2 pre-COVID reports, a situation closer to Q2 2022 vs 2020 or 2021), the QCEW said many more private-sector jobs were added than what was added in Q2 2022. But tbe monthly jobs reports indicated that many more jobs were added last year vs those other 2 years.

I’m now quite interested in seeing what happens with the annual benchmarking of employment figures, which will come out with the January jobs report this coming Friday. Do the huge job gains of Q2 2022 get diminished, and did we underestimate the growth of prior months? And that mean the Fed was too late to tighten, and now is over-tightening based on incorrect data? Or does it stay up, and this Employment Dynamics report is missing a major change that’s happening in the post-COVID economy?

That one report is making me do a bit of re-evaluating, both in how much of Biden Boom we had in 2021 (even bigger than we thought?), and how the resulting labor shortage and spiking inflation may have put a major limit on Summertime hiring for 2022. And now are we back to normal, without a need to keep tightening because that inflationary spike is over with?

Soft December for spending, income, inflation. Slowdown is the fear for 2023

One day after the GDP report showed strong economic growth for Q3 as a whole, we got the always-key income and spending report for December, and it indicated some changing economic trends as 2022 wrapped up.

U.S. consumer spending fell for a second straight month in December, putting the economy on a lower growth path heading into 2023, while inflation continued to subside, which could give the Federal Reserve room to further slow the pace of its interest rate hikes next week.

The report from the Commerce Department on Friday also showed the smallest gain in personal income in eight months, in part reflecting moderate wage growth, which does not bode well for consumer spending. Though the drop in spending was mostly in the goods sector, services outlays essentially stalled.....

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, dropped 0.2% last month. Data for November was revised lower to show spending slipping 0.1% instead of gaining 0.1% as previously reported. Economists polled by Reuters had forecast consumer spending dipping 0.1%.

That's not a good sign if the consumer is slowing down, especially since those figures are before inflation is figured in. And it's been a general leveling of inflation-adjusted spending growth since the economy bounced back after COVID vaccines became widespread around March 2021, with declines in the last 2 months.

However, I'll note that the same "decline" happened at the end of 2021, which makes me wonder if models haven't caught up to the fact that Holiday Shopping Season isn't the major boost that it used to be. I hope that is also the case for the drop in real spending for food services and accomodations at the end of 2022, and that it is not a harbinger of a wider spending slowdown.

Inflation was also lessening, indicating that we are in a much different situation than we were in the inflation-laden first half of the year.

The personal consumption expenditures (PCE) price index edged up 0.1% last month after rising by the same margin in November. In the 12 months through December, the PCE price index increased 5.0%. That was the smallest year-on-year gain since September 2021 and followed a 5.5% advance in November.

Excluding the volatile food and energy components, the PCE price index gained 0.3% after climbing 0.2% in November. The so-called core PCE price index rose 4.4% on a year-on-year basis in December, the smallest advance since October 2021, after increasing 4.7% in November.

And it looks even better when you look at inflation over the last few months - as a top Biden Admin economic advisor points out, we are nearly down to the alleged Fed target of 2%.

Clear deceleration in both, w headline back to around 2-yr ago pace. Core down by 2 ppts over past few months, at 2.9% in Dec (again, 3-mnth ann change).
I find these next figures helpful in getting a bead on inflation's dynamics. They're 12, 6, 3, 1 mnth rates, all annualized.

— Jared Bernstein (@econjared46) January 27, 2023

This report gives more evidence to me that a lot of the COVID-era weirdness have been shaken out of the economy, and now we are back toward a pre-COVID normal (with some changes in service methods). We should have a Fed that reacts accordingly, and stops trying to tighten money in order to slow an economy and inflation that's already slowed down.

In fact, the lower numbers of November and December makes me anxious to see January's data, to see if the slowdown continues, or is just a seasonally-adjusted blip. If January comes in soft, it might be time to get off of INFLATION WATCH and do more to continue our strong jobs market and decent income growth, before we get into full-fledged recession.

GDP - good for Q4, OK for 2022. Good spot today, but don't be complacent

We got more verification today that the US economy continued to grow at the end of 2022.

The nation’s gross domestic product, the value of all goods and services produced in the U.S., expanded at a seasonally adjusted annual rate of 2.9% in the fourth quarter, the Commerce Department said Thursday. Economists surveyed by Bloomberg had forecast a 2.6% rise in output.

Overall in 2022, the economy grew 2.1% following a 5.7% advance the prior year that was juiced by an easing pandemic.

Also, for those of you on INFLATION WATCH, that the GDP Price Index had its lowest quarterly price increase in the last 2 years. You take a step back, and it seems like we’re in a much better place than we were at the end of 2020.

We can talk about possible future recession, and about how underlying inflation may be higher than headline. But that's speculation rather than reporting, and arguable at the very least. Hard to argue against the proposition that media have missed the pretty good reality 2/

— Paul Krugman (@paulkrugman) January 26, 2023

Another good sign when you dig into the full report is that while inflation ebbed in the 2nd half of 2022, the dollar amount of American income growth did not. This meant significant real gains that clawed back some of the losses of the first half of the year.

Current-dollar personal income increased $311.0 billion in the fourth quarter, compared with an increase of $283.1 billion in the third quarter. The increase primarily reflected increases in compensation (led by private wages and salaries), government social benefits, and personal interest income. Within government social benefits, the increase primarily reflected an increase in "other" benefits reflecting state stimulus payments to individuals in the form of one-time refundable tax credits. Disposable personal income increased $297.0 billion, or 6.5 percent, in the fourth quarter, compared with an increase of $242.4 billion, or 5.4 percent, in the third quarter. Real disposable personal income increased 3.3 percent, compared with an increase of 1.0 percent.

Personal saving was $552.9 billion in the fourth quarter, compared with $507.7 billion in the third quarter. The personal saving rate—personal saving as a percentage of disposable personal income— was 2.9 percent in the fourth quarter, compared with 2.7 percent in the third quarter.

This helped keep consumer spending moving along at a solid pace – up 2.1% (annual rate) on an inflation-adjusted basis, and accounting for nearly half of the overall economic growth in the quarter.

