Wisconsin still on track to have $7 billion in the bank in 3 months

I’ve mentioned previously that I was concerned about the lower amount of tax receipts that have been coming in for both the US in general, and Wisconsin specifically. On Friday, the Wisconsin Department of Revenue released their revenue collections for February, and it offered a nice reversal of that.

Wisconsin individual income tax collections, February
Feb 2022 $104.8 million
Feb 2023 $399.2 million

The Legislative Fiscal Bureau predicted this when they made their revenue estimates earlier this year. The reason why is because of recent income tax cuts and related changes put in place by the Evers Administration to increase the take-home pay of Wisconsinites last year.

Based on preliminary collections information through December, 2022, individual income tax revenues for the current fiscal year are 12.9% lower than such revenues through the same period in 2021. This is primarily due to decreased withholding collections following the withholding table update that took effect January 1, 2022. However, individual income tax revenues are expected to increase at a rate of 21.1% over the next six months relative to the same period a year prior.

The primary factor for this estimated revenue increase is an expected decline in refunds paid to taxpayers in 2022-23 relative to 2021-22. The income tax rate reduction included in 2021 Act 58, which took effect beginning in tax year 2021, caused refunds to spike when taxpayers filed their corresponding income tax returns in 2021-22. However, because the income tax withholding tables were later updated beginning January 1, 2022, to reflect the rates, brackets, and standard deduction in effect for current law, the amounts withheld from taxpayers during tax year 2022 incorporated the Act 58 rate reduction for the first time. As a result, when taxpayers file the corresponding returns in Spring of 2023, their refund amounts will be lower (all else equal) than the refunds they would have received had the withholding tables not been updated.

So February is the first month where you will generally see those lower refunds, and March and April should repeat those trends on a larger dollar amount.

The question is whether income taxes over the last 4 months will have the $675 million year-over-year increase that is needed to reach the LFB’s projections.

Conversely, Wisconsin corporate taxes for February had a significant decline – from over $43 million in Feb 2022 to $4.5 million last month. Lots of returns and quarter-end filings to go, but corporate collections are down 4.8% for FY 2023, and that’s quite a bit more than the 1.7% decline that LFB projected. Worth keeping our eyes on for the next 2 months.

Sales taxes are staying strong, up 9.2% in February 2023 vs Feb 2022, and up 9.3% for the fiscal year. That’s well past the 7.2% projected increase that the LFB had, and we only need a year-over-year increase of 4.3% over the last 4 months to meet those figures. Barring some unforeseen recession and panic over the next 3 months, sales taxes would seem likely to end up higher than anticipated.

Nothing to get too concerned about yet, and it still looks like the state is on track to have $7 billion+ in the bank when the fiscal year ends on June 30. But the next 6 weeks will verify if we can take away that portion of budget uncertainty, and allow us to get down to the brass tacks of how much of that $7 billion will be used, and how it can be used.