December revenues widen Wisconsin's budget hole even further

Another month, and another subpar report on Wisconsin tax figures from the state’s Department of Revenue. This time, it shows that income and corporate taxes collected are going down even faster, and even sales tax growth slowed some. The state’s overall tax intake also on the decline.

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.

The reckoning of the morning after

Yeah, I can't see myself forgetting that Packer meltdown yesterday. To see your team blow a chance like that....this really hurts. You never know if a chance that good will come around again.

How unlikely was this loss? I'll let ESPN's win-probability and X and O guru Bill Barnwell explain, with my added thoughts in italics.

When [Seahawk QB Russell ] Wilson had his fourth interception of the day bounce off Jermaine Kearse’s fingertips and into Morgan Burnett’s hands with 5:04 left, the Packers were up by 12 points and had the ball near midfield. ESPN Stats & Information estimates that Seattle’s chances of winning in that exact situation were a lowly 3.9 percent. Take the team with the best point differential in NFL post-merger history, the 2007 Patriots, and have it travel back in time to take on the worst team in post-merger history, the 1976 Buccaneers, in Tampa Bay. The Bucs’ chances of winning that game per the log5 method are 4.3 percent, narrowly better than where the Seahawks stood with a little more than five minutes to go.

Seattle needed just about everything to go right from that point forward, and as you already know, that’s exactly what happened. Outside of Lynch narrowly stepping out of bounds on a wheel route that otherwise would have been the first touchdown in Seattle’s comeback, the Seahawks suddenly exhibited an ability to cast miracles on demand. Of course, there was the expected onside kick, a 21.1 percent shot that went Seattle’s way in a spot where the game all but surely would have ended had the Packers recovered. More on that in a moment. There was the only 2-yard Hail Mary you’ll ever see, a two-point conversion that somehow fell into the waiting arms of Luke Willson. (that play absolutely killed me, how Ha-Ha Clinton-Dix and the rest of the Packer defense just stood around and let that crap get completed). That play ended up saving Seattle’s bacon when the Packers were able to kick a field goal on their ensuing drive. With a defense riddled by injuries, it was a blessing that the Seahawks won the overtime coin toss, never giving the ball back to Aaron Rodgers & Co.

Of course, it never should have come down to a 1 in 25 chance of losing, because this game should have been put away well before the last 5 minutes. Barnwell notes that Packer Coach Mike McCarthy deciding to kick field goals two times from the 1-yard-line in the 1st Quarter ended up costing the Packers a total of 2.6 points in win expectancy. Now maybe the play-calling menu was a little light due to Aaron Rodgers not being as mobile as normal (so rollouts and run-pass options were less likely), but if even 1 of those 2 attempts to go for it work, that's 7 points vs. 6, and even getting stuffed leaves Seattle in horrible field position, which often ends up resulting in points for the Pack within the next 2 possessions.

But the even more egregious coaching error comes from the fact that the injury-riddled and tired Seahawk defense wasn't exactly tested by the likely NFL MVP in the 4th quarter. And that's where me and Barnwell have a special issue with the way this game ended up, and why I look to the sidelines for the reason behind this collapse.

The first was the more egregious of the two. Taking over on their own 13-yard line with 6:53 to go after a 57-yard drive that led to a field goal on their last possession (a really good drive that featured a key 3rd-down conversion pass to Richard Rodgers) , the Packers took over and got ultra-conservative. They ran twice with James Starks before calling for a hitch route to an isolated Andrew Quarless versus linebacker K.J. Wright on third-and-4, which fell incomplete under some pressure from Wright. It was the same play call that won Green Bay the game against Miami late in the fourth quarter, but that was versus abysmal coverage linebacker Philip Wheeler; Wright is one of the better linebackers in football.

The second drive was mostly circumstance. After the interception, the Packers ran the ball with Lacy for a loss of 4, at which point the Seahawks called timeout. I can understand wanting to run clock on the next play, which went for a loss of 2 and another timeout. At third-and-16 and with the clock stopped, a third running play seems reasonable enough.

The results are bad enough, 6 plays, 2 yards, 2 punts, and only 2:52 taken off the clock. But let's note that the mix was 1 pass, 5 runs, when you have the best QB in football and Seawhawks star DB Richard Sherman is playing with one arm. Running the ball may take time off the clock and/or force the other team to take timeouts, but you know what's even more effective at that? GETTING FIRST DOWNS. Sure enough, on the Packers' drive to tie the game at the end of regulation, 3 straight pass plays netted the team 42 yards. Yes, Seattle wasn't playing as tight on defense given the end-of-game situation as they may have been when they were losing and pressing to make a play, but that also opens up opportunities for the Packers' 3 wideouts and Rodgers' usually-strong accuracy. It's just an idiotic, risk-averse strategy to grind the ball into the line at a time when the Seahawks are selling out for the run.