However, other parts of the GDP report indicated that housing and other parts of the economy had fallen on hard times. Residential home building subtracted nearly 1.3% from overall GDP growth in Q4, and single-handedly dropped GDP growth for the year from nearly 2.7% to 2.1%. And real consumer spending on goods actually declined in 2022, as people cut back and downscaled in the face of multi-decade spikes in gasoline and food prices.

Even Q4’s solid 2.9% growth figure is a bit misleading, as inventories accounted for 1.46% of that number. That's a good sign on the inflation front, but it also means not as much consumer and business activity was happening at stores and other final sellers as 2.9% would indicate.

It also could be that we are now reaching a new balance, where we started from a place of COVID-era depression, and shortages during the recovery. We're basically back to a level of GDP growth is back in line to where we were before we knew what COVID-19 was.

Sometimes you need to look at the big picture: It's been an incredible rebound from the 2020 pandemic recession.

The US has recovered all output lost in the crisis and gotten back on trend.

GDP
2022: +2.1%
2021: +5.9%
2020: -2.8%https://t.co/gAM6bebF0l via @abhabhattarai pic.twitter.com/cEExbsVH95

— Heather Long (@byHeatherLong) January 26, 2023

Now if those shortages are dissipating through some kind of cutback in production or slowdown in torrid spending, that may numerically be perceived as “recession”, but won’t feel that way in many areas of the economy.

But it doesn't mean that things are clear sailing these days. It's worth noting that Q4’s growth rate compares a midpoint from one quarter vs the other. We know that Q3 grew strongly as inflation receded throughout the Summer, and Q4 started off almost as strong as that 5.7% quarter did. But things faded from there, and we have seen November and December have several red flags, including declines vs October in retail sales, housing starts, industrial output, and manufacturing activity.

Those are definitely warning signs as 2023 begins, but we have yet to see this translate into any increase in jobless claims or in slowdowns on the services side of the economy.

The question for 2023 is if the Federal Reserve will see that the real economy is already falling in some areas (especially in housing), inventories are up, and inflation is in check. They hopefully then use that reality to back off of its rate hikes sooner than later, to allow the economy to have a soft landing instead of a crash that ripples through all areas of the economy, and causes real pain and joblessness.

New numbers show Wisconsin has $7 Billion now, and up to $10 Billion in 2 years

One day after Governor Evers discussed a number of possible budget initiatives in his State of the State address, the Legislative Fiscal Bureau updated projections on how much money will be available for Evers and legislators to play with.

And the LFB says that we have even more money available that the Evers Administration said we would, when they gave their own estimates 2 months.

Our analysis indicates that for the three-year period, aggregate general fund tax collections will be slightly lower (-$94.2 million) than those of the November 21, 2022, report ($60.7 million in 2022-23, -$74.7 million in 2023-24, and -$80.2 million in 2024-25).

Based upon the November 21 report, the administration's general fund condition statement for 2022-23 reflects a gross ending balance of $6,576.4 million and a net balance (after consideration of the $95.0 million required statutory balance) of $6,481.4 million.

Our analysis indicates a gross balance of $7,100.4 million and a net balance of $7,005.4 million. This is $524.0 million above that of the November 21 report.

The main reason why the year-end state cash is expected to go over $7 BILLION instead of the previously-projected $6.5 billion is because the state isn't going to spend as many state tax dollars in a couple of areas vs what was expected. One is due to federal help lasting longer than expected, and the other is due to a lack of action on something that the WisGOPs in the Legislature set aside to do.

First, the GPR appropriation for the medical assistance program (MA) is projected to end the 2021-23 biennium with a surplus of $774.8 million. The MA lapse estimate of the November 21 report was based on the September 30, 2022, DHS projection of $504.9 million. On December 30, 2022, DHS increased the projection to $774.8 million. This is $269.9 million above that of the November 21 report. This surplus, accumulated over both years of the biennium, is primarily attributable to the higher federal matching rate for MA benefits that has been in effect during the biennium. The federal Families First Coronavirus Response Act of 2020 (FFCRA) provided a 6.2 percentage point increase to each state's Medicaid matching rate for the duration of the federal public health emergency (PHE) for the COVID-19 pandemic. While the 2021-23 GPR budget for MA was established based on the assumption that this higher rate would expire at the end of calendar year 2021, successive extensions of the PHE throughout the biennium have meant that the state has continued to receive more federal matching funds than anticipated, resulting in a reduction in GPR costs. Congress recently amended the FFCRA provision, as part of the 2023 federal appropriations act, to establish a gradual phase-out of the enhanced rate during calendar year 2023, so that the matching rate is no longer tied to the PHE. Under the revised provision, the 6.2 percentage point increase will be in effect for expenditures through the end of March of 2023, and a 5.0 percentage point increase will apply for the final quarter of the biennium.

Second, in the 2021-23 budget act, $202.4 million was set aside in the supplemental appropriation of the Joint Committee on Finance to fund the exemption of the personal property tax if legislation were to be enacted in the 2021-22 legislative session to eliminate the tax beginning with the January, 2022, assessments. Because that did not occur, the $202.4 million will lapse to the general fund on June 30, 2023.

So we've got a bank account that basically looks like this.

Yes, that number at the end of FY 2025 is over $10 BILLION.

And when we include today's LFB report, and put it together with the expenses that were requested by state agencies in that November report to the Evers Administration, you can see that we are maintaining a suplus of well over $1 billion in each of the next 2 years.

It also tells us that we have plenty of room for the initiatives Evers mentioned at the State at the State, even if you add it to the additionalal funding that is already being requested.

*$50 million to help businesses cover expenses such as repairs
*$20 million to recruit, develop, retain teachers and student teachers
*$20 million to increase literacy-related programming
*$10 million for WEDC program to work with industries to retain and attract workers.

2/

— JR Ross (@jrrosswrites) January 25, 2023

And that is likely to be $1.3 billion TOTAL, not all in one year. Which means we could fund all these things, still do some tax cuts, and barely make a dent in the $7 billion that we're going to carry over into the next budget. Increasing our investments are not going to waste our budget surplus over the next 2 years.

The one way we would blow the budget apart is to put in the GOP's flat tax scheme, which would reduce revenues by $5 billion A YEAR by the time it is fully in place in 2026, causing multi-billion dollar deficits each year, and causing our already-starved services to take on further cuts, and see this state fall further behind. So let's not do that, and instead use this unprecedented opportunity to restore the high level of service and quality of life that Wisconsin used to be known for.

