Experts claimed last week that Gov. Scott Walker’s budget, which includes a $343 million income tax cut, may be too small for tax relief, not bring many jobs to the state and cause a structural deficit.
However, Wisconsin Taxpayers Alliance President Todd Berry said the cut might show the state is moving out of the top tier in terms of income taxes, as the state is ranked as one of the top 10 states with the highest income taxes.
“It’s very hard for states alone to move the economy because it’s more affected by the national government,” Berry said. “That’s not to say [the proposal] couldn’t create a positive image of the state’s tax burden.”
According to a budget brief, a family with two workers, each earning $40,000, would receive a tax decrease of $100 for their household.
Andrew Reschovsky, University of Wisconsin public affairs professor, said Walker’s tax cut would be too small to have a significant impact on the state’s economy. He added even a tax cut of four times that amount would make little difference.
In his budget address Wednesday, Walker said giving more money to taxpayers would drive greater demand for goods and services, which would lead to greater production and jobs in the state.
However, Reschovsky said while cutting income taxes at the national level may increase demand, more leakages will occur at the state level. For instance, he said people often purchase products that are not made in Wisconsin, helping whatever state they are from.
Berry said Walker’s tax cuts would not have an immediate impact, unless he also proposes changing the amount the state withholds from paychecks. He said for the past 10 years, Wisconsin has withheld 20 to 25 percent more than it needed.
Berry also said he was surprised and concerned the budget did not include any way to prevent the return of a possible structural deficit, which he said has occurred for the past 10 to 15 years.
Berry said the state only saved less than 1 percent of its expenditures, making it susceptible to economic downturns.
A permanent tax cut may increase the chances of a structural deficit in the future since it would eliminate a source of income, which Reschovsky said may not be able to offset inflation.
“If you have a surplus, that’s a one-time source of money,” Reschovsky said. “One-time sources should not be used for permanent changes.”
Reschovsky said most states establish a rainy day fund, in case of economic downturns, set at about 5 percent of their income aside, while Wisconsin law only requires the state to set aside half a percent.
Berry said in 2008 the budget surplus was 0.6 percent of what was spent in the state. When the recession hit, former Gov. Jim Doyle cut spending and increased taxes to bring the deficit under control. Walker cut spending even further to balance the deficit, Berry said.
When proposing the budget last session, Berry said Walker sought to guarantee a surplus and provide a cushion for a possible deficit.
“Walker spent a lot of political capital and endured a lot of pain to get those margins,” Berry said. “It seems an odd choice to not continue with them.”
Walker’s spokesperson did not return a request for comment.
