Column: New Revenue Projections Show Reforms Are Working
The state’s general fund is expected to be $991.9 million higher at the end of this biennium than previously projected. $892.7 million of this increase comes from increased tax collection and the rest comes from an increase in lapses to the general fund. This additional revenue shows that Wisconsin’s economy is growing and more people are working and the state is heading in the right direction. The Legislative Fiscal Bureau (LFB) reviews the state’s general fund each year and reports to the legislature with its findings. In even-numbered years, like 2014, they also look at economic forecasts as well as tax and expenditure data for the current year and for each fiscal year of the current biennium. As we look at the new revenue projections, we should consider all the factors that led to the increase so we can make the best decisions possible moving forward.
More money coming in to the state means that more people are working and that they feel secure enough with their jobs and the economy to spend money on taxable items. The Legislative Fiscal Bureau projects an additional $350 million in sales tax, $265 million in income tax, $214 million in corporate tax and $52 million more in cigarette taxes.
The income tax revenue is expected to be 4.7 percent higher through December 2013 than they were in the previous year. The income tax revenue numbers reflect both a stronger economy and the fact that although the state reduced the income tax rate, some taxpayers have not adjusted their withholdings and may see a bigger tax return because of this. We should not be surprised by the increase expected in income tax revenue. The unemployment rate in Wisconsin is the lowest it has been since 2008 and first time unemployment insurance claims are at their lowest point in 12 years. Between April and November 2013, new job creation in the private sector was the best since 1994. Even better, personal income grew 4.4% over the year; faster than the U.S. as a whole.
Sometimes, when we see an increase in revenue from the cigarette tax without a corresponding tax rate increase, it can raise concerns that more people are smoking than before. In this case, the cigarette tax rate increased in Minnesota and the LFB believes the increase in tax revenue is caused by people who live close to the state line purchasing cigarettes in Wisconsin rather than in Minnesota.
The transportation fund is expected to increase by $84 million because of increased registrations, auto and diesel sales. The increase in revenue from diesel sales is an indicator that products are being shipped via truck and that our economy is moving again. While this is great news, the LFB points out that there are a couple of items to consider when looking at transportation fund finances including the lack of certainty over federal highway aid, a potential structural balance in the fund and increased costs associated with mass transit funding and general transportation aid expected in 2015.
The state’s prudent budgeting played a role in the economic growth. We went from a period of time when we borrowed from segregated funds to pay for the state government’s general operations and owed millions of dollars to Minnesota to a time when new businesses are choosing to locate in Wisconsin and existing businesses are expanding. Surveys of business leaders show that they believe the state is on the right track. By making tough budgeting decisions and avoiding financial gimmicks we have been able to repay our debts and set money aside in the rainy day fund. While we should be pleased with the increased revenue projections, we should take a hard look at how the money might be used and continue to make the kind of prudent decisions that families, businesses and state government have been making to get our economy back on track.