Sure enough, Wisconsin tax revenues revised higher for next budget

I predicted this after seeing the numbers from November and December, and today, Wisconsin's Legislative Fiscal Bureau concurred.

The Legislative Fiscal Bureau today projected the state will now finish the 2023-25 budget with a $4.3 billion surplus, while upping expectations for how much Wisconsin will collect in tax revenue over the next two years.

In November, the Evers administration projected the state would finish this budget with a $4 billion surplus.

But the LFB today said it now expects tax revenues to be $894.3 million higher than what the administration had expected in November, driven largely by revised estimates for sales tax collections through mid-2025....

Along with a $4.3 billion surplus at the end of this biennium, LFB projects the state will see an additional $1.85 billion in tax collections in the next two years.

Well that seems like a big deal, and indeed, it means that we should have between $256 million and $354 million in additional funds to utiltize in each of the next 3 fiscal years. Which is pretty close to where we I estimated we were trending based on December's numbers.

That being said, there are a lot of economic assumptions the LFB had to go on, in a time where there is a LOT of uncertainty as to what policies are going to be in place in the next 2 years, and the effects of the policies. Here's what LFB is going with.

The 2025 forecast is based on the following key assumptions. First, Treasury is expected to undertake "extraordinary measures" to meet its debt obligations, now that the debt ceiling is no longer suspended, and the debt ceiling is expected to be increased without a government shutdown. The forecast assumes: (a) an extension of the individual income tax provisions in the 2017 Tax Cuts and Jobs Act (TCJA); (b) some exclusion of tip and overtime pay from federal income taxation; (c) the corporate tax rate is reduced from 21% to 15% on domestic production; and (d) Medicare and Social Security benefits continue to be paid. Second, it assumes that state and local budgets have returned to deficit, after having been supported by stimulus relief measures in 2021 and 2022. However, unspent pandemic-era stimulus funds and ongoing [infrastructure bill] funds are expected to mitigate pressures to reduce state and local spending. Third, the forecast assumes a reduction in net international migration by 500,000 per year (equal to 0.15% of the U.S. population) for the next four years. Fourth, S&P Global anticipates that the Federal Reserve will reduce the federal funds rate by 25 basis points both in March and June of 2025, before pausing until the third quarter of 2026. Fifth, the forecast assumes a 10% universal tariff and a 30% tariff on imports from China, which is expected to increase the average effective tariff rate from 3.0% in the first quarter of 2025 to 16.4% by the first quarter of 2026. Finally, it assumes that growth in real, trade-weighted foreign GDP will remain at 2.0% in 2025 and rise to 2.2% in 2026. Foreign CPI inflation is expected to fall to 2.5% in 2025 and 2.2% by 2028.

Lots of "we'll see" there, especially on no government shutdown, extending the GOP Tax Scam and in Congress signing off on Trump's gimmick involving income from tips (and corporate bonuses?). I suppose a lot of this will be cleared up in the next 6 weeks, when funding runs out for the federal government and any tax plan will likely be debated as part of that.

Also, did you catch the items about a relatively small decrease in immigration and the assumption of tariffs being put in place? Let's see where that goes as well. Interestingly, the LFB thinks that the tariffs will give a boost to the state's tax revenues, because it'll raise the prices on products.

CPI slowed to 3.0% in 2024, down from 4.1% in 2023 and 8.0% in 2022. As predicted, core CPI, which excludes food and energy prices, exceeded overall CPI, growing 3.4% in 2024. S&P Global expects the growth in CPI to slow to 2.9% in 2025, before increasing to 3.3% in 2026. Higher CPI growth in 2026 is based on S&P Global's expectation that President Trump's proposed tariffs will increase domestic prices. CPI is projected to slow to 2.2% in 2027. S&P Global estimates core CPI growth at 3.2% in 2025 and 2026, and 2.1% in 2027...

Sales tax revenues in the next biennium are estimated at $8,140.0 million in 2025-26 and $8,375.0 million in 2026-27, reflecting growth of 4.9% and 2.9%, respectively. These estimates reflect higher November and December collections (compared to November projections) and utilize an updated forecast from S&P Global that incorporates President Trump's proposed tariff policies, which are expected to increase inflation and nominal consumer spending.

So with expectations of inflation around or above 3% in each of the next 2 years, it likely means there should be some kind of allowance for spending to rise by more than what might have been expected a few months ago.

And because there is nearly zero certainty over what fiscal policies are going to be coming out of DC in the next few months, and the effects those policies may have on state funding and services, it would be insane for Governor Evers to sign off on any WisGOP tax cut that they try to push through in the coming weeks. In fact, if I were Gov Evers and Capitol Dems, I would go out of my way to mention that the good economy of the Biden years and Evers' stewardship as governor have led to this good revenue picture, but the Trumpian idiocy in DC is stopping any immediate tax cut to take advantage of these higher-than-expected numbers.

Regardless, the LFB estimates show that there should be plenty of funds available in these coming years to take care of the many needs in this state that have been neglected during the 14 years that Republicans have run the State Legislature. Or this surplus can help to make up for Trump/GOP budget cuts in DC. Either way, let's take advantage of these good times and get real investments and changes in place with the billions we have to play with.