My column for the Washington County Daily News is online and in print. Thanks to a loyal reader for the topic idea. The inflation bomb dropped by Trump and Biden is going to cause shockwaves for years to come.
Wisconsin has always been a high-tax state, but over the years, Republicans have put a few safeguards in place by capping increases to the rate of inflation. That was sensible when we had inflation of 2% or 3%. As inflation moves to 7% or possible above 10%, the ability of Wisconsinites to afford their government will be severely strained.
For example, in 2011, the Republicans implemented Act 10, which did a number of things including restricting public employee unions to being able to only negotiate wages up to the rate of inflation. In practice, that meant that most public employees have been receiving wage increases at the rate of inflation every year. With employee costs representing 70% or more of most government budgets, that means that 2022 will see significant spending increases for no additional value.
Also, Wisconsin caps government school district spending increases to changes in enrollment and inflation. Higher inflation means a much higher spending increase limit for school districts to pay for those increases in employee wages. This will drive a steep increase in property taxes at the same time that the housing prices upon which property taxes are based have gone up 9.5% according to the Wisconsin Realtors Association.
While spending and tax increases of 7% or more are looming, the ability for Wisconsinites to afford those increases is not keeping up. According to the BLS, Wisconsin’s wage growth ranks 37th in the nation for the third quarter of 2021, the most recent data available. Wisconsin’s average hourly wage in the private sector increased at a rate of 3.9% — a little more than half the rate of inflation. As inflation is squeezing Wisconsinites’ expenses, government is about to take a bigger slice. For those who are retired or on a fixed income, the bite of government will be even more severe.
To make it even worse — sorry, there is no good news here — recall that inflation measurements are a lagging indicator. Government budgets this year will be set based on inflation incurred last year. When inflation does eventually abate or a period of deflation possibly sets in, there is no mechanism to rein in the inflationary spending of government. Those spending increases will be baked into the pie forevermore unless elected leaders are willing to actually cut spending — something that neither Republicans nor Democrats have been willing to do in Wisconsin in my lifetime.