Wis profs rip WisGOP flat tax scheme

As Governor Evers gives his State of the State address tonight, and as a state budget season looms with several billions of dollars in the bank, the Republicans in the gerrymandered Legislature have revealed their plans for that surplus. They want to put in a flat income tax rate of 3.25% over the next 3 years, as a means of "giving the surplus back" to taxpayers.

With that in mind, retired Milwaukee Area Technical College professors Michael Rosen and Charlie Dee ripped the flat tax proposal as a in a Milwaukee Journal-Sentinel editorial this week. A main part of the criticism from Rosen and Dee comes from the reality that blowing all of the state's surplus on tax cuts would inevitably lead to a need to cut spending on services that are already underfunded.

According to the nonpartisan Legislative Fiscal Bureau, when fully implemented the flat tax would reduce the state’s revenue by $5.06 billion annually. For perspective, the UW System's share of general purpose revenue in 2023 is $1.3 billion. The Department of Corrections also receives $1.3 billion. The total of $2.6 billion is slightly more than half (51%) the total tax cut. To put it another way, you could eliminate all state funding for corrections and the UW system, and still need to cut another $2.46 billion in state spending to pay for the tax cut. 

A group of national economists analyzed Michels’ flat tax proposal in October and wrote that a 3.54% flat tax, “…would mean draconian cuts to state services including public safety, K-12 education, environmental protection, the University of Wisconsin and Technical College systems.” Yet LeMahieu’s proposal would slash even more from state revenue.

Rosen and Dee included this graphic that shows just how much of a hole the flat tax would blow in the budget every year by the time the flat tax is fully in place in 2026. You also can see just how much state spending would have to be cut to offset that.

Worse, Rosen and Dee point out that the flat tax won't do anything to increase Wisconsin's attractiveness to workers and families, and could well make things worse for most of us, and increase our demographic challenges.

Now flat-tax advocates make up all kinds of justifications for this boondoggle. One is that we need to lower the tax rate to keep people from leaving the state. This ignores the fact that seniors relocate for a variety of reasons, including to escape Wisconsin winters and to be closer to their children and grandchildren.

Think about how attractive Wisconsin will be to seniors or anybody else after our state has lacerated its spending on roads, education, public safety, clean water and air. Then raise your hand if you want to decimate our quality of life in an attempt to keep rich folks from relocating to Florida and Arizona.

Instead of repeated attempts to carry water for Wisconsin’s richest 1.4%, Republican politicians should focus on boosting the quality of our lives by improving our education systems and infrastructure while developing targeted policies to encourage entrepreneurship, rural development, and a more diversified economic base.

Marquette University economist Philip Rocco has also criticized the GOP's flat tax scheme, and says we should invest the billions of dollars into longer-lasting change that results in jobs and increases the state's economic competitiveness.

Second thing that deserves clarity: surplus is effectively a one-time opportunity. Use it to make investments that create multiplier effect for state. Examples of what this looks like can be found in many states, including MN, and in the deep history of WI.

— Philip Rocco (@PhilipRocco) January 24, 2023

We have the resources to invest in a lot of things that Wisconsin has fallen behind on in the last 12 years, bring our human and physical infrastructure up to speed, and give our community schools and local governments a chance to preserve and expand their public safety and social services.

The last thing we should do is to use those funds for nothing beyond a massive tax giveaway to the rich, which won't have nearly the economic impact, and will make a whole lot of Wisconsinites worse off.

Sports betting in MKE coming in a matter of weeks!

One week after coming back from a weekend in Vegas that featured quite a bit of sports betting, I saw this headline in the largest paper in my home state.

Potawatomi Casino in Milwaukee closing Northern Lights Theater, turning it into sportsbook venue via @pietlevy https://t.co/KK8EggLSzc via @journalsentinel

— Corri Hess (@CorriHess) January 23, 2023

In a city with no shortage of music venues, Northern Lights was the only theater of its kind, seating just 600. Some acts only played the theater when they came to town, and Northern Lights also booked shows with legends and veteran performers who typically would play far larger venues in town.

In its place, Potawatomi will offer another exclusive venue in Milwaukee — a sportsbook allowing guests to gamble on sporting events, following approval from Gov. Tony Evers last February.

I've been waiting for a while to see when this was going to happen. And honestly, it makes sense for Potawatomi to lessen its live music and entertainment offerings as downtown Milwaukee is seeing a significant increase in current and future venues of that size, and is likely at a point of saturation.

But it doesn't look like the Potowatomi theater is going to complete its remodeling until next December. So are we going to be able to place bets any time before then?

While construction is underway for the permanent sportsbook, two temporary sportsbook sites will operate at Potawatomi. They're scheduled to open within the next three to six weeks, [Potowatomi Casino CEO Dominick] Ortiz said.

Located at the Fire Pit site in the northwest corner of the casino on the first floor, and on a skywalk on the property's second level, the temporary sportsbook sites will have a combined 17 kiosks that will be available 24 hours a day. Sportsbook users will have access to designated 20-minute parking spaces, and both locations will provide odds boards. The sportsbook site at the old Fire Pit will offer a full-service bar, eight high-definition TVs and an LED screen featuring each day's biggest games.

3 to 6 weeks allows those kiosks to be operating by March Madness.

In all of these cases, no betting is allowed off of tribal lands (either online or in person). I'm not enough of a degenerate to constantly feel a need to drive 90 minutes or get to the Illinois state line if I feel like wagering on some games. So with that in mind, let's get the Ho-Chunk in on the act so us in S. Central Wisconsin can have easier access.

Yeah, I differ from a lot of my ilk in my approval of and desire to have sports betting and casino fun. But it's worth having the option in this state, especially as Illinois, Michigan and Iowa get the business that we could be getting as a result of it.

Another strong 2022 for Wisconsin jobs. But 2023 has challenges, questions

As 2022 ended, it looked like Wisconsin had another good year in recovering jobs from all that was lost in the COVID pandemic.

Place of Residence Data: Wisconsin's labor force participation rate declined to 64.7% in December from 64.9% in November but was still 2.4 percentage points higher than the national rate of 62.3%. Wisconsin's unemployment rate in December was 3.2 percent, 0.3 percentage points below the national rate of 3.5%.

