Tuesday, May 21, 2013

U.S. data proves Wisconsin "surplus" a blip, not real growth

News from recent days illustrate just how fluky and unreliable Wisconsin's alleged $500 million surplus is, and why it has very little to do with any kind of economic growth or responsible budgeting under Scott Walker.

Let's go back to the revenue estimates released by the LFB earlier this month, and in particular, let me point out the key passage which shows where the better-than-expected revenues came from, leading to the surplus.
April was an especially strong month [for income tax revenues], with growth of 12.4% over April, 2012. The main area of strength has been quarterly estimated payments of taxes on non-wage income, primarily business and investment earnings. Estimated payments in April, 2013, were 35.9% above last April's amount, and the year-to-date amount is 24.4% higher. Another, much smaller component of income tax collections is withheld taxes on profits distributed to the owners of pass-through entities (partnerships, limited liability companies, and tax-option corporations). These collections were also very strong in April, with monthly growth of 49.1%. Year-to-date growth in pass-through entity withholding is 45.7%.
Well, as reports later showed, that 12.4% increase in Wisconsin isn't as impressive when you look at what happened in the rest of the nation.
Federal tax revenues hit an all-time non-inflation-adjusted monthly high of approximately $406.7 billion in April, according to newly released data from the U.S. Treasury.

Overall federal tax revenues in April 2013 were up 28 percent from April 2012, and individual-income-tax revenues specifically were up 36 percent.
As mentioned before, a lot of this was due to the looming fiscal cliff that hit at the end of the year, and it accelerated a lot of revenues into the end of 2012, as people feared higher taxes on investments, Social Security taxes, and income taxes on the rich. This is obviously a one-time deal, but it also had a major impact on revenue numbers for the year.

And these big revenue jumps also showed up in the states, with income tax increases in many of them well above Wisconsin's 12.4%, led by our neighbor to the south.
Illinois contributed to a 37 percent increase in state personal income tax collections in April from a year ago, according to a sample of U.S. states, but the improvements may not continue as a still-shaky economy, tax cuts in some states and federal budget woes could team up to depress revenue growth.

Excluding California, which had the biggest gain of the 21 states that have so far reported collections in April, the total increase was still a solid 22 percent.

The reports showed collections were up by a median 24.41 percent in April -- when taxpayers face a mid-month tax filing deadline.

In April 2012, for all the states which collect personal income taxes the nationwide increase from the year before was a more modest 7.1 percent, according to data from the Rockefeller Institute of Government, which tracks state revenue. The median change among all states stood at 8.6 percent.

"There is nothing going on in the underlying economy that could support those kinds of increases on an ongoing basis," said Don Boyd, a senior fellow at the Rockefeller Institute.
So the typical state in that survey was seeing income tax revenue increases TWICE AS HIGH AS WISCONSIN'S, illustrating the economic weakness that is the reality in Fitzwalkerstan. However, the LFB feels that the nation's growing economy will keep Wisconsin's revenues at an elevated level. Page 4 of the revenue estimate report shows that the LFB assumes a national GDP growth rate of 2.8% in 2014 and 3.2% in 2015, along with solid increases in personal incomes and profits. It also counts on the housing boom to continue, with an increase of home sales of 37% between 2012 and 2015.

Now the most recent Wisconsin Realtors report indicates some of the nationwide boom is reaching Wisconsin, with existing home sales up more than 9% and median sales prices up 7.8% year-over-year. But then you look at the job losses in March and April, and realize that sales tax revenues remain slow in the state (barely above inflation), and you wonder how long that's going to last.

Oh, and this picture came out from the Philly Fed today. Which one of these is not like the others?

Yep, we're one of two states that have been in recession the last 3 months. And if this stock market and home-buying bubble pops, look out below on the revenue stats! Especially if that stupid $300 million, $8-a-week income tax cut goes through. Sorry Scotty, but not even the wave of the Obama Recovery is going to bail you out of this fiscal hole.

No wonder this administration wants to sell assets off to campaign contributors investors. It's the only way the WisGOPs can claim that the Walker budget would remain "balanced" in November 2014. Combine that hollow claim with the major profits to be funneled to the campaign contributors, and it's a win-win all around for Scotty's 1% Club for election time.


  1. I've pasted the withholding and sales tax receipts by month here: http://bit.ly/YYkVUE

    Revenue from withholding isn't broken out from income taxes in the Department of Revenue monthly news releases, but the data is available if you ask the people who work there nicely.

    As you can see, year-to-date growth in withholding and sales taxes are really struggling to hold their heads above the inflation waters at this point: March and April were not kind to them at all, a reflection of the nasty job numbers we've seen for those months.

  2. Geoff- the link didn't post, and it sounds like good data, so re-send in a HTML-type format if possible.

    Agree that the more regular withholding tax and sales tax numbers tell the real story over the fluky "windfall profits" numbers that led to the upside revenues

  3. Yep, that did it Geoff. Thanks for that, as I can see using that info again.

    For example, December had over a 15% increase in withholding year-over-year, which is straight from the end-year acceleration of bonuses mentioned above. And April 2013 was a DROP of more than 5% year-over-year. I gotta think the QCEW for the March-March quarters will suck for both jobs AND wages.

    1. Withholding revenue for 2013Q1 went up 3.2% year-on-year (1.5% in real terms); CES puts total job growth in 2013Q1 at 9,800 (vs 18,500 for 2012Q1) or 0.4%, suggesting that per-job wages might be up slightly in real terms.

      For 2012Q1, withholding revenue went up 3.1% vs 2011Q1 (0.4% in real terms). CES put total job growth at 18,500 vs 10,100 in 2011Q1, yet QCEW recorded a jump in total wages of 7.2%.

      My money is on fair wage growth (in absolute terms, not compared to the rest of the country) and anemic job growth when March-March QCEW data comes out.