Monday, December 23, 2019

Fitz is floating another tax cut? Shouldn't we wait to see what happens with the current ones?

It’s almost like clockwork. Right ahead of a new year, here come WisGOPs asking for some kind of tax cut in case the state has more money coming into it. This time it’s Senate GOP Leader and Congressional candidate Scott Fitzgerald doing the pandering, and it’s in reaction to the surprising jump in property tax bills that hit throughout the state for this year, particularly in K-12 schools.
Discussion of a property tax cut comes in the wake of homeowners receiving the tax bills in December. Those bills could amount to the largest property tax increase in 10 years, the nonpartisan Wisconsin Policy Forum said in a report this week.

“People are a little surprised,” Republican Senate Majority Leader Scott Fitzgerald said at a news conference.

Republican senators are in the early stages of putting together a tax cut proposal, but there's no targeted amount yet, he said. That will partly depend on the state's tax revenue forecast, which is looking good and will be updated next month, Fitzgerald said.
There’s definitely evidence that revenues look good as we near the halfway point of Fiscal Year 2020, as the November figures from the Wisconsin Department of Revenue came out late last week. Corporate revenues in particular are carrying the numbers higher than expected - up by nearly 57% when the 2019-21 budget counted on a DROP in corporate revenues of nearly 13%. However, there are two major caveats with those revenue figures.

First, year-over-year totals for income taxes will likely drop by a lot in the next 4 months, because one income tax cut signed by Governor Evers in the state budget has been in effect for all of 2019, and a second takes effect in 2020, but Wisconsinites won’t see any change in their wallets until they file their taxes and get tax refunds that are larger than they’d previously have. The Legislative Fiscal Bureau estimated that the income tax cuts will drop revenues by $167 million next year, and $268 million in 2021, but we won't have an idea on how much it'll be for another 4 months.

Hold up there, Fitz

Second, a lot of that increase in state corporate tax revenues are an offshoot of the GOP Tax Scam in DC that Fitzgerald would certain like to continue as a Congressman. Basically, the Tax Scam encouraged a lot of business owners to stop being assessed on their individual income taxes and become "corporations" and related business entities, in order to get a massive tax cut at the federal level. The LFB outlined this tax shift during their analysis of May's upside revenue surprise.
As noted, higher than expected entity-level tax payments and shifting of income from tax year 2017 to tax year 2018 in response to the TCJA contributed to higher than expected year-to-date collections. In addition, compared to the January forecast, IHS Markit's May forecast of2019 growth in economic profits increased by 1.6 percentage points to 6.3%. For tax year 2019, S corporations and partnerships choosing to pay at the entity level are required to make quarterly payments, resulting in a one-time higher fiscal effect from S corporations remitting two estimated payments for tax year 2019 and full-year tax payments for tax year 2018. Previously, for tax purposes, such entities would have passed through their income to their owners, most of whom would have filed under the individual income tax. As a result, collections data suggest that a sizable amount of payments will now be made under the corporate income/franchise tax on a continuing basis. Due to the factors described above, this forecast anticipates growth in corporate tax collections of 51.6% in 2018-19. For context, the highest annual growth rate in corporate tax collections over the last 40 years occurred following the 2008-09 recession, with growth of 32.6% in 2009-10 compared to 2008-09.
But if this is a one-time change, the LFB analysis notes that the 57% increase in corporate revenues could come back to earth very quickly in the early part of Calendar Year 2020. And not just because of that, but because of a potential shrinking of corporate profits in coming years.
Collections in 2019-20 and 2020-21 are estimated to be lower than in 2018-19 for three reasons. First, as discussed above, the effect of tax planning for the TCJA is expected to be a one-time shift that would not have a similar effect on revenues in the 2019-21 biennium. Second, entity-level tax collections are expected to be lower over the next two fiscal years after accounting for the one-time increase in collections described above. In addition, it is anticipated that collections under the entity-level tax may stabilize at a lower annual amount going forward if refunds are owed once entity-level tax forms are released by DOR and S corporations can accurately calculate their final payments for tax year 2018 later this year. Finally, IHS Markit forecasts that the growth in economic profits in 2021 (1.2%) will be 1.1 percentage points lower than previously forecast in January.
What effect the larger income tax refunds and this year's corporate tax shift makes next month's LFB revenue estimates VERY interesting, because there are a lot of unknowns there in how much those two items will change total revs.

Also, let me add that a lot of what the Policy Forum lists as an "increase" in property taxes for schools isn't necessarily showing up on people's tax bills. And that's because of prior stunts by Fitz and the rest of the WisGOPs throughout the 2010s that have used a shell game with state tax dollars to offset property taxes assessed by local governments.
This analysis looks only at gross property tax levies, meaning state tax credits that buy down the property tax – the School Levy, Lottery, and First Dollar credits – have not yet been factored in. The first two credits are essentially flat in the state budget but the lottery credit is budgeted for a substantial increase.
Sure enough, Fitz is talking about pulling a similar move to "reduce" property taxes in a potential 2020 bit of legislation.
One option being discussed is shifting some of the money that currently funds technical colleges off the property tax bill and onto the state's general fund, Fitzgerald said.

“I wouldn't take anything off the table,” he said.
That’s pretty lame, particularly because GOPs already did this stunt in 2014, when they gave $406 million an additional in state taxes for tech colleges, and removed that amount from property taxes for the tech colleges. All it did was tie up state tax dollars for future years, and didn't allow the tech colleges a better ability to offer more classes and/or staff.

Unless Fitz is talking about a reform that removes all property taxes from tech colleges, and makes the tech colleges be funded the same way as the UW System, this is a silly idea. But hey, it sounds good to low-info voters, and it doesn't do anything to actually improve the resources of schools or local government. It just gives the impression of cutting taxes while not cutting government spending (until the inevitable recession and deficit comes). Win-win in ALEC World!

Hey Fitz, I know you're desperate to get to Congress, but the rest of us want might want to see what's happened with this year's tax cut and to see how much corporate revenues are leveling off before we decide to cut taxes further. Seems logical and responsible, but that's not the way today's WisGOP rolls.

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