U.S. Treasury Secretary Jacob J. Lew and Office of Management and Budget (OMB) Director Shaun Donovan today released details of the fiscal year (FY) 2015 final budget results, which show significant and continued progress in reducing the deficit. The deficit in FY 2015 fell to $439 billion, $44 billion less than the FY 2014 deficit and $144 billion less than forecast in President Obama’s FY 2016 Budget. As a percentage of Gross Domestic Product (GDP), the deficit fell to 2.5 percent, the lowest since 2007 and less than the average of the last 40 years. In dollar terms, the FY 2015 deficit was the lowest since 2007 as well.I guess you can tell that the deficit has been shrinking because it never comes up as an issue in the presidential election, but the reason why that deficit shrunk in the last year is what I want to focus in on.
Government receipts totaled $3,249 billion in FY 2015. This was $228 billion higher than in FY 2014, an increase of 8 percent. As a percentage of GDP, receipts equaled 18.3 percent, 0.7 percentage points higher than in FY 2014. The increase in receipts from FY 2014 can be attributed to a stronger economy. Growth in wages and salaries made collections of individual and payroll taxes strong throughout the year. Corporation income tax collections also increased in FY 2015 due to growth in taxable profits. Other miscellaneous receipts also increased, primarily due to fees and payments enacted under the Affordable Care Act that were collected beginning in FY 2015.In fact, federal spending went up by 5% in FY 2015, but the revenue increases outpaced it, and that's what lowered the deficit.
In fact, if you go deeper into Thursday's Treasury report, that increase in income and corporate tax revenues becomes apparent, and is the clear driver of the increase in receipts.
Change in tax receipts, FY 2014 vs FY 2015
FY 2014 $1,394,567
FY 2015 $1,540,802 (+10.5%)
FY 2014 $320,731
FY 2015 $343,797 (+7.2%)
Now, those increases in taxes don't reflect who's getting those gains, or that our economic problems are solved and that there isn't a lot of room for improvement in our still too-unequal economy. But they certainly help the country's bottom line, and these increases have generally been helping state budgets, since incomes and corporate profits get taxed at the state level as well. So let's see how those increases translated at the state level in Wisconsin, especially since the Annual Fiscal Report was just released on Thursday, which will have the state's revenue numbers.
Granted, the fiscal years from state vs federal are in slightly different months (state is July 1- June 30, federal is Oct 1- Sept 30), but they should largely work in tandem. So let's see what Wisconsin's change in revenues was compared to the U.S.
Income tax change FY 2014 vs FY 2015
Corporate tax change
So Wisconsin's increase in tax revenues badly lagged the increase in the rest of the country. This would reflect the slower job gains that the state has had vs the rest of the country (as shown by the Walker jobs gap), and also the corporate tax cuts enacted by Scott Walker and the Wisconsin GOP over the last 4 years. Granted the U.S. doesn't have a national sales tax like Wisconsin does, and that was a source of budget strength for the state, with sales taxes up 5.7% vs FY 2014. But given that income taxes make up over half of Wisconsin's tax revenue, the sales tax bump still doesn't allow the state of Wisconsin to come close to the U.S.'s 8% increase in tax receipts in the last fiscal year, as we were up only 4.3% vs the last fiscal year.
And because Wisconsin needs a 4.6% increase in General Fund taxes just to keep next year's budget on track, that lagging is not a good sign. This is especially true as we see evidence of a slowing U.S. economy, declining stock market, and likely lowering of revenue growth at the federal level. We haven't seen the release of Wisconsin revenues for the first three months of Fiscal Year 2016, but they should be coming shortly, and that should give a first indication whether we will hit that 4.6% increase, or start falling short.
But what the U.S. Treasury report shows is that the state's $135 million cash balance (AND NO, THAT'S NOT A SURPLUS) is due to strong revenue growth throughout the country, and has nothing to do with "pro-growth" policies of Scott Walker or the Wisconsin GOP. In fact, Wisconsin has trailed the rest of the nation in seeing benefits from this economic recovery, and any mention of the positive year-end cash balance should be followed with two words. "THANKS OBAMA!"