Should We Be Thankful For Our “Low” Taxes?

Yesterday, the Milwaukee Journal Sentinel ran a column I wrote about the disastrous state of Wisconsin’s finances, and how both parties were to blame for our fiscal collapse.  This piece was intended to be a counter-argument to another column, written from the liberal perspective, which attempted to explain that our taxes really aren’t very high, after all.

This editorial, which apparently it took seven people to write,  made a couple claims that popped out:

However, some argue for reduced spending, falsely claiming that profligate public outlay is the cause of today’s economic crisis. This analysis is wrong. Wisconsin has been careful in its overall taxing and spending. Between 2000 and 2006, total state taxes per person decreased from $2,740 to $2,475, when adjusted for inflation. In fact, there have been $12 billion in state tax cuts since 1999, more than twice the current deficit.

Apparently, in arriving at the fact that “total state taxes per person” have decreased, the authors used a Brookings Institution website that draws on census bureau data.  When you look at the “total state taxes” numbers they use, it contradicts the state’s own data as reported on the Department of Administration’s Comprehensive Annual Financial Reports (CAFR).  According to the Brookings Institution, the state brought in $14.7 billion in “total state taxes,” in 2000, and $13.8 billion in 2006 – thus, the drop in the per capita number.  There is no explanation as to what “total taxes” includes. Furthermore, the population in Wisconsin grew by 3.7% between 2000 and 2006, which alone would have contributed to the appearance that per capita taxes were dropping.

Yet when the state reports its General Fund taxes, the numbers are drastically different.  The state CAFR says that in 2000, sales, income, corporate, and other taxes collected $10.9 billion.  Due to a combination of tax cuts signed into law by Governor Thompson in 1999 and the 2001 recession, tax receipts dropped to $10.2 billion in 2001 and 2002, steadily climbing back to 10.4 billion in 2003.  By 2006, tax receipts had climbed to 12.4 billion, or a 9.9% increase over taxes collected in 2000.  And keep in mind, this is in the midst of a recession in 2001 that it took the state several years from which to recover.  The shrinking revenue was due, in large part, to people losing their jobs and buying fewer goods, not necessarily because the Legislature was being “careful” in our taxing and spending.

In fact, if you bypass the Brookings Institution website (which purports to use Census Bureau data) and go straight to the Census Bureau, the numbers look much different.  In 2000, the Census Bureau reported Wisconsin taxes at $2,344.51 per capita.  In 2005 (the most recent number available,) per capita taxes had increased to $2,375.77.  And again, this is after the state suffered a 4-year lag in collections due to the 2001 recession (which may be why they only chose these specific years to make their point.)

But let’s say, for the sake of argument, they’re right.  Let’s concede their point (that seems to be flatly incorrect) that somehow taxes are falling.  According to the CAFR, state general fund spending increased 13.3% percent (from $11.3 billion to $12.8 billion) during this time that our taxes were supposedly dropping.  This is exactly the point of my last report and subsequent column.  The state is spending more money than it is taking in.

So how did we increase spending by 13.3% while our revenue was supposedly dropping by $1 billion (according to their numbers)?  Our governor and legislators dumped in $2.4 billion in one-time money to balance the budget, blowing a hole in future budgets.  They artificially made it look like we were spending less by offloading general fund expenses to program and segregated revenue.  (Think cutting general fund aid to the UW by $250 million and replacing it with increased tuition – which makes it look like we’re cutting general fund taxes, while instead, we’re just offloading those expenses to students.)  They issued debt to plug holes in the budget, committing taxpayers to decades of paying those bonds off.

As for the $12 billion in tax cuts they claim we’ve had since 1999, I have no idea where they came up with the number.  But I can assure them of one thing – had the state collected this mythical $12 billion and spent it, the budget deficit would be much worse than it is now, as the spending base would be much higher.  If there’s something the state has proved, none of that money would have gone to a “rainy day” fund to ameliorate recessionary budget downturns.

As an aside, it should also be noted that almost all of the authors of this column are frequent contributors to Democratic campaigns, including UW-Madison economist Andrew Reschovsky, who has contributed $7,850 to Democrats since 2000 – including Governor Jim Doyle.  At one point (2002), Reschovsky was a vocal critic of structural deficits, yet now he says nothing about the current imbalance.  I wonder why?