• Place of Work Data: Over the year, Wisconsin added 60,000 nonfarm jobs and 52,600 total private sector jobs. Over the month for December 2022, Wisconsin nonfarm jobs increased by 900 and total private sector jobs increased by 1,500. Private service providing jobs saw the biggest gains – up 3,800 over the month and 48,200 over the year.

That 60,000 jobs comes after a 2021 when Wisconsin gained just under 58,000 jobs, and outside of a lull in late 2021, it's been a relatively steady climb over the last 2 years.

However, note how many of those jobs were in services, while hiring in goods levelled off in 2022. Goods-producing sectors made up nearly 21% of jobs in Wisconsin at the end of 2021, but only accounted for 7.3% of the state's job growth in 2022. And while construction maintained its growth in 2022 (+3,700 in 2022, +3,000 in 2021), manufacturing job growth nearly stopped after a big 2021.

Job growth, Manufacturing, Wisconsin
Dec 2020-Dec 2021 +13,300
Dec 2021-Dec 2022 +300

With higher interest rates and evidence of a manufacturing slowdown in the country as a whole, this seems like something to keep an eye on going forward.

The next Wisconsin jobs report won't come until March, and that'll include the annual benchmarking process to correspond the numbers to the "gold standard" Quarterly Census of Employment and Wages (QCEW), and also adjusts the unemployment rate to population to better match what Wisconsin's labor force looks like. This will likely fix the disparity that we've seen throughout 2022 where the number of people in Wisconsin's labor force and the number "employed" keeps declining, but the number of payroll jobs keep going up.

Those new benchmarks are going to come right in the middle of a budget season where Wisconsin has the resources to modify its tax system and make investments that could deal with the state's seemingly maxed-out demographics and future growth prospects. If we use those new benchmarks to ID where we stand, maybe we can use this once in-a-generation chance to expand our econoy and job prospects beyond where we are today.

A few debt ceiling thoughts - it's stupid, and should be ignored

I just wanted to give a few cents about the GOP thinking they can hold the debt ceiling hostage. First of all, the existence of the entire debt ceiling is stupid, as it’s a lot like putting in a lower limit on a mortgage or car loan months after the documents were signed saying you were good to pay for them.

No one would ever run business that way, especially if the person buying the car or the house were otherwise able to make the payments each month, and the bank wouldn’t ask how the person got the money as long as the check cleared.

And if you tie the US government’s hands by forcing it not to take out additional debt, then a lot of payments would stop, including bond payments (which reduces debt as they get paid off). As you’d imagine, not paying stuff leads to a lot of other people suffering economic pain. Between the lack of demand that would result and the higher interest rates that would likely be kicked in for other debt sources, that’s the economic danger. So how is the US government making its payments today if it’s already at the debt ceiling?

Yellen said in her letter that the Treasury this month anticipates suspending new investments in two government retiree funds for pensions and healthcare, as well as suspending reinvestments in the Government Securities Investment Fund, or G Fund, part of a savings plan for federal employees. The retirement investments are restored once the debt ceiling is raised.

"The use of extraordinary measures enables the government to meet its obligations for only a limited amount of time," Yellen wrote to McCarthy and other congressional leaders.

This isn’t really a short-term concern since there’s already plenty of funds to pay for the benefits current retirees, and current employees aren’t going to be pulling their 401Ks. The Feds can also refinance current debt in some ways, but by the time we get to June or so, those options run out and new debt is needed to pay those bills.

So does the GOP have any concrete plan in dealing for this? Here’s something that leaked out this week.

House Republicans are planning to move a "debt prioritization" measure by the end of March that would call on the U.S. Treasury to continue making certain payments once it reaches the debt ceiling, but details have not been finalized, a person familiar with the plan told Reuters. The proposal was first reported by the Washington Post.

The Republican plan will call on the Treasury Department to keep making interest payments on the debt, the Post reported, citing sources. It may also stipulate the Treasury should continue making payments on Social Security, Medicare and veterans benefits, and fund the military, the newspaper said.

Which means everything else that the Feds pay for (like road funding, food assistance, federal safety oversight, Medicaid, financial aid for students, and the Postal Service) would be cut by a large amount. The Biden Administration and all Dems in Congress should laugh them out of the building without debate. If there are going to be consequences for GOP recklessness, then EVERYONE gets hurt by it.

However, maybe the Biden Administration should threaten to do their own prioritization of payments. Hold up tax refunds for corporations (first) and individuals (later) until the debt limit is raised. The next 3 months are by far the largest months that the Treasury pays out for tax refunds, with nearly 60% of the amount that is refunded to everyday Americans coming at that time. It is the main reason that February and March traditionally run the largest deficits in the federal Fiscal Year.

This would require a strong PR effort by the Biden Admin and Dems in Congress, to get out ahead of this and explain that “If you want your refunds back to you sooner, tell the GOPs to grow up and raise the debt ceiling.” You can also combine this with the GOP’s stupid move to try to defund additional IRS agents that are intended to not only audit the rich and corporate, but also speed the processing of tax forms and the return of refunds to everyday Americans. Good luck to GOPs trying to explain to constituents as to why we can’t give out tax refunds.

If that’s too much of a messaging effort to make, then all Dems should tell GOPs they can try to pass an in-year budget that IDs their spending cuts, and see if it flies. Otherwise, the GOP can F___ ALL THE WAY OFF until the fiscal year ends on September 30.

And the debt ceiling? I think The Onion summed it up last decade with the former Fed Chair.

For @AsGoesWisconsin - the Onion answered this question about #MintTheCoin 13 years ago. https://t.co/6VCV6B0ERN

— JakeEdwards (@JakeMadtown) January 20, 2023

All money is relative, always has been outside of a goods-for-goods barter system. So if GOPs won’t raise this arbitrary debt amount, then MINT THE COIN and use it to pay any federal bills that taxes and debt refinancings won’t pay. Which would keep our economy going, and won’t really change things any more than what has already been signed into law.

When it comes to this attempted GOP hostage-taking on the debt, especially given that the GOP House is already disliked and Dems hold both the Senate and the White House, there’s a simple strategy to follow.

