Here & Now

Budget Watch: Taxes

Frederica Freyberg:

Most people like the idea of paying less in taxes. Governor Scott Walker’s budget proposal calls for just that. His budget would cut income taxes by $343 million over two years. That’s about $2 a week less in income taxes for a family earning $80,000 a year, about $2 a year less if you earn less than $21,000 annually. If you’re a high-income earner, like $374,000 a year, the cut would be $285 a year. How big of a stimulus would this be to the state’s economy? How meaningful to working people’s pocketbooks? And what are the other implications on the state’s coffers? In tonight’s “Budget Watch” segment, we check in with Todd Berry, executive director of the Wisconsin Taxpayers Alliance. Thanks a lot for being here.

Todd Berry:

Thank you.

Frederica Freyberg:

Before we get into this income tax and the budget proposal, let’s talk about some numbers that came out today that are getting some reaction and that is, namely, that the UW System is looking at, according to the Legislative Fiscal Bureau, a billion dollar surplus. What do you make of that?

Todd Berry:

Well, I’ve known about these numbers for a couple of minutes, so they are based on something called gap accounting, which is different than the way the state budgets, so one issue is going to be timing. How much of that money isn’t really available but is tied up in some way. And so we know that some of it’s private gifts, and we know some of it’s federal money. We know some of it’s been earmarked, you know, to start certain new programs. So, I mean, yeah, it sounds like a large amount of money, but, you know, really how much of it is committed or is in fact cash, we don’t know. I can’t resist saying if we’re interested in gap numbers, which is an accounting CPA way of looking at finances, it’s interesting that the state has been running a gap deficit of over $2 billion for over a decade.

Frederica Freyberg:

And we should say that the governor and republican leaders are saying the university should immediately freeze tuition for the next two years. We’ll see what that fall-out looks like as the next week progresses.

But we can move along to our “Budget Watch” series idea to talk about the income tax cut in the governor’s budget and, just briefly, is this expected, in your mind, to actually stimulate the state’s economy?

Todd Berry:

Mm-hmm. Mm-hmm. Well, this is one of those things if you’re a budget geek, you can argue both ways. Our income tax and our property tax are both 25% above the national average. So people probably would like a cut. How big is $300 million or $400 million cut? Well, the income tax brings in $7 billion plus or minus per year, so in that context it’s not a big cut. The state economy is around $260 billion, so if you drop $300 some million into it, it’s not going to have any large immediate stimulative effect.

Frederica Freyberg:

So it’s really almost kind of a philosophical policy.

Todd Berry:

Well, that, or a feeling we have an income tax and a property tax that are both pretty high and maybe the way to do it rather than trying to do some big cut is to sort of pull them down a little bit over time.

Frederica Freyberg:

You’ve been somewhat displeased, I think I might characterize it as, with the implications to the state budget’s coffers with this.

Todd Berry:

Mm-hmm. Mm-hmm. And let me be clear. It doesn’t matter whether it’s spending increases or tax cuts. What I have watched for the last ten years is a state that has been really in fiscal dysfunction. And then in 2011-’12 we went through this gut-wrenching, painful, controversial, you know, series of budget fixes that for the first time wiped out the structural deficit, pulled down the gap deficit by close to a billion dollars, and we actually are sitting on a surplus. And I’ve been quoted publicly as saying I’m just a little puzzled, why would anybody want to spend that much political capital and then turn around and at least start to move back in the other direction?

Frederica Freyberg:

Well, and yet this income tax cut and its implications to the budget as we’re talking about doesn’t really represent a staggering expansion of this structural deficit.

Todd Berry:

No. The estimates for the first year, which would be 2015, a little over $300 million. In that context, it would be the smallest that we’ve seen in 10 or 15 years. But we have pulled ourselves back to positive. So that’s why I’m just a little bit puzzled as to why they’d want to flirt with problems again.

Frederica Freyberg:

If you’re flirting with problems, you could suggest, as a budget writer or a governor, that, you know, the national economy will rev up and pull Wisconsin out and our revenues will increase right along with it and so maybe you’ll end up even.

Todd Berry:

There’s that possibility, but what I see in the Wisconsin economy, in the little telltales I see out there, I would think the legislature and the governor would be foolish if they are told they have a little extra revenue and decide to commit it, because I think it’s more likely, maybe I’m one of the few that will say this, I think it’s more likely we could see a recession in the next two years than a huge expansion.

Frederica Freyberg:

Those are words we do not want to hear, but, Todd Berry, thank you very much.