Saturday, May 24, 2014

Told ya. Wisconsin tax cuts= budget shortfall

I had mentioned previously that the April 2014 Wisconsin revenue report was important, as April includes all late filings of tax returns and would tell us if the shortfalls we'd been seeing at the start of 2014 were going to continue. And they didn't just continue, they got worse.

The monthly release was dumped on a pre-holiday weekend Friday afternoon, and one look at the numbers shows why the Walker Administration wouldn't want you to know about it.

Year-over-year change in Wisconsin revenues, April 2013 vs. April 2014
Income tax -31.2%
Sales tax +3.6%
Corporate tax -13.2%
Excise tax -0.2%

A 31.2% drop in income taxes and 13.2% drop in corporate taxes is no small thing. Yes, I understand that a number of items came together to reduce April's tax haul for the state- including updated withholding tables, a new round of tax cuts, and additional 2013 tax refunds from the first round of (Koo-Koo) tax cuts. But the first round of tax cuts were already accounted for in the Legislative Fiscal Bureau's revenue estimates from January that led to the one-time state surplus which was promptly wasted on a second-round of election-year tax cuts. And since the LFB has also quantified the second round of tax cuts, we can take a look at how we're shaping up compared to where we should be.

The newly-adjusted withholding tables (you know, the ones that allow you to take home an extra $10 or so each paycheck) and second round of tax cuts was expected to cost $156.5 million in revenue for the three months they were in effect for the 2013-14 fiscal year, so let's be generous and say 1/3 of that hit in April, so it'd be a $52.2 million drop. In addition, another $11.3 million for the fiscal year was expected to be written off due to another business tax cut, and $2.1 million in additional moves, so let's assume it all hit in April, to give the Walker folks the benefit of the doubt, and our extra April 2014 reduction comes to $65.6 million.

So let's add $65.6 million back into the April 2014 income tax revenue numbers, and compare the January-to-April numbers for both 2013 and 2014.

Adjusted tax revenues, Jan-Apr 2013 vs. Jan-Apr 2014
Income tax - DOWN 14.99% (-$361 million)
Sales tax- UP 2.98% (+41.7 million)
Corporate tax- DOWN 15.25% (-$52.2 million)
Excise- UP 1.05% (+2.2 million)

As you can see, the drops in Income tax and Corporate tax are larger than any increases in sales and excise taxes. And if you go back to the January revenue estimates, you see that Sales and Excise taxes were already projected to go up in this fiscal year, and corporate taxes were supposed to be up 11.22%, not down 15.25%.

So let's plug in the following numbers for the next 2 months. We'll assume may income taxes are the same as they were in May-June 2013 (even though they're running behind those figures so far), and we'll use the LFB's January-June projections of a 11.22% increase in corporate collections, a 3.34% increase in sales taxes, and assume excise taxes to come in on target at an increase around 1%.

2013-14 revenues with above assumptions vs. LFB projections
Income tax- DOWN $112.8 million
Sales tax- DOWN $9.2 million
Corporate tax- DOWN $89.5 million
Other taxes/ excise- UP $10 million
TOTAL SHORTFALL $201.5 million

So put this $201.5 million revenue alongside the failing record of tax cuts in other Koch/ALEC/GOP-run states, such Kansas ($94 million revenue shortfall in April alone), and North Carolina (which has a projected shortfall of $445 million). All of these states used a 2013 one-time bump in revenues (due to moves at the end of 2012 in fear of impending "fiscal cliff" changes which increased incomes. Instead of banking the money in a rainy-day fund, or using it to preserve or improve the level of services in their states, the ALEC govs and legislatures used it as an excuse to cut taxes.

As a recent Rockefeller report on state revenues showed,
many states saw a revenue slowdown at the end of 2013 to make up for that one-time bump at the end of 2012,
and the polar vortex winter helped delay any rebound that might be coming in 2014. Barring record hiring and tourists visiting the Dells in the next two months, Wisconsin will start off fiscal year 2014-15 in the hole, as we only had a $100 million cushion before this shortfall showed up. There needs to be hard questions asked of Gov Walker and the GOP Legislature how they plan to make up for their Dubya-like fiscal stupidity, as hoping for "economic growth" to dig us out of that hole doesn't seem to be working out, just like it hasn't for the last 30 years of trickle-down stupidity in this country.

Or we could elect Dems this November, and have them be the adults in the room to take on our fiscal issues- as they've had to have been for at least a generation now.


  1. Could this be more of the "starve the beast" conservative strategy? If re-elected the republicans now will have another "fiscal emergency" to make more cuts to education, shared revenue, etc. . or may be they will go after the state pensions. Even though currently nearly 100% funded, I can hear their argument now. "You know, the pension only needs to be 80% funded to be fiscally (right term?) sound, so the other 20% belongs to the taxpayer. . . .yada, yada, yada.

  2. You are thinking wisely, as Chris Christie is pulling such a stunt in New Jersey right now to cover his budget gap. Another option is to sell off state assets to campaign contributors for pennies on the dollar.

    And defunding public schools further, as I pointed out in the previous post

  3. Note that some income tax collected in April will not have been subject to lower withholding rates since it was for work done in March. The DoR anticipated that the impact of withholding changes on April revenues would be $30-40m.

    No, the General Fund won't start 2014-15 in the hole, because Act 145's fiscal consequences are projected to hit mostly in 2014-15, not 2013-14 - the drains on the General Fund being $35m in FY14 and $559m in FY15. So we should still be ok at the end of FY14; it's the end of FY15 that we have to watch out for.

  4. Geoff- I know that the deficit doesn't appear till 2014-15, but I'm viewing the budget as a 2-year document, and the funding will have to be made up some time in the next 14 months.

    It does appear that we're already down $200 million from the $724 million we were supposed to be up at the end of FY 2014 (due to money being "banked" instead of spent), which makes the starting balance a whole lot lower, and the $559 million deficit for 2014-15 being something we don't have to pay for

  5. Sales tax receipts for May were up just 0.16% year-on-year.

    Jan - May 2014 is thus up 2.4% ($42m) on Jan-May 2013, and if June 2014 is up 3.34% on June 2013 then sales tax collections for FY14 will come in $30.7m short of the LFB's January projection.

    June 2013 had a y-o-y increase of 8.6%, so large increases are possible, but it seems that month was anomalously high meaning that June 2014's y-o-y growth is likely to be strongly impacted by a return to normal (y-o-y growth rates tend to be negatively correlated with the value 12 months earlier).

    Adjusted withholding for May 2014 is down 2.77% (if withholding tables hadn't been changed then it'd have been a year-on-year growth of about 4-5%). So for that component of income taxes that's $13.9m below your assumption.

    So from the May figures available so far your shortfall calculation is about $45m too small.