Your primer for the 2023-25 budget

The Legislative Fiscal Bureau has released their informational papers for the 2023-25 state budget. This is one of the best reference pages you can find, giving background information and numbers on pretty much any item in the Wisconsin State Budget.

Mark this one, and go back to it often over the next 5 months, to separate the facts, the spin, and the outright BS.

GOP flat tax scheme - regressive, costly, and with a nice extra kickback to donors hidden inside!

Now that I finally have a chance to catch up to the recent release of the GOP’s flat tax plan, let’s dig into the Legislative Fiscal Bureau’s analysis, and see who will get the biggest benefits. Let’s start with the rates and the time frame:

As you’d expect, the LFB tells us that this would result in a sizable tax cut to start, and then will balloon higher as the top rates decline more to reach the flat tax rate of 3.25%.

In total, the bill is estimated to reduce state general fund tax revenues by: (a) $2,113.5 million in 2023-24; (b) $2,845.1 million in 2024-25; (c) $4,314.7 million in 2025-26; and (d) $5,059.0 million in 2026-27 and annually thereafter. These fiscal estimates are expressed in corresponding tax year dollars (for example, the fiscal estimate under (d) is shown in tax year 2026 dollars).

Even if you figure that the state might have as much as $10 billion to play with over the next 2-year budget (based on the Evers’ Administration’s estimates and a higher-than-budgeted Medicaid surplus), the LFB says this tax cut would blow nearly $5 billion of that total in those two years.

Then throw in the reality that more state spending would be needed merely to keep up with the loss of federal COVID assistance (especially in Medicaid) and to account for combined total inflation of 14% over calendar years 2021 and 2022 (which was not figured when the 2021-23 budget was passed). Then throw in the wild card of the crazies in the GOP House trying to take away more Federal spending and shove off the responsibilities to the states, and what is left gets taken up quickly.

Then add in another $9.4 billion that is given away in the following budget, and it removes any opportunity to invest in public schools, fix our broken system of shared revenues and local government financing, or any way to cut property taxes and target relief to low-income Wisconsinites. Doesn’t seem like a good use of this once-in-a-generation chance to change the way things are done and paid for in our state.

And that’s before we get into the regressive nature of the tax cuts that would result in a 3.25% flat tax.

Among all taxpayers with a tax decrease under the proposal, the estimated cumulative average tax decrease relative to current law would equal $4,415 over the four-year period from tax year 2023 through tax year 2026, and would equal $1,799 annually relative to current law beginning in tax year 2026. For filers receiving a tax decrease with Wisconsin AGI between $40,000 and $50,000, the estimated cumulative average tax decrease relative to current law would equal $752 over the same period, and would equal $290 annually relative to current law beginning in tax year 2026. For filers receiving a tax decrease with Wisconsin AGI between $125,000 and $150,000, the estimated cumulative average tax decrease relative to current law would equal $5,617 over the same period, and would equal $2,231 annually relative to current law beginning in tax year 2026. These examples assume that the tax filer remains in the same Wisconsin AGI category from tax year 2023 through tax year 2026 and annually thereafter.

Or to put it graphically…..

See how Wisconsin millionaires go from around $28,000 in tax cuts in year 1 to more than $112,000 in tax cuts by the time this flat tax is fully phased in 3 years later? By comparison, Wisconsinites making $50,000 would be getting a tax cut of less than $25 a month in 2026 (and likely paying more in property taxes or fees on the other end).

And if we assume the $70,000 to $80,000 range in 2023 (which will likely be the median household income in Wisconsin due to inflation/growth), the tax cut starts at $233 this year, and ends up near $900 by 2026. Not a bad total, and about 1/3 of total state tax a median income earner pays today, but nowhere near as much of a break as the 61% cut in taxes that millionaires would get.

I also want to throw in this nugget of analysis, which indicates that the flat tax would reduce a main source of the higher corporate tax collections since the GOP Tax Scam from DC became law in 2017 – because it won’t be as worthwhile for Wisconsin business owners to get the Feds’ corporate giveaways under a lower flat tax.

Provisions of 2017 Act 368 allow tax-option (S) corporations and partnerships to elect to be taxed at the entity level at a rate of 7.9% as opposed to filing under the state individual income tax. Based upon available data on final payments made by partnerships and estimated payments collected from S corporations, it is estimated that pass-through entity filers will remit over $800 million in 2023-24. By filing at the entity level, taxpayers are able to deduct state and local taxes on their federal income tax return (the "SALT" deduction) on pass-through income without the limitation that applies to individual filers that itemize deductions under federal law (which limits individuals from deducting more than $10,000 of state and local taxes). If the value of the SALT deduction exceeds the increased cost of the higher state corporate tax rate, it makes economic sense for certain tax filers to consider paying at the entity level.

Wait, before going further, why, does that pass-through provision sound familiar? Oh yeah, now I remember.

GOP megadonors Diane Hendricks and Dick and Liz Uihlein were able to claim a combined $215 million in deductions in 2018 because of provisions ⁦@SenRonJohnson⁩ put into the tax cut Trump signed, according to ⁦@propublica⁩. https://t.co/mniK4o6R0I

— Patrick Marley (@patrickdmarley) August 11, 2021

(SCUMBAGS! And it’s extra cool that RoJo, Hendircks, Uline and the rest of those oligarchs get to write off the SALT deductions and mortgage interest and “charitable” donations that people like me don’t).

Anyway, I digress. What would this flat tax scheme do for these pass-through loopholers from Wisconsin?

However, an individual with a marginal tax rate of less than 5% would receive a larger tax benefit by paying the lower state tax by filing as an individual, rather than paying the higher 7.9% entity-level tax rate and taking the federal deduction. Because the bill would create a top rate lower than 5% beginning in tax year 2025, it is assumed that all current entity-level filers would lack an economic incentive to file at the entity level and would file under the individual income tax beginning in tax year 2025 under the proposal. The estimated state revenue reduction associated with this filing shift from corporate to individual is $172.0 million in 2024-25, $442.6 million in 2025-26, and $516.3 million in 2026-27 and annually thereafter. These amounts are not included in [the analysis of tax years 2025 and 2026]. It is possible under the proposal that some current entity-level filers would revert to remitting under the individual income tax prior to tax year 2025, and that other taxpayers may continue to remit tax at the entity level in tax years 2025 and thereafter, but these assumptions are not included in this analysis.