And when you're the Green Bay Packers and lucky enough to have the best QB in the game in his prime, you don't let opportunities slip away like this. The only positive for me in this disastrous Packer loss is that it has happened after I've lived to see the Pack make 3 Super Bowls and win 2. If this was the 1995 season, and 21-year-old Jake was watching this giveaway without having ever seen the Pack in the Super Bowl in his lifetime? I might not be out of bed or able to even read anything about the game, instead of continually shaking my head and seething like I am today.

Fuck it, onto college hoops season.

Today's Sunday priorities

I could do a long post on why I'm loving the idea of President Obama asking for higher capital gains taxes (LOOOOOONG overdue, as this disparity in "legalized gambling vs. working" income taxes has led to a lot of our country's economic problems), but I gotta focus. And that's not just because there's no way the corporate-owned GOP Congress would ever allow their benefactors to have their casino get taxed more fairly. There are more important things going on in the world today.

Like this. Yes, the players are a bit dated and have moved on, but this team never is. Shock the world, Pack!



And if you want the best analysis over the air of this game as well as last week's, you need to check out Milw Alder Nik Kovac and others on Packerverse. You'll sound smarter when you're watching the game with your friends later today, and not just because of the X's and O's.

Michigan continues state trends of tax breaks = budget deficit

Add Michigan to Wisconsin, Kansas and North Carolina onto the growing list of states that have budget problems after offering tax breaks to businesses and rich people. Yesterday the Wolverine State revealed it has a $325 million current-year budget deficit, and future year deficits as well, although as Michigan-based MLive notes, some of the reason is oddly related to Michigan's bounce back from the Great Recession.

Ironically, the growing economy may be largely to blame for the budget crunch. More companies are meeting job number requirements to cash in refundable credits issued under the old Michigan Business Tax, which was scrapped in 2012.

An unexpected number of refunds this year means the state is generating significantly less revenue than officials had anticipated in May. The state has a hard time anticipating when refunds will be requested, and some of the credits can be redeemed through at least 2032.

“We’re talking about something that isn’t going to go away any time soon, and as the economy picks up … taxpayers may be more likely to claim them than they would have been during the recession,” said Jim Stansell of the House Fiscal Agency.

Republicans have largely blamed the budget crunch on previous administrations that relied on tax credits as an economic development tool. [Gov Rick] Snyder and the GOP-led Legislature scrapped the MBT in 2011 and replaced it with a flat Corporate Income Tax, exempting a number of small and medium-sized businesses in the process.

Michigan was hit as bad as any state by the lousy economy of the mid-to-late 2000s, which helps explain the desperation to attract and keep jobs by any means possible, but it has generally bounced back well once President Obama's bailout of the auto industry began in 2009 and the national economy began to recover. Its job growth has slowed some in 2014 compared to the previous years (guess that (right-to) work-for-less thing wasn't a magic pill, was it?), but since there's still growth, it makes it likely that some of these businesses hit their thresholds in 2014, and will write that off when they file their taxes this year.

And if you remember, it was an unexpectedly high amount of tax refunds that started to lead to Wisconsin's budget shortfall in 2014. This time last year, we were halfway through Fiscal Year 2014, and Wisconsin's income tax collections were up 4.7% vs the halfway point of Fiscal Year 2013. Corporate tax collections were way up, at 20.6%, and those figures were instrumental in having the Legislative Fiscal Bureau up their revenue estimates for the rest of the 2013-15 budget by $893 million. But the lower revenue effect of the first round of Koo-Koo tax cuts that affected the 2013 tax year had largely yet to be seen, since the withholding tables hadn't been adjusted, and so the only time it would hit the state treasury would be as people handed in their tax returns.

Sure enough, as the tax returns came in for January, February, March and April, Wisconsin's tax income and corporate tax revenues plummeted.

Wisconsin income and corporate tax revenues, Jan-Mar 2013 vs. Jan-Mar 2014
Jan-April 2013 income taxes $2.408 billion
Jan-April 2014 income taxes $1.982 billion (-$426 million, -17.7%)

Jan-April 2013 corp. taxes $352.4 million
Jan-April 2014 corp. taxes $290.2 million (-$62.2 million, -17.6%)

Only about $55 million of the income tax decrease was due to the lower withholdings that started in April 2014, so you can't blame that either. In addition, these lower revenues did not spur businesses into hiring people on any great scale, as only 9,500 private sector jobs were added, and 14,000 overall in a time when the U.S. job market started to take off. Sure, there has been 3 months of good jobs numbers since then, but that could simply be catching up to the hole that we were already in, and our tax revenue collections certainly have not benefitted from those allegedly higher job numbers in the Fall, as we are likely to be more than $400 million in the hole for this fiscal year, and more than $2 billion down for the next.

