Revenue figures in Wisconsin still solid, which means pre-election pandering is coming next week

Next week, we should see new revenue estimates for Wisconsin from the Legislative Fiscal Bureau, and indications from the first half of Fiscal Year 2020 indicate that there should be some extra money to play with. But how good and how much breathing room we will have? That seems quite up in the air, given the numbers that have come in.

Just last week, the Department of Revenue released the December state revenue collections. And much like with the unemployment claims, there has been difficulty in accurately comparing two years when Thanksgiving came early (in 2018) and came late (in 2019), along with November ending on a Saturday this year. The DOR tries to adjust for the holidays and months ending on weekends, but you'll see that this meant large fluctuations between the two years.

An increase of income taxes of around 4.5% is pretty good, and the 6-month increase of 3.4% is above the projected full-year estimated increase of 1.1% that was as part of the state budget (before accounting for the higher refunds that are coming due to one of the income tax cuts that were part of the budget). Then combine that with the 4.1% increase in sales taxes over the last 6 months (which is above the 3.2% projected increase in the budget), and that in itself would mean a decent increase will likely be projected in the new revenue estimates.

But the bigger increase in next week's revenue estimates may be a result of corporate revenues, because of a quirk in the GOP's Tax Scam in DC. Since that became law at the end of 2017, Wisconsin saw a notable jump in corporate taxes paid, especially in 2019.

Why? Because as the LFB told us during their last revenue estimates in 2019, Wisconsin business are glad to become "corporations" these days, because paying a bit more to the State of Wisconsin is worth it when they get a much larger windfall from the GOP Tax Scam.

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 of 2019 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.

The LFB thought some of this effect will cool off in Fiscal Year 2020, resulting in a drop of corporate revenues of $170 million overall. However, the first 6 months of FY 2020 saw corporate tax revenues increase by nearly $300 million, so it seems likely we will end up significantly over the LFB projections for this Fiscal Year, which would allow for more money to be available.

If we do see a sizable increase in revenues projected, the question will then become "more tax cuts, more spending, or save it?" We know GOP Senate Majority Leader/Congressional candidate Scott Fitzgerald is already pandering clamoring for more tax cuts, likely in the form of more shell games where state taxes are spent to lower property taxes.

But we also know that there are significant needs remaining for the state's roads to be fixed up, increased costs due to severe weather events, and several years of education defunding that we are still trying to catch up to. These can also take strains off of the property tax, and perhaps take care of both needs at once, instead of using up these funds on another tax cut before we even get to see what the revenue effect of the sizable tax cuts in the 2019-21 are.

That's the preview, and you need to be ready for it, because you can bet that next week's new revenue figures will be followed by a lot of pre-election pandering and posing from both sides of the aisle.