So there’s another $1.1 billion that would mostly go to rich business owners.

And you also get a nice payoff if you’re, say, the Uihleins and own a Wisconsin company, but live out-of-state.

Under current law, pass-through entities with Wisconsin income that is allocable to a nonresident member are generally required to withhold Wisconsin income taxes from that member at the highest tax rate applicable to individuals (currently 7.65%). If the top individual income tax rate is reduced, this will reduce the income tax amounts withheld from nonresident members of pass-through entities as a result of the lower rate. This effect on pass-through withholding under the bill is an estimated revenue reduction of: (a) $53.5 million in 2023-24; (b) $71.4 million in 2024-25; (c) $103.6 million in 2025-26; and (d) $121.8 million in 2026-27. These amounts do not appear in [the analysis of tax years 2023 through 2026].

Oh, so another boost to WisGOP megadonors rich folks who own business here, but live elsewhere? Why are we helping them, again?

The pass-through loophole shows that this flat tax scheme is even more of a regressive giveaway than you may have thought. And as Dan Shafer of the Recombobulation Area pointed out earlier this month, the quotes from WisGOPs about who they’re trying to help with this plan is a great example of why the GOP’s “solutions” so frequently suck, and fail.

Republicans hitting their one economic policy button again https://t.co/w552HrZuJZ pic.twitter.com/SLoP3DpJr2

— Dan Shafer (@DanRShafer) January 13, 2023

Robin Vos, in his inauguration day speech, mentioned wanting to enact this flat tax – campaign’s over, huh? – and went out of his way to say there’s “absolutely nothing wrong with” rewarding the wealthy through such a tax structure. 

He also went on a tangent about retired couples with second homes who are making their primary residence somewhere other than Wisconsin. This is not the first time he’s mentioned this in recent months. Does he think this is a major problem for everyday Wisconsinites? Is he going to call an extraordinary session on snowbirds and second homes? Truly bizarre. 

And the context in which he brought this up was about what he characterized to be Wisconsin’s “demographic” challenges — no net population growth over the last decade, combined with an aging population. (Gee, who could have been in charge during that period of flat population? Whose fault could this be? It’s a real mystery!). 

But this continues to be a frequent refrain for Republicans, that cutting taxes for the wealthy or enacting a flat tax would help grow the state’s population. Republicans wanting to cut taxes is far from a new policy position, but with this as a stated end-goal? It just doesn’t add up.

The de-investment in communities that would certainly go with this flat tax scheme won’t help Wisconsin’s already-bad demographics. The lack of health care, strong community schools and local services would make it even harder for many to justify living in a place that has 4-5 months of Winter, let alone want to raise their families here.

We can use the massive amount of funds available in 2023 to give income tax relief to those who most need it, improve quality of life, and add incentives to deal with actual drawbacks to Wisconsin’s economic competitiveness. In addition to a modest drop in rates for all/most Wisconsinites (but still keeping it progressive), this can include giving a tax credit to caregivers, expanding the Homestead Credit, and reforming the model of funding our community schools and local governments so that we don’t need to use property taxes so much.

We’ve got plenty of money to play with in Wisconsin, and a cut in income taxes certainly can and should be done. But we shouldn’t be taking our cues from Indiana or Iowa or Illinois on how to do tax policy, and God knows that the rich and corporate don’t need much more help after the last 12 years of Fitzwalkerstani giveaways.

 

Dems did well in Wisconsin, other swing states in 2022, because we knew the danger of voting GOP.

I had a long weekend vacation, and still coming back to normal after work of today. I'll get back to the econ news of the state and the budget debates that are going to be the main focus of state politics in the next 6 months (outside of the Supreme Court and North suburban Senate seat elections in April).

But I wanted to forward a substack post by Michael Podhorzer called "Red Wave, Blue Undertow". Podhorzer is a high-up researcher and political strategist for the the AFL-CIO, and co-founded Catalist, which is a great data source that digs into voter files to come up with more accurate information on elections, and why the results occured.

What Podhorzer brings up matches something I've felt in observing November's results. In places where the statewide power structure and Senate elections weren't much in doubt, Republicans did well, and Dem voters didn't turn out, which it helps to explain the gains they made in the House in states like California and New York, as well as in GOP-dominated/rigged states like Florida or even Texas.

But at the statewide level here in Wisconsin and other Swing States that had races for the US Senate and governor, it was a different story. These states were also the targets of Big Lie schemes, and plans for future election-rigging were in the cards if MAGA Republicans gained full control at the state level. And in Wisconsin and elsewhere, Podhorzer notes that Dems did as well or better than they did in other post-2016 elections.

On November 8th, that expected Red Wave washed away Democrats across the 35 states where there were no competitive, top of the ticket MAGA candidates on the ballot. But in the other 15 states there was a Blue Undertow, in which Democrats actually did as well as or better than they had in the 2018 Blue Wave election. In states where MAGA was competitive, Democrats now have four more seats in the House and four in the Senate than they did in 2018 with their Blue Wave gains. Yet, they have 25 fewer seats in the other states. In the MAGA Statewide Competitive states, turnout was exactly the same as it was when turnout records were broken in 2018. In the other states, turnout dropped 5 points....

I have long argued that because of the anti-MAGA majority, Democrats could weather the 2022 midterms to the extent that voters understood that the stakes were the same as they were in 2018 and 2020. As it turns out, in states that the Cook Report with Amy Walter, Crystal Ball, FiveThirtyEight and other handicappers classified as very competitive at the state level (Senate and/or governor), and in which at least one statewide candidate was identifiably MAGA (whether or not they were endorsed by Trump), 2022 was nearly a rerun of 2018 and 2020. In states where the political and media environment made the stakes less clear to voters, however, we saw the usual and expected midterm results [of "out-party" Republicans making gains]. 

And this outcome was especially true for Governors' elections, where the "MAGA Statewide" candidates had the largest threat to fair elections and in FUBARing states to the point that it might not be able to be repaired. Tony Evers tripled his margin of victory here in Wisconsin, and it was one of many big wins for Dems at the state level last November.

