It takes a lot for Bob Lang, who has been the most respected watchdog of state government’s finances for decades, to use the “U” word.
But the veteran director of the nonpartisan Legislative Fiscal Bureau did just that last week in a report to state officials:
“The increase in general fund tax collections in 2021, particularly in the months of April and May, is unprecedented.
“Based upon the strength of collections and the vastly improved economic forecasts for the remainder of this year and the next two years, our analysis indicates that for the three-year period, aggregate general fund tax collections will be $4,427.4 million above … previous estimates.”
Democratic Gov. Tony Evers and Republicans who control the Legislature got a stunning update on state government’s cash position from Lang: Tax collections will be $4.4 billion higher than expected by mid-2023.
The projection came weeks before the July 1 start of the next 2021-23 budget cycle. If the governor and lawmakers can’t agree on a new budget by then, state spending continues at the pre-July 1 pace.
Why will income, sales, corporate and other general fund taxes through mid-2023 soar by about 8% over midpandemic projections made as recently as January?
Individual income tax payments through the first months of 2021 jumped by 6%—three times the January estimate, Lang noted in the final fiscal update before the governor and Legislature make final budget decisions.
“This is likely due, in part, to the unprecedented level of federal economic assistance provided in response to the pandemic, which has bolstered incomes for many individuals during tax year 2020 and 2021,” Lang added.
It’s ironic that federal aid to help Wisconsin recover from COVID-19, which has sickened more than 611,000 state residents and killed almost 8,000 of them, lays the groundwork for a dramatic showdown between the executive and legislative branches over how the $4.4 billion windfall will be spent.
Evers quickly canceled $300 million in forced savings by state agencies in the budget cycle ending June 30 he had ordered to respond to the pandemic and called for more spending on K-12 schools. As a result, the UW System keeps $45 million—money it desperately needs, UW System President Tommy Thompson said.
The additional $4.4 billion in taxes by mid-2023 also justifies new spending Evers called for in the budget he outlined in February, the governor said.
But Republicans won’t use the new cash to justify spending hikes.
Five Senate Republican leaders—Senate President Chris Kapenga, Majority Leader Devin LaMahieu, Finance Committee Co-chair Howard Marklein, and Finance Committee members Duey Stroebel and Dale Kooyenga—said raising spending significantly would invite long-term disaster.
“This is a temporary jump in tax revenue—sound financial planning would require that this money is not spent on more government programs but returned to the taxpayer,” Kapenga said. “There is no magic money tree, folks.”
“Hard-working taxpayers gave the state a massive surplus,” LaMahieu added. “We will take this moment to consider ways to significantly reduce the tax burden on workers and Main Street businesses and pay off state debt.”
The top four Assembly Republicans—Speaker Robin Vos, Majority Leader Jim Steineke, Finance Committee Co-chair Mark Born and Speaker Pro Tem Tyler August—also vowed to cut taxes with that $4.4 billion.
“With so much money already flowing into Wisconsin from the federal government, this additional revenue gives us an opportunity to invest in the state’s priorities and to cut taxes,” Vos said. His caucus will lower “the income and property tax burden.”
“Assembly Republicans will continue to advance a reasonable, responsible and realistic budget that spends within our means, while also avoiding huge tax hikes on Wisconsin residents and businesses and welfare expansion like Evers proposed,” Born said. The Finance Committee’s budget will include “meaningful tax relief.”
A Democratic governor wants more spending. Republican legislators want tax cuts. A July 1 deadline. It’s Capitol crunch time.