Wisconsin’s Turnaround Should Serve as Model to States like Illinois

Fiscal Prudence, Coupled with Tax Cuts, Has Led to Surpluses and Economic Growth

January 21, 2014

by Nick Novak
MacIver Institute Communications Director

Many around the nation took great interest in Wisconsin back in 2011 when Governor Scott Walker, facing a $3.6 billion deficit he inherited from his predecessor, decided to hold the line on taxes and reform collective bargaining to rein in the cost of government.

The massive protests have since ended, but there is a new reason to pay attention to what is happening here in Wisconsin, especially for our neighbors to the south.

The state’s non-partisan Legislative Fiscal Bureau announced on Thursday that the state is projected to grow its surplus to more than $1 billion by the end of fiscal year 2015 (FY15).

After years of tax increases, reckless spending increases and perpetual deficits, Walker has brought financial stability back to Wisconsin in less than four years and our taxpayers continue to reap the benefits.

Walker’s predecessor, Governor Jim Doyle, provides a great contrast to the fiscal management of the current administration. After six years of Doyle’s policies, the state faced a more than $6 billion deficit going into his final budget.

To solve the fiscal crisis, instead of controlling spending and keeping the lid on taxes, Doyle’s final budget increased taxes by more than $2 billion. He created a new top tax bracket at 7.75 percent, increased property taxes by $1.5 billion and despite the deficit, still increased spending.

Even with all of these new tax increases, which the Doyle Administration assured Wisconsinites would solve our financial crisis, the state was again facing a $3.6 billion deficit when Walker took office in 2011.

Walker, however, did not continue down the path of increased taxes and spending. He held the line on spending and kept taxes in check. Walker also passed collective bargaining reform, which allowed local units of government to make up for decreases in state aid through increased benefit contributions from government employees.

After Walker’s first budget, instead of facing a massive deficit heading into the next one as in previous years, the state had a $760 million surplus. So, he cut income taxes by $650 million. A few months later, Wisconsin found itself again with another surplus. So, he cut property taxes by $100 million. And as we start 2014, with the state projecting a $1 billion surplus, Walker plans to cut taxes again.

Not only has Walker cut taxes and controlled spending, he has set aside $278.5 million in the rainy day fund, leaving it with the largest balance in the state’s history. The last budget also simplified the tax code, returning the amount of tax brackets to four and eliminating multiple credits that were seldom used.

If the comparison to the Doyle administration is not enough proof, just look at our neighbors to the south. Illinois has been using the same policies that Doyle did and their financial meltdown continues.

In fact, when you look back a few years, Wisconsin was in familiar fiscal territory with Illinois. Both faced budget deficits, had out of control spending and needed to fix their fiscal problems quickly.

Illinois went down one path, and Wisconsin took another.

In 2010, Illinois increased its personal income tax rate by 67 percent and its corporate income tax rate by 46 percent. The Land of Lincoln has also increased spending three times faster than the growth in population and inflation since 1990.

Where is Illinois now? The “temporary” tax increases of 2010 are looking like they will become permanent because the state never got spending under control. Spending is so out of control that even with these massive tax increases, the state still faces a $9 billion deficit heading into the next budget and its long-term debt has exploded to over $127 billion.

The Badger State serves as an example that prudent spending decisions and tax cuts will lead to economic growth and budget surpluses. While other states like Illinois are falling behind, our state is heading in the right direction.

In Wisconsin, it’s still working.