Thirty-five states have their gubernatorial races in the midterms. First, consider that in the MAGA Competitive States, Whitmer and Evers won by more than they did in the 2018 Blue Wave, Shapiro won by more than Wolf did, and Hobbs flipped a state Democrats lost in the Blue Wave. Nothing like this has happened in the 21st Century as far as I can tell. Now let’s look at it in terms of how well Biden did two years ago: in the MAGA Statewide Competitive states, Democrats did just as well as Biden did, while elsewhere Democratic gubernatorial candidates ran 10 points behind him.

The gubernatorial races also provide another illustration of the importance of context and the danger of quick generalizations. Let’s divide the gubernatorial states into three categories - Georgia, where Kemp won after rebuffing Trump; the four other contested Electoral College states; and the rest of the states with gubernatorial races. The differences are dramatic. In the four Electoral College contested states [which includes Wisconsin], all four Democrats did better than they did in the Blue Wave 2018 midterm by 1.3 points, while those in the other 31 states ran 4 points behind their 2018 margins.

Podhorzer notes there was a similar effect in Senate races, where Dem candidates outperformed Biden by 1.4% in MAGA Competitive states, but significantly underperformed Biden in the other states. Wisconsin bucked the trend in this one, as Mandela Barnes underperformed Biden by about 1.7% in his 1-point loss to Ron Johnson. I'll leave it up to you why that may have been (Johnson's incumbency/outside spending advantage? Bad Barnes campaign that didn't ID RoJo as the MAGA fool he is? Racism?).

What Podhorzer's information indicates to me is that the MAGA "stir up the rubes" strategy by GOPs only works in Swing States like Wisconsin when Dems and casual voters don't go after GOPs for the racism and regressive BS that MAGA-dom stands for. And Dems need to point out to voters that as long as GOPs in Congress and the Legislature allow MAGAs to run the show, continue to vote no differently than election-denying, conspiracy-hawking MAGAs, and let MAGA hate continue, then they ALL are MAGA, and there are no "good ones" that can claims to be different.

Dems need to be saying this today and every day between now and November 2024, which will "divide and conquer" the MAGA Party one way or the other. Either GOPs will be paralyzed in the House and be a toothless clown show (because the "good ones" split off), or all GOPs go down hard in contested states like Wisconsin in 2024, because the casual voter has had enough of their crap, and will be infuriated from the reckless behavior and unpopular legislation that MAGAts will (unsuccesfully) try to pull off in DC and at the Capitol in Madison.

Once again, here's the link to the Substack article, which includes these excerpts and a lot of other related data.

Weekend Reading : Red Wave, Blue Undertow https://t.co/4F7A9rErY0

— Michael Podhorzer (@MichaelPodhorz2) January 13, 2023

INFLATION WATCH gives another month of good numbers. For both shoppers and workers

Serious question – is it time to start cancelling INFLATION WATCH?

The consumer price index, which measures the cost of a broad basket of goods and services, fell 0.1% for the month, in line with the Dow Jones estimate. That equated to the largest month-over-month decrease since April 2020, as much of the country was in lockdown to combat Covid.

Even with the decline, headline CPI rose 6.5% from a year ago, highlighting the persistent burden that the rising cost of living has placed on U.S. households. However, that was the smallest annual increase since October 2021.

Excluding volatile food and energy prices, so-called core CPI rose 0.3%, also meeting expectations. Core was up 5.7% from a year ago, once again in line.

A steep drop in gasoline was responsible for most of the monthly decline. Prices at the pump tumbled 9.4% for the month and are now down 1.5% from a year ago after surging past $5 a gallon in mid-2022.

It’s almost like that Spring and Summer spike in gasoline prices was BS to begin with, eh?

UW Professor Menzie Chinn has a couple of good visualizations of the inflation situation in Econbrowser. Ignore the misspelling in this chart, and note how the rapid runup in the first 6 months of 2022 has plateaued, with the annual rate of inflation since June running below the Fed’s preferred mark of 2%.

You can also see that core inflation also is diminishing, staying below a 6% year-long rate over 3 months for the first time in more than a year.

And while inflation for consumers faded in the 2nd half of 2022, wage growth continued near the same nominal rate. Which means that some of the steep losses in real wages of early 2022 have now reversed, especially for non-supervisory (ie. Everyday line) workers, who have had hourly wages match or exceed inflation for 6 straight months.

That being said, workers still fell behind in 2022, and it’s complicated by the fact that the average work week also shrunk last year.

Real average hourly earnings decreased 1.7 percent, seasonally adjusted, from December 2021 to December 2022. The change in real average hourly earnings combined with a decrease of 1.4 percent in the average workweek resulted in a 3.1-percent decrease in real average weekly earnings over this period….

From December 2021 to December 2022, real average hourly earnings decreased 1.1 percent, seasonally adjusted. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 2.0-percent decrease in real average weekly earnings over this period.

So there’s still a significant profiteering price-hike hole that most workers need to recover from in 2023, which also shows that past inflation was not due to a wage-price spiral, and yet Jerome Powell and other Fed officials keep saying they need to see more evidence of weakness in the labor market before they entirely back off of rate hikes.

With new unemployment claims still lingering just over 200,000 a week, that won’t happen for a while. So that means we’re going to have to continue with INFLATION WATCH for the next few months, at least until the Fed gets out of their Bubble and realizes that the bigger economic concern should be in keeping Americans on the job, and not screwing up a good situation

It's not like the Trump years, but Wis dairy farms still going out of business

Times are still tough for Wisconsin dairy farmers. Rick Barrett of Gannett Wisconsin took a look at the situation, and notes that there continues to be fewer dairy farms in Wisconsin, even as milk prices have rebounded from the depths of the 2010s.

There’s been a steady decline over the last decade — with the number of herds down 45% since 2013 — largely from farmers retiring or being forced out in years of low milk prices.

But lately it’s been for another reason: Strong demand for dairy cows, and for beef, has raised cattle prices and made it more attractive to liquidate a herd.

“Some folks view this as a good time to cash out,” said Pete Hardin, publisher of The Milkweed, a dairy industry publication based in Brooklyn, Wisconsin.

So while it may be a “better” reason to get out dairy farming (aka – not going bankrupt), it still creates disruptions, and reduces competition for larger producers, which can cause higher prices for the rest of us.

While the prices that farmers are receiving for their milk have backtracked from their highs, they're still well above what they were getting before 2022.