What this tells me is that cutting taxes for the rich and corporate do little if anything for job growth, but because the rich and corporate have more time on their hands to do tax-avoiding behavior, they tend to be more likely to take advantage of the breaks they are given. The problem is that these people pocket the profits and extra tax refunds instead of putting it back into the economy for a useful purpose, or even worse, they take it out of the economy and into more risky and unproductive ventures because the tax code encourages them to.

So if we want to balance budgets and create jobs, maybe a better strategy is to make the rich and corporate pay back some of the excessive profit and income they've been able to grab by gaming the tax code, and instead concentrate on giving raises to workers who not only will pay more taxes on higher incomes, but also might use some of that extra money to do something worthwhile that helps other businesses and individuals in the state get by. It's just a thought.

Brewers and Bucks don't pay property taxes? Yes, it's true

Bruce Murphy had a very intriguing article in Urban Milwaukee discussing how the City of Milwaukee has lost over $100 million in property tax revenue in the 14 years Miller Park has been open. And with the financing of a new Bucks arena sure to be debating in the comijng months, Murphy notes that any Bucks arena deal will likely add to the amount of property that can be taxed in the city.

How did this happen? It starts back from when the Brew Crew played at County Stadium in 1991, and the State Legislature passed a provision to give the Brewers a break.

The change in the law came at a time when the Milwaukee Brewers were doing poorly and then-owner Bud Selig was constantly harping about the travails of a small market-team. Once Miller Park was built, the revenue flowing to the team and its market value rose incredibly, yet that law was still on the books, so Miller Park remained completely tax exempt. As City of Milwaukee assessor Mary Reavey noted in an email responding to my question, “this means that all the businesses like TGI Fridays, the Brewer stores, etc are all now exempt from property taxes for both real estate and personal property.”

Legislators were apparently unaware this exemption was on the books, until 2003, when they asked the Legislative Audit Bureau to review the Brewers’ finances, and the LAB revealed that the team was exempt.

Indeed, the assumption was that the Brewers, who own 31.5 percent of Miller Park, based on their contribution to construction of the stadium (a contribution which was itself controversial since almost none of it came from the team), would be paying property taxes on at least their share of the stadium. Nope.

Murphy estimates that this exemption means that the Brewers have avoided $106 million in property taxes over time, and city residents and businesses have to take up an extra share of property taxes to make up for that difference.

Regarding the Bucks and their property tax situation, the Bradley Center is already considered to be a non-profit and exempt from taxes, because it was donated by the Pettit family and is overseen by the state (which is part of the reason the state has ponied up money for Bradley Center maintenance in the past). What Murphy notes is that the law that exempts the Brewers from Milwaukee property taxes can also come into play with a new Bucks arena is under the provision.

So how will the Bucks manage to claim this exemption? I’m guessing their lawyers have concluded that the 1991 law covering pro sports “stadiums” will cover this new arena. The law, 70.11(36)(a)(a), covers “Property consisting of or contained in a sports and entertainment home stadium, except a football stadium” which is “leased to or primarily used by a professional athletic team that is a member of a league that includes teams that have home stadiums in other states.” The exclusion of football allows the argument that the legislature intended to include all other pro sports team facilities, including a basketball “stadium.”

If so, this means that unlike all other businesses in Milwaukee, which pay property taxes to help support all the city services they receive — police, fire, garbage collection, snow-plowing — the billionaires who own the Bucks will pay nothing. Similarly, Brewers’ owner Mark Attanasio (with an estimated net worth of $700 million) pays nothing in property taxes.

Remember, the City of Milwaukee doesn't collect a dime in sales, income or excise taxes, which means the property tax, fines and fees become pretty much the only way the city can generate its own revenues. And when the State of Wisconsin has continually reduced shared revenues to the state's largest city over the last 20 years, with the 2010s featuring a GOP-run State Legislature that almost seems to enjoy hurting Milwaukee to make their suburban base in the 262 area code feel superior, the City of Milwaukee is already having a hard time coming up with the money paying its bills. Losing hundreds of millions of dollars worth of property due to exemptions given to the Brewers and the Bucks is a major hit for city finances, and puts an unfair burden on the city's already-stressed homeowners and businesses.

With the Miller Park tax seeming to be within 5 years of finally sunsetting and the Bucks arena issue sure to heat up over the next few months, Murphy's article is a good reminder that the City of Milwaukee's two sports teams are already receiving major tax breaks due to their property tax exemptions. It also suggests that we should be hesitant to give these guys everything they ask for, since they're already taking advantage of a very good deal at a whole lot of expense to many others in Milwaukee.

