Thursday, February 8, 2024

$2 billion in GOP tax cuts would bust Wisconsin's budget. Especially after recent developments

Yesterday, the Joint Finance Committee met and the GOP-dominated panel passed along a series of tax cuts, likely sending it to a vote of the full Legislature next week.
The state Assembly is set to vote next week on a $2.1 billion tax package that would significantly expand the state's second-lowest tax bracket to include more than 1 million Wisconsin residents earning between $19,000 and $150,000 per year, but Gov. Tony Evers is noncommital on supporting it.

The Legislature's Joint Finance Committee voted 11-4 along party lines on Wednesday to advance the four Republican bills, which were introduced late last month and are scheduled for an Assembly vote on Feb. 13.

The proposal would overhaul the state's tax system by also exempting up to $75,000 of retirees' income and expanding tax credits for married filers and for filers with children.
That's not the entire context of the tax cuts, as that "$19,000 to $150,000" is taxable income, in a state that already exempts as much as $23,600 for married couples, and because Wisconsin already exempts Social Security and some federal pension income for its retirees. But there are still a few million Wisconsinites that would likely get some kind of tax relief out of these GOP tax cuts, especially those in the middle classes and above.

So let's first look at the total price tag of these tax cuts, which wouldn't hit the state's bottom line until after the next Fiscal Year starts on July 1. And you'll see some tax cuts are a lot bigger than others.

I'll add that the reason the tax bracket cut is larger in Fiscal Year 2025 is because the GOP bill also wants to have the Wisconsin Department of Revenue to update the withholding tables on July 1, increasing the take-home pay on every paycheck instead of having it tax cuts off in higher refunds (you'll likely see those higher refunds in the next 2 months).

Let's also take a step back and look at what the state's budget situation is before being affected by any of these tax cuts. There already was going to be a huge imbalance between revenues and expenses for this Fiscal Year, as the surplus is being spent down on a number of one-time spending items, including over $1 billion to pay for capital projects in cash instead of borrowing, and an additional $555 million being sent into the Transportation Fund.

Then the LFB told us 2 weeks ago that revenue growth was going to be a bit less than what was assumed in the state budget. And in the same meeting where the Joint Finance Committee passed the tax cuts, they also agreed to spend another $423 million in cash-funded projects for the UW System, as part of the deal where the UW limited their DEI initiatives at Robbin' Vos' demands.

That means that due to changes on both the revenue and expenditure sides, the $7 billion that we carried over on June 30, 2023 will diminish over the following 2 years.

And that means there is less surplus to play with on tax cuts. Which led to a concern from Joint Finance Dems about what these GOP tax cuts would do to future budgets.
Rep. Tip McGuire, D-Kenosha, said he's worried the package could lead the state into a risky financial position.

"I’m worried that we would be running Illinois-style deficits. I’m worried that this would be fiscally irresponsible and that the people that would support this would be fiscally irresponsible budgeters, or FIBs," McGuire said.
And when you look at the numbers, you can see why Rep. McGuire would say that. It's one thing to spend $3 billion more than you take in for one year, as Wisconsin is slated to do on a one-time basis in Fiscal 2024, as long as you go back near balance in the next year. It's a whole 'nother thing to run $2 billion+ deficits year after year, which is what is slated to happen if all of these GOP tax cuts were to be put in place.

And that imbalance means that we would have to figure out a way to make up more than $3 billion in the next budget, instead of having a cushion of more than $2.5 billion.

But I'll note that the Republicans put these tax cuts in the form of 4 separate bills, which may give a way out. Because the price tag of the higher married couple credit and expanded child care credit is much less than the lower tax brackets or retirement income tax cut (those two total just under $234 millon a year), Governor Evers could sign those two tax credits, and veto the others. Then Tony can say "let's see where we stand at the next budget" to see if there is a better chance of the cushion growing in the meantime.

Both Dems and Republicans would get something out of it, and both sides can make their arguments for or against more tax cuts (and the budget handcuffs they would impose) this Fall during Election season under fair maps. Who says no?

No comments:

Post a Comment