Full Budget Analysis Shows State Budget is a Win for Taxpayers

July 2, 2013

[Madison, Wisc…] After months of debate, numerous public hearings around the state, hundreds of amendments and what seemed like endless hours of one after another doomsayer predicting the end of the world or at least Wisconsin as we know it, Governor Walker signed the 2013-2015 budget into law on Sunday. The MacIver Institute has been there the entire way, bringing you breaking news, instant analysis and insider information that you cannot find anywhere else. MacIver has now completed its comprehensive analysis of every program, every amendment and every veto of the 2013-2015 state budget.

This budget rejects the massive federal expansion of Medicaid under Obamacare. This budget expands school choice statewide. This budget gives Wisconsin taxpayers the largest income tax cut in over a decade and makes the tax code fairer and simpler. This budget is a victory for taxpayers.

Along with Obamacare comes the largest expansion of Medicaid in history. In Wisconsin alone, it would cost the federal government (i.e. taxpayers) an additional half billion dollars over the 2-year budget to provide health insurance to all individuals up to 133 percent of the poverty level. The problem is the federal government is already $16 trillion in debt and there are no assurances going forward that they will keep their word to pay for the exorbitant cost of expansion under Obamacare.

Governor Scott Walker said he rejected the expansion as a part of his goal to “move people from government dependence to independence.” At the MacIver Institute, we agree with the Governor that individuals will be better off if they are self-reliant. And in ten years, after our federal government falls even further into debt, and it begins to impact domestic spending, we believe state taxpayers will look back at this decision and breathe a sigh of relief that Wisconsin didn’t fall for the allure of “free” federal money.

Under the Governor’s alternative plan, all individuals living in poverty will qualify for BadgerCare, an objective that even Governor Doyle could not achieve. Individuals that make 100 to 133 percent of the poverty level will transition to the federal health insurance exchange and will see premium costs for health insurance capped at $19.15 to $25.47 per month [LINK].

After signing the budget, the Governor said his plan would reduce the number of uninsured individuals by more than 200,000 people, while reducing the amount of people dependent on government health care.

It is important to remember how close some Senate Republicans came to overturning Walker’s decision. As we previously reported, at least two Senators expressed their support for accepting the Obamacare Medicaid expansion. Given the one-vote fiscal conservative majority in the Senate and the immense pressure special interest groups blanketed the capitol with, we were dangerously close to accepting the Obamacare Medicaid expansion.

If the Governor had not stood resolute, Wisconsinites would have been stuck paying the bill for generations.

Some other Governors that claim to be fiscally conservative did not stand up to special interests and reject the Medicaid Expansion. In Ohio, the legislature passed a budget that would have put a stop to the Medicaid expansion in their state, but Governor John Kasich vetoed that provision on Sunday.

Walker’s budget includes the largest income tax cut in more than a decade. The budget reduces income taxes by $648 million. Every income tax bracket in the state is reduced, and the budget decreases the amount of brackets from five to four. To simplify the tax code even more, over 20 special interest deductions and credits have been eliminated.

Critics have claimed the tax cut only benefits the rich, but it actually benefits all income taxpayers in Wisconsin.

Budget Tax Cut.png

And, of course those that pay more taxes will get a bigger tax cut. Individuals that make more than $100,000 annually will receive 54.5 percent of the tax cut, but they do pay more than 60 percent of the taxes according to the non-partisan Legislative Fiscal Bureau (LFB). What could be more fair than giving taxpayers’ hard-earned money back to those who actually earned it?

A key point to remember is that many small businesses in Wisconsin file their taxes as individuals, with some estimates as high as 90 percent. By reducing all income tax rates, the state is actually helping small businesses. Many will be able to take the savings and reinvest in their business, which will lead to greater job growth.

