In his budget address this week, Wisconsin Governor Scott Walker followed through on his promise to provide middle class tax cuts. His proposal reduces the bottom three income tax rates and costs $343 million over two years. The Institute on Taxation and Economic Policy’s (ITEP) analysis of this proposal found that middle-income taxpayers do get some benefit from Governor Walker’s proposal ($43 on average), but many low-income Wisconsinites do not. In fact, those in the bottom twenty percent of the income distribution, many of whom were already dealt a blow in Wisconsin’s last budget, see an average tax cut of a mere $2. The Governor’s proposed tax cuts come on the heels of reductions to the state’s earned income tax credit and property tax homestead credit, both of which effectively raised taxes on low-income working families. A better approach would be to reverse the damage recently inflicted on the poorest Wisconsinites, by increasing the earned income tax credit and homestead credit.
In his speech last week, the Governor also assured Wisconsinites that the state could afford his tax cuts because of a current budget surplus. That “surplus,” however, is not the result of economic growth in the state and it is not permanent, either. Instead, the Wisconsin Budget Project (WBP) offers the reality check that the surplus was created as “a result of a number of painful cuts and lapses” that were implemented to avert previous shortfalls. This year, “coupled with a rebound in revenue from the low level anticipated a year ago, state lawmakers now find themselves in the very unusual position of carrying a solid balance into the next biennial budget.” WBP also cautions that the budget surplus “isn’t an ongoing revenue stream” and that Governor Walker is wrong to assume that the state can afford his permanent tax cuts.
The Governor may be keeping a narrow political promise with his latest budget, but he is neglecting the state’s poorest residents, jeopardizing its fiscal future and potentially setting up a tax swap that middle income families will pay for in the long run.