Our Views: State should go cautiously with tax cuts
In his State of the State address Wednesday, Gov. Scott Walker proposed major new tax breaks in his “Blueprint for Prosperity.”
These were no surprise. The state projects a budget surplus of about $1 billion. Politicians are pitching many ways to spend the money. Walker had met with reporters Tuesday to share thoughts on his plan to return most of this windfall through reduced property and income taxes.
That approach is understandable. If voters pocket more of their own money, they’ll be more likely to favor Walker and Republicans who control the Legislature in this fall’s re-election bids.
In his speech, Walker called for slashing property taxes by $406 million. “The typical homeowner will see an actual reduction of $101 on their next property tax bill,” he said.
Walker also wants to cut income taxes by $98.6 million and target this relief to the lowest tax bracket. And he directed his revenue secretary earlier Wednesday to adjust withholding for state income taxes by $322.6 million.
In April, Walker says, a typical family of four will see almost $58 more in their paychecks each month. This will put more money in the hands of consumers and continue to stimulate the economy, he reasons.
All these cuts sound great. Wisconsin, however, has been here before. Exhibit A is the man in the red vest.
Longtime residents know who we’re talking about. For younger readers, let us introduce the late Gov. Lee Dreyfus, like Walker a Republican. This skilled orator won election in 1978. He convinced voters, then the Legislature, that the state should cut its income taxes. That backfired when high interest rates and surging inflation and unemployment triggered the first state budget deficits in years.
Walker and his fellow Republicans should ensure that this history does not repeat itself. Cut taxes, and the revenue reductions could be permanent because lawmakers would fear angering voters by later boosting tax rates.
While many Democrats want to send more money to public schools and technical colleges, Sen. Tim Cullen, D-Janesville, wisely pointed out that the surplus is only a projection for what might be available almost 1½ years out. He urges caution and suggests putting half the surplus in the state’s rainy-day fund.
It was good to hear Walker tell listeners Wednesday that his plan includes adding more than $100 million more to the reserve fund. Padding it by at least that much makes sense. Wisconsin’s economy depends on national and even global ebbs and flows. The reserve fund is smaller than in most states and leaves Wisconsin vulnerable to the next recession. Besides, the state faces an estimated $725 million shortfall in the biennial budget the governor will submit in 2015.
Sen. Neal Kedzie, R-Elkhorn, also earns applause by proposing that some money go to transportation funding and paying off debt.
Bruce Speight of the Wisconsin Public Interest Research Group argues the state wastes money by building highways with excessive traffic projections and ignores that younger people are more interested in public transit, bicycling and walking. Those considerations might have merit. However, they won’t erase a 10-year funding gap that a special commission projected at between $3.3 billion and $18.4 billion as fuel efficiency erodes gas tax revenues. Besides, as our economy rebounds, demand for well-maintained and better roads and bridges will grow.
Meanwhile, as the Wisconsin Taxpayers Alliance astutely notes, governors and lawmakers from both parties have relied on accounting tricks to “balance” budgets. That has created recent deficits under generally accepted accounting principles of between $1.7 billion and $3 billion. Why not, as alliance leader Todd Berry recommends, apply some surplus to undo these gimmicks?
Republicans campaigned on fiscal responsibility and should keep that vow. Modest tax cuts might be reasonable. No, padding reserves, paying debt and erasing accounting tricks won’t curry favor with voters as much as larger tax cuts. These, however, are responsible steps to take.