Lewis Black lays it out in Madtown

Isthmus has an interview with the always-great Lewis Black in advance of his stand-up performance at the Barrymore later this month.

Here’s Black’s version of the State of the Union.

Is it tough to find new things to yell about?
Oh, not anymore. If anger was fuel, I could power China. Every time you think there's nothing left to talk about, there are six more things. We have all the trappings of a goddamned banana republic. In the midst of discussions of racism and torture, you get a half-assed budget, so the government can survive that somehow makes things worse.

And here’s Lewis Black sizing up our fair Governor.

I'm not angry at Scott Walker. I'm angry at the person who told Walker that he should run for president. A lot of idiots think they should be president. It's the people who support the idiots and say "yes, you should!" that really concern me.

Exactly. I don’t blame politicians and paid hacks for peddling their well-debunked bullshit (although I do hate their cynicism), I blame the gutless rubes that actually keep voting for it!

And it’s never a complete discussion on Lewis Black discussing the "quiet charms of Wisconsin" without giving you this classic bit (language NSFW).

Who pays in Wisconsin? The middle and lower classes

Thanks goes out to the Wisconsin Budget Project for tipping me off about the annual release of the Institute on Taxation and Economic Policy’s “Who Pays” report. ITEP’s report breaks down the various state and local taxes for all 50 states, and identifies which income levels pay the largest burdens, and why.

Taking a look at the “Who Pays” report for Wisconsin, you’ll find that it’s the middle and lower classes that are paying the highest percentage of state and local taxes, while the richest Wisconsinites are paying less.



So why does Wisconsin's taxes work out this way? A big culprit is property, sales and excise taxes, which hit middle and lower income Wisconsinites much harder than the richest Cheeseheads. Only the top 1% of Wisconsinites pay an average property tax that is less than 3% of income (all the other income levels pay property tax rates between 3.0% and 3.5%) which makes sense when you think about it, because it is unlikely that a 1%er making 10 times the income of a middle-class family will own a house that is worth 10 times as much.

And the sales and excise tax ends up being completely regressive in Wisconsin, with the burdens consistently lowering as you go from the poor to the rich.

Sales and excise taxes as % of income, Wisconsin
Bottom 20% of income- 6.0%
Middle 20% of income- 3.9%
Top 20%- top 5% of income- 2.4%
Top 1% of income-0.8%

Some of these regressive differences are made up by Wisconsin’s income tax structure, where the rich do pay more than others (5.1% for 1%ers vs 3.2% for middle incomes and a refund of 0.2% for the poorest 20%). But even then, this “penalty” on the rich at the state level masks the advantages that rich people get from the federal tax code, including not having to pay Social Security tax after $118,500 of income, and the reality that the rich and connected have the time and resources to do activities that give themselves more deductions and tax breaks than most of us can ever get.

Included in those advantages in the federal tax code is another item that makes state and local taxes in Wisconsin more regressive than it may seem at first glance. When people pay property taxes and state income taxes, those numbers can be written off on their federal taxes, lowering the total amount of net taxes that you pay. Obviously, richer people have more of these taxes to write off, and at a higher federal tax rate, so it’s a double-bonus for them. In property and income tax-reliant Wisconsin, this is an extra boost for those who make the most money.

State/local “tax cut” due to federal offset, Wisconsin
Top 1% of income 1.5%
Top 20%- top 5% of income 1.3%
Middle 20% of income 0.4%
Bottom 20% of income 0.1%

Interestingly, ITEP places this somewhat regressive system in Wisconsin is in the top third of the least unfair state and local tax system of all of the United States. In fact, ITEP ranks two of Wisconsin’s Midwestern bretheren in the “top 10” for unfair taxes, led by a certain state I profiled earlier this week for its flat income tax and budget problems caused by….not taxing for what it needed to pay.

ITEP rankings on tax unfairness, Midwest
Illinois (5th)
Indiana (10th)
Ohio (18th)
Iowa (27th)
Michigan (29th)
Wisconsin (37th)
Minnesota (45th)

Minnesota is a clear outlier when it comes to taxing the rich- the 1%ers pay 7.5% of their income there, while not paying anything more than Wisconsin’s 6.2% in any other Midwestern state (in Illinois, it’s 4.6%). And yet Minnesota keeps adding jobs at a faster rate than almost any other state in this group, while low-tax-for-the-rich Illinois is battling with Wisconsin to stay out of the basement for job growth over the last 4 years. Funny how that works.

So keep these numbers in mind when you hear discussions of tax policy in Wisconsin over the upcoming budget debate, as it looks like the rich are already getting a pretty good deal in the state when it comes to how heavy a burden they have to pay.