Even with that boost in revenue, the number of separate Wisconsin dairy herds had its largest decline in the COVID era, as farm assistance subisides dried up and interest rates and land prices rose. But 2022's decline is also well below the losses we saw at the end of the 2010s.

For those farmers sticking with the dairy side, Barrett says that inflation of other types of food as well as higher operational expenses have more than offset the higher prices they’ve received for their products.

Rising costs have also played a role in farm closures. Even as farmers have gotten more for their milk and other products, they’ve been slammed with higher expenses for everything from seed and fertilizer to tractor parts and milk hauling…..

Prices of corn and soybeans, primary ingredients in cattle feed, have doubled in the last year as the war in Ukraine has left a gaping hole in the world’s grain supplies.

Definitely some barriers there from the cost side. But some of this decline could be as simple as some dairy farmers not wanting to put up with all the work and stresses with the life, and they sell the farm and/or cows to another operator, who merges it with a current operation. That was mentioned by "Fabulous Farm Babe" Pam Jahnke, as part of an interview on the As Goes Wisconsin show today. Jahnke's segment starts around 1:32:00 on the podcast.

The demogrpahic challenges add to a dairy farm situation in Wisconsin that is a story of consolidation and other changes in the agricultural economy. That seems to continue the worrying trend of "get big or get out", and that's something that's not helpful to a lot of producers or consumers these days.

How low will it go? 50-year low in Wis tax burden set to drop even more

With nearly $7 billion projected to be available in the State of Wisconsin's bank account on June 30, it looks almost certain that there will be some kind of income tax cut at the state level in the next state budget. What's caused that massive surplus is an unprecedented increase in tax revenues while spending has often been able to be offset by Federal assistance due to COVID aids and other initiatives.

But what's even more incredible about Wisconsin's situation is that the Wisconsin Policy Forum released a report this week saying that Wisconsinites have their lowest amount of state + local tax burden in at least 50 years.

In fiscal year 2022 (the 12 months ended on June 30), state and local tax revenues fell as a share of personal income in the state to just under 10.1%, down from 10.3% in 2021 (see Figure 1). That was the lowest level in Wisconsin Policy Forum records going back to 1970. State taxes as a share of income also fell, though they remain just slightly above a record low. For their part, federal taxes on Wisconsin residents and businesses have risen somewhat as a share of income but also remain near their historic low....

One major cause of the drop in 2022 – though far from the only one – is the $1 billion a year cut in state income taxes approved as part of the 2021-23 budget. Another is the state’s policy of limiting most property tax increases by local governments in the state – from towns and cities to school districts.

Also critical, however, was the strong 6.7% growth in personal income in Wisconsin in calendar year 2021 (the most recent year available). The figures on personal income include wages and salaries, interest and dividend income, and transfer receipts to individuals from the government. Collectively, these various sources represent the available income that state residents can use to pay the taxes they owe.

2021 income growth could prove a bit misleading in this regard, because the stimulus checks that Wisconsinites received in that year are included in that number. But you get the idea, and you can also see how that burden has declined at both the state and local levels (although the drops often happened at different times between the two levels of govt).

But does the growth in tax revenues prove that recent "tax cuts have paid for themselves" in Wisconsin? Not necessarily. In fact, the Policy Forum notes that the individual income tax collections in Wisconsin fell in Fiscal Year 2022, and that the increase in revenue happened due to a massive increase in sales and (especially) corporate taxes.

The sales tax increases are reflective of the state capturing more sales tax on online sales right before the pandemic hit, combined with the economic recovery and higher prices boosting those numbers. You can see the corporate taxes jump starting in 2018, and if you recognize that as the start date of the GOP Tax Scam, that explains a lot. As the Policy Forum noted in 2019.

Because of that federal law, corporations in Wisconsin and nationally shifted taxable income from 2017 into 2018, the tax year in which the corporate rate cut took effect. That had the effect of lowering their taxes in 2017 and increasing them in 2018 beyond what they would have otherwise been. (The state’s 2019 fiscal year includes the final six months of calendar year 2018.)

In response to the federal legislation, then Gov. Scott Walker and lawmakers changed state law in December 2018 to allow certain business entities to pay income taxes at the corporate level rather than pass their profits on to shareholders for them to pay individual income taxes. Paying taxes at the corporate level could help these businesses gain more federal tax deductions, but also means they would be taxed at the state corporate rate of 7.9%, which is higher than any of the rates in Wisconsin’s individual income tax brackets.

Think about how much of a tax break Wisconsin corporations are getting at the federal level if they've continued to willingly pay higher corporate taxes at the state level.

What's also cut into Wisconsin's burden is a decline in gas taxes, partly due to lower amounts of driving due to pandemic and the increased amount of people working at home, and partly due to higher fuel efficiency in recent years. Less gas consumption = fewer taxes, since it's paid on a per-gallon basis, and illustrates the problem with relying on that as a source of WisDOT funding as the costs to repair roads continues to climb.

Likewise, the lower local tax burden helps explain why so many schools and local governments are struggling these days. Scott Walker and the WisGOP Legislature have insisted on holding down the ability of schools and local governments from raising taxes, and have prevented those communities from installing their own sales taxes (outside of a handful of tourist towns that are mostly represented by Republicans).

The Policy Forum notes the contrast from the 2000s, when state tax revenues didn't grow much during a decade that had 2 recessions and mediocre growth in between them, but local revenues were allowed to keep growing. The exact opposite has happened since the Age of Fitzwalkerstan began after 2010.

Seems more than a little unfair, especially since the state has refused to shared much of that expanded revenue with the locals in that same time period. And given the low tax burden and the almost-obscene amount of money in the state's bank account these days, it seems very cruel and stupid not to give a boost in shared revenue and available resources to the locals, or at least allow the locals more of a chance to raise their own funds via sales tax or other means.

It's good info from the Policy Forum, as we enter a budget session that seems likely to have taxes and tax burdens be a main topic, along with how to help local governments that are struggling to make ends meet while the state's coffers get fat. Because while some may applaud the drop in tax burdens that we have seen in Wisconsin over the last 40-50 years, we have to ask if what we've got has truly left us better off. And how can we and our communities become better off for the rest of the 2020s over what we have today?