Greater-than-expected corporate tax revenues fueled the increase. It totaled slightly more than $1 billion -- about $69.9 million, or 7.5 percent, more than projected.But despite what WisGOP spinmeisters might say, it appears the upside revenue growth has little to do with Walker/WisGOP policies, but instead is a reflection of a strong U.S. economy. This was illustrated in yesterday’s release of the Congressional Budget Office’s Update to the Budget and Economic Outlook, where the CBO said the federal deficit will be at its lowest levels since before the Great Recession, largely due to higher-than-expected revenues in this fiscal year.
The corporate tax long has been among the state's most volatile revenue sources, making it difficult to project, according to fiscal bureau director Bob Lang. That's partly because the tax is collected on corporate profits -- not income, as is the case with individuals.
RevenuesWhich is why it is all the more interesting that Wisconsin’s income tax growth was relatively tepid, at 3.7% while the U.S. income tax revenues were up 10.4%. And even with the higher corporate tax receipts saving Wisconsin’s 2014-15 budget, that growth of 3.9% is still less than half of the 8.4% growth the U.S. Treasury saw in corporate taxes. So once again, seemingly positive Wisconsin economic numbers should be punctuated with two words “THANKS, OBAMA!”
Federal revenues are expected to climb by 8 percent in [Federal Fiscal Year] 2015, to $3.3 trillion, or 18.2 percent of GDP. Revenues from all major sources will rise, including individual income taxes (by 10 percent), corporate income taxes (by 8 percent), and payroll taxes (by 4 percent). Revenues from other sources are estimated to increase, on net, by 5 percent. The largest increase in that category derives from fees and fines, mostly as a result of provisions of the Affordable Care Act.
Changes From the March Projections Receipts from individual and corporate income taxes have been greater than anticipated, which largely explains the $60 billion reduction in the projected deficit for 2015; revisions to CBO’s estimates of outlays had almost no net effect.
(an earlier mention of an alleged deposit to the Rainy Day Fund has been removed, as noted in the comments. We continue)
In addition, remember that we were looking at a $283 million in-year deficit for ’14-’15 back in January, so let’s see what kind of difference has to be made up now. We’ll also use projections from Table 4 of Gov Walker’s Budget in Brief to update a couple of figures.
2014-15 adjustments since January
Projected balance -$283.4 million
Additional 2014-15 revenues +$71.4 million
Unbudgeted Potatwatomi Payments +$49.0 million
Reduced Comp Reserves to Employees +$98.1 million
New projected balance, 2014-15 -$64.9 million
Theoretically, there may be enough unspent money and/or skipped debt payments to make up that last $64.9 million. We will wait for the October 15 Annual Fiscal Report to see if that’s the case, or see how far in the red we were when this new budget started.
Also noteworthy is that once you remove the surprise increases in corporate tax revenues, the LFB estimates from January were basically bang-on.
2014-15 Final revenues vs LFB projections
Income tax – DOWN $24.2 million
Sales tax – UP $12.1 million
Cigarette tax – UP $13.0 million
Tobacco Products – UP $2.6 million
(Way to go smokers! Thanks for stocking up!)
Liquor, wine, beer – UP $1.2 million
Other taxes – DOWN $3.3 million
TOTAL CHANGE OUTSIDE CORP TAX – UP $1.4 million
The income tax falling short should be a major concern, as that reflects the lack of jobs and wage increases (perhaps at the expense of higher corporate profits?). Because income tax makes up more than half of the state’s overall tax revenues, this puts us a bit further behind the 8-ball for this fiscal year. Walker’s budget already counted on income taxes going up by 6.7% in 2015-16 before this income tax shortfall, and now it has to go up 7.1% just to stay on track…or nearly twice the increase we had for this fiscal year.
So my topline conclusion from today’s revenue release is that we’re slightly better off than we could have been, mostly due to the Obama Recovery continuing through June 2015. But we are still in a ditch when it comes to paying for future needs, and if the recent dive in the stock market translates into economic weakness (or even a drop in collections due to write-offs of stock losses), a budget that already relies on $1.1 billion in lapses will have even more cuts and adjustments that will need to be made. And that is the last thing Scott Walker and the Wisconsin GOP want to deal with ahead of the 2016 primary and general elections.