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Friday, January 17, 2014

Increased State Revenues Still Driven By Doyle and Dem's Policies

Remember in 2009, how state republicans and their lackeys went batshit bazooka when Gov. Jim Doyle raised $2.1 billion in taxes and fees to help close a budget gap, a gap that was being driven by a national economic emergency? Those tax increases included a $1.77-per-pack cigarette tax to $2.52, a controversial hospital tax and a 75-cent monthly fee on telephone lines, among others.

Like it or not, those timely policies along with previous state revenue adjustments legislated by democrats during Doyle's last term helped restore the necessary revenue streams that have placed Wisconsin on solid fiscal footing and for the most part, remain intact today.

In 2009, state republicans also complained as if the sky was falling that Doyle's $63 billion budget would increase state spending 7.7 percent over the next two years. Yet contrary to popular belief, Walker and republicans did not make any state budget cuts in spending when they had their chance two years later. Instead, Walker increased state spending to $66 billion in his first budget. To this day, establishment media sources continue to parrot "Walker budget cuts" as if he lowered state spending with tough budget cuts. Nothing could be further from the truth.

Same tax policies as before - but with increased spending.

You should also recall that Gov. Walker's class war Act 10 budget, in general terms, was a budget that achieved paper balance primarily on the backs of public employees and school teachers created in part by huge cuts in state aid to hundreds of Wisconsin communities and school districts.

Not to even mention the record borrowing, Act 10 impacted the state's debt structure, Medicaid enrollments, collective bargaining, compensation, retirement, health insurance, and sick leave of public sector employees. There was very little actual tax policy in Act 10. In the kindest descriptive terms possible, Act 10 legislation was mostly a defunding tool of state obligations to its employees and communities. Again, any substantial tax policy was not part of the program.

The next budget, Act 20, uses the same backdoor budgeteering as Act 10. But to be fair, Act 20 did have some minor tax policy changes, but only around the margins. The most well known of these was Walker's $100 million property tax cut campaign gimmick which returns a small amount of state aid back to public schools over two years. Local public education however will not see additional new dollars because they remain under a state imposed budget cap.

Of possibly greater significance and with a real potential to drive future state deficits, Act 20 also incrementally reduced state income tax rates slightly. But, effects on the budget from these cuts have yet to be fully realized or tabulated while the most recent budget projections going beyond 2015 show the state veering into deep budget deficits. Surprised? You shouldn't be.

So when we hear stories about a Wisconsin state budget "surplus," we have to step back and find out from where the revenue is derived.

If you're looking to give Gov. Scott Walker credit for a budget surplus, we should look at the supply side of increased borrowing and the withholding of state aid from communities. Those are areas Walker's backdoor budgeteering policies have had the greatest impact. But if you're making the claim that the surplus is built on positive revenue streams from a growing economy - look toward the tax policies that have remained fundamentally intact over the last 6 to 8 years. That's where real front-loaded state revenue comes from and those policies don't belong to Scott Walker or state republicans.

But that may all change if Walker is re-elected and follows through on his proposal to drastically cut or eliminate the state income tax. IF income tax is cut AND replaced with income blind taxes and regressive fees, there is no question a greater burden will fall on those with the least. This will have a devastating effect on the state's economy.

On the other hand, if you're a big believer in supply-side Laffer Curve economics, you should be able to cut income taxes without giving any consideration to offsetting or raising replacement revenue. Right? Because according to those theories, increased tax revenues will flow naturally from the tax cut growing economy, so offsets or replacement revenue mechanisms would not only be unnecessary, they would be counter-productive.

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