This article in Governing mentions that many states may be getting some bonus money in their coffers soon, and it has little to do with whether the economy speeds up or slows down.
But states could find themselves collecting more money, because Congress eliminated or reduced many popular tax deductions, allowing more income to be taxed.In particular, one Midwestern governor is concerned over what'll happen when one particular provision is changed in 2018, as Michigan's Rick Snyder claimed that one particular change in DC mean a back-door tax increase for that state's citizens.
At the federal level, Congress tried to offset those provisions by lowering tax rates and raising the standard deduction. States often follow the federal government’s calculations for determining how much income should be taxed, but, unlike Congress, they have not changed their tax rates to reflect the smaller level of deductions.
Snyder told the AP he is especially worried about the federal law’s elimination of the personal exemption. That exemption excludes a certain amount of income from being taxed for every member of a household. For 2017, it is $4,050 per person. But Michigan also has a $4,000 exemption for each federal exemption.Of course, these extra taxes wouldn't kick in until at least early 2019 when people file their taxes for 2018, and Snyder will be term-limited out of office by then, so I'm not entirely sure why he cares. Other than wanting to cash in himself, I suppose.
The changes in federal law could mean a $170 state tax hike for a single person in Michigan, or a $680 hike for a family of four. Snyder said he would propose a fix for the problem in January.
In looking at the instructions for Wisconsin's tax forms, it does seem that the personal exemption question does seem to be the one thing that could cause higher taxes for Wisconsinites after this year, since there is a $700-per-exemption write-off at the state level. Otherwise, Wisconsin taxes based on "adjusted gross income", which is before personal exemptions and either itemized or standard deductions subtract from the totals. So that doesn't seem to be as susceptible to this kind of back-door tax increase. And because deductions for items such as student loan interest and expenses for teachers also are still around, incomes shouldn't be artificially inflated for most Wisconsinites when they do their taxes.
But there is a way that Wisconsin may be grabbing more tax revenue, and that's as a result of the Bubbly stock market. Since capital gains are part of this Wisconsin taxable income figure, if people sold stock for a profit, then that could drive tax bills (and tax revenues) higher. Granted, tax revenues have somewhat lagged the budget for the first 5 months of Fiscal Year 2018, as last week's release of November tax revenues showed. But that revenue gap would only be a bit over $100 million these rates of change held up for the rest of the year, and that capital gains boost could make up that $100 mil once people file their taxes in early 2018.
It harkens me back to when a stock market jump in 2012 led to a one-time bump in state tax revenues in 2013, resulting in a reported surplus of nearly $1 billion by early 2014. Naturally, Governor Walker and his rubber-stamp GOPs decided to cut taxes prior to the 2014 elections, which resulted in a larger-than-expected drop in revenues over the next year, and a major budget deficit for the 2015-17 cycle.
That budget resulted in sizable cuts to education and road funding, and job growth tanked soon after in the state, a setback that we only recently started to recover from.
What worries me is the possibility that the Legislative Fiscal Bureau will use the one-time 0.6% stimulus to GDP in 2018 as an excuse to estimate Wisconsin revenues higher next month, and then Republicans try to pull tax-cutting idiocy similar to what they pulled 4 years ago. However, my concern is tempered by looking at the LFB's estimates from January 2017, and I realize they counted on some kind of tax cuts and/or infrastructure stimulus having already been passed by now.
The 2017 forecast is based on the following key assumptions. First, the forecast assumes that the new Trump administration and Congress will lower the average effective personal income tax rate from 21.0% to 19.5% and lower the statutory corporate tax rate from 35% to 20% (partially offset by reducing tax deductions and credits). Second, the forecast also assumes a $250 billion increase in federal infrastructure spending over the next ten years. Third, the 2017 forecast assumes that the Federal Reserve will increase the federal funds rate by 75 basis points in each of the next three years to 1.50% by the end of 2017, 2.25% by the end of 2018, and 3.00% by the end of 2019. Fourth, the Brent spot crude oil price is projected to average $54 per barrel in 2017 and $57 per barrel in 2018. Fifth, the inflation-adjusted, trade-weighted value of the dollar for the broad index of U.S. trading partners is expected to increase 3.3% between fourth-quarter 2016 and fourth-quarter 2017, where it will reach its peak value at 5.5% above the 2016 average, followed by a steady decline. Finally, real GDP growth of major and other important U.S. trading partners is assumed to average 1.7% annually and 3.5% annually, respectively.Other than the failure to add to infrastructure, sounds like largely what we've seen on these subjects, isn't it?
With these parameters in mind, the LFB said it expected 2.6% GDP growth for 2018, which is pretty much what "base + 0.6%" GDP would be. And if things slow down in the second half of 2018 (and you'd think it would, as we are already at full employment and the Bubbles in the stock and housing market are going to pop sooner than later), then there shouldn't be much to expect from the economy for the second year of Wisconsin's budget.
But keep your eyes on that January revenue report, because that'll likely go a long way toward determining if there will be more regressive tax gimmicks from the ALEC crew at the Capitol in early 2018. If there aren't extra funds available
There's lots left to play out over the next few months, and ignore the PR BS that you know will be coming fast and furious from WisGOP and their corporate puppetmasters. The numbers will tell the true story.