Opponents have called the tax cut too large, pointing to a $500 million structural deficit created by the 2013-2015 state budget. However, with a modest three percent annual economic growth rate, which is the state average over the last ten years, Wisconsin would see a multi-million dollar structural surplus according to a memo from LFB.

Representative Dale Kooyenga (R-Brookfield), the main author of the tax cut plan, told the MacIver News Service that this tax cut is just the beginning. We agree with Kooyenga that this should only be the start of tax reform. Wisconsin should keep cutting taxes until rates are lower than all neighboring states.

There is more than just the income tax cut in this budget. Taxpayers will see nearly $1 billion in total tax relief this biennium. Tax credit and deduction phase-ins will add more than $300 million in additional tax breaks for Wisconsinites.

The budget also ends the regressive estate tax. Taxing a family after one of their relatives has passed away is just another way for government to get more money to feed its uncontrollable appetite for spending. Ending the estate tax is the right move for taxpayers.

While Walker has restored fiscal discipline to Wisconsin, other Midwest states are going in the wrong direction. Two years ago, Illinois faced a budget crisis similar to Wisconsin. Instead of holding the line on taxes and making touch decisions like Walker, Governor Pat Quinn raised individual income taxes in Illinois by 67 percent and increased corporate income taxes by 30 percent.

Two things need to be noted about the 2011 Illinois budget plan. First, even with a massive rate increase on every taxpayer, millionaires in the Land of Lincoln will still pay a lower income tax rate than middle class Wisconsinites. Second, they did not solve their budget problems. Illinois still has massive budget deficits and is beating out California as the poster child for fiscal mismanagement.

Minnesota is following lock step behind Illinois. Facing a $627 million budget deficit, Governor Mark Dayton just signed a budget that will increase taxes by $2 billion. Dayton actually took a call out of Jim Doyle’s playbook and created a new tax bracket for individuals making over $150,000 at a rate of 9.85 percent, a 25 percent increase from the state’s previously highest bracket.

The massive tax increases in other midwestern states are a gentle reminder for conservatives just how good we have it here in Wisconsin. We cannot forget what this state looked like just a short four years ago. Doyle raised general taxes by more than $2 billion, increased property taxes by $1.5 billion, and illegally raided segregated funds when he wanted to spend even more.

And it is a reminder of how secure Wisconsin’s fiscal footing is. On top of a nearly $650 million income tax cut, Walker also kept property taxes in check for the second budget in a row. The median-valued home will only see an increase of $29 in each year of the biennium, or less than a one percent rise.

With the state’s fiscal house in order, the Governor also focused on reforming the education system in this budget. A major priority in his budget was the expansion of school choice. In the end, Walker’s plan was modified from the original plan, but we now have a statewide program and his commitment to push for a system where “every child, no matter what zip code they come from, no matter what their parents’ background, every child” can pursue a high quality education that is the best fit for them.

The most important aspect of the expansion is that it is another important step in creating a competitive ecosystem in education that values the needs of our children and not the job security of education bureaucrats.

Choice schools have proven that they get similar, if not better, results than their public school counterparts, and they were able to do so with about half of the funding. Think how well the choice schools will perform now that their funding has increased to about 75 percent of what public schools receive.

While the program is capped at 500 students in the first year, 1,000 in the second, and families at 185 percent of the poverty level or under, it is still a good plan for Wisconsin that will lead to a better education for our children.

The education reforms in this budget do not stop with a statewide school choice expansion. The legislature created a private school tuition tax deduction for families that send their children to private schools. This deduction is expected to provide families with $30 million in tax relief and does not have an income cap.

The Governor also took major steps to reform entitlements in Wisconsin. The budget requires individuals receiving unemployment benefits to look for work four times per week instead of two times. It also requires food stamp recipients to have a job or participate in a job-training program.

These entitlement reforms will also take aim at reducing fraud. As we previously reported, less than one percent of detected unemployment fraud cases result in a conviction. Unemployment fraud costs the state tens of millions of dollars a year and budget reforms will help reduce the amount of fraudulent claims.

