Sometimes I feel like I’m spitting into the wind, but I’ll keep trying. My column for the Washington County Daily News is online and in print. Here’s a part:
With the state’s coffers overflowing, every hog is at the trough jostling for position and every politician is eyeing their favorite one to fatten. There will be no shortage of requests, demands, justifications, and admonitions from advocates to spend every dollar of the surplus and more. Instead, the Legislature should give it, and more, back to the beleaguered taxpayers.
First, let us dig into the anatomy of the forecasted surplus. According to the 62-page DOA report, the state entered the budget with a $2.52 billion balance, added $1.78 billion to the balance in first fiscal year of the budget, and projects to add an additional $2.276 billion to it by the end of this fiscal year for a total biennial budget surplus of $6.576 billion. This is based on the current economic outlook and current tax policies. The reason for the surplus is relatively straightforward. The state spent every dollar it appropriated (actually, a little more), but it collected far more in taxes than it needed. For example, in FY22 which ended on June 30th of this year, the state collected $534 million more in income taxes than lawmakers said they needed in the budget. It collected $338 million more in sales taxes and $1.05 billion more in corporate taxes than it needed.
Why? The primary reason is inflation. While the underlying economy is struggling, the price of everything is going up. Incomes are up, corporate taxable profits are up, the price of consumer goods are up, and taxes are based on percentages of those things. The budget did not make any inflationary assumptions when it was created. Inflation has averaged 7.4% since the beginning of this budget in July of 2021. If the projected surplus is realized, it will be due to the state collecting about 10.6% more in taxes than it budgeted.
The assumptions used to forecast the surplus are telling, and troubling. The DOA uses economic projections from a single source — IHS Markit. It is concerning that in such tumultuous economic times that the DOA would rely on a single source. They forecast that the nation will have a mild recession in 2023 with a 0.2% decline in GDP before returning sluggish growth in 2024. It also forecasts that inflation will decline to 3% versus prior year by the end of 2023.
I hope they are right because those are relatively optimistic projections compared to many other sources. But it reminds us that a forecast is just an educated guess, and we should not spend money that we do not have.
The data also shows that while inflation is also pushing up wages, the buying power of those wages are not keeping up. According to the data in the DOA report, personal income rose by 7.4% in 2021 (inflated by COVID bailouts) and 2.3% in 2022. That compares to annualized inflation of 7.1% in 2021 and 7.75% year-to-date in 2022 according to the Federal Reserve. Every dollar of wage increases is being consumed by inflation and then some. Wisconsinites’ expenses are increasing at a far faster rate than their wages.
Under normal circumstances, it is immoral for the government to overtax the people and then use that as an excuse to increase spending. With a suspect economic forecast and the buying power of Wisconsinites being eaten away by inflation, it would be unconscionable for our elected leaders to do anything other than to return the surplus to the people who paid it with a sheepish, “ope.”