Residency requirements are all but removed for municipalities and counties in the budget. Most individuals that work for a city like Milwaukee will be able to move their family to where they see fit. Only police, fire, and emergency personnel will be required to live within 15 miles of the municipality they work in. This gives city workers the freedom to live wherever is best for their family.

The Milwaukee Streetcar project is all but dead, too. A provision in the budget will protect statewide tax and ratepayers by prohibiting cities from jacking up rates on individuals from outside the city to pay for hyper-localized, non-essential pet projects. If citizens of Milwaukee want a streetcar, they can pay for it.

The 2013-2015 budget does increase spending over the last budget, which Walker has been criticized for. The total spending increase is $2.6 billion. While the spending increase is disconcerting, $1.9 billion of the increase is attributable to ever-increasing costs of existing programs.

For example, $1.1 billion of the increase goes to pay for the cost-to-continue of the Medical Assistance (MA) program. Hundreds of millions of dollars of the MA cost-to-continue is mandated by the federal government to be covered by the state. Spending would have skyrocketed even more if Wisconsin accepted the federal Medicaid expansion.

Another $832 million is an adjustment that is made in the 2013-2015 budget. The Department of Health Services (DHS) has always received revenue from drug manufacturers in the form of rebates and MA recipients’ other health insurance coverage. Then that revenue is appropriated to eligible MA participants and groups. DHS is aiming to provide greater transparency by reporting this amount in the budget from now on. So even though the $832 million shows up in this budget as a “new” spending item, it is not new spending.

About $300 million will go to increase aid to K-12 public schools. A compromise on the budget increases per-pupil spending by $75 in the first year and $150 in the second year. It also increases general school aids and allots $22 million for educator effectiveness grants.

The educator effectiveness program will go a long way to improving schools. It will give students and school districts the ability to find the best teachers and help the ones that need improvement.

These three items make up about 80 percent of the total increase in spending over the last budget.

No budget is perfect. As MacIver pointed out earlier, the Governor and the legislature must act now to rein in ever-increasing medical assistance costs. A larger tax cut would have been an even bigger win for taxpayers. A budget with less bonding and fewer pork projects would have gained more conservative praise, but in the end this budget gives much needed relief to taxpayers.

We do have to give credit to the Joint Committee on Finance for cutting some bonding, especially reducing the bonding authority for the Stewardship program. While it would be nice to have seen a major cut to this private-land purchasing program, it is another step to reduce wasteful spending.

This list provides a quick look at some of the major achievements in the budget:

  • A $648 Million Income Tax Cut 
  • A fairer and simpler tax code, deleting 20 special interest credits
  • Rejects the massive federal expansion of Medicaid
  • A Property tax freeze
  • Expands school choice statewide
  • Creates a tax deduction for private school tuition
  • Sunsets the Estate Tax
  • Increased fraud protections for the Earned Income Tax Credit and Homestead Tax Credit
  • Educator Effectiveness program that holds teachers accountable
  • UW tuition freeze for two years
  • Deletes the automatic student fee to fund United Council
  • Performance-based funding for the Wisconsin Technical College budget
  • Encourages more distance learning through technology
  • Essentially repeals residency requirements
  • Creates tougher local spending controls on municipalities and school districts
  • Stops the Milwaukee Streetcar project
  • Removes the lane capacity restriction on I-94 in Milwaukee
  • Reforms Unemployment Insurance by increasing job searches and increasing fraud provisions
  • Requires food stamp recipients to get a job or participate in a job training program
  • Cuts funding to the Stewardship program and caps the amount of private land that can be purchased
  • Provides for the sale state property

This is not an exhaustive list, but it gives you a sense of how many taxpayer victories there are in this budget.

After a careful review, we think Governor Walker’s budget is good. It’s very good, in fact, and taxpayers should be proud. Wisconsin is heading in the right direction.