Tax Analysts Blog

Walker in Wisconsin: A $1 Sweater and $2 Billion in Tax Cuts

Posted on May 4, 2015

Since becoming governor of Wisconsin in 2011, Republican presidential hopeful Scott Walker has signed into law 15 tax bills that have reduced taxes by nearly $2 billion.

"Every action of our administration should be looked at through the lens of job creation," Walker told lawmakers in early 2011. In that year, despite a looming fiscal deficit, he persuaded the Republican-controlled Legislature to enact a variety of tax incentives for employers. Those included a tax credit for business relocations to Wisconsin, a credit for manufacturing and agriculture, capital gains tax relief for new investment in Wisconsin, a deduction for new hires, and a relaxation of combined reporting rules.

Although they were numerous and multifaceted, those business tax cuts were not particularly large, as shown in Figure 1. The bulk of Walker's tax relief would come with individual rate cuts enacted in 2013 and his property tax cuts in 2014.

In 1911 Wisconsin was the first state to introduce an income tax. And 100 years later, Wisconsin ranked 11th among the states in income tax revenue per dollar of personal income. In the budget proposal released in 2013, Walker proposed lowering Wisconsin's reliance on income taxes by $350 million over two years, mostly by reducing income tax rates. But before the legislative session ended, Republican legislators enacted tax cuts nearly double the size of those in the governor's original proposal.

In 2014 Walker switched his emphasis from income to property tax cuts. In March of that year, he signed legislation reducing property taxes by $406 million in 2014-2015. That was in addition to $75 million in property tax reductions for 2013-2014 enacted in the prior year.

How significant is $2 billion of tax reduction over four years?

Figures 2 and 3 provide some perspective on the individual income and business components of the cuts. Figure 2 shows that state general fund taxes (which exclude fees and gas taxes) are about $2,553 per Wisconsin resident in 2014-2015. Without the tax cuts enacted during Walker's first term, per capita taxes would have been $2,670. Thus, the law changes amounted to $117 per person in 2014-2015, a 4.4 percent reduction.

Figure 3 shows state general fund tax collections as a percentage of state personal income. The recession had a major negative effect on revenues even after taking into account declining income. More interesting is that after the recession, revenues would have been below their pre-recession levels even if the Walker tax cuts had not been enacted. Disaggregated data (not shown here) indicate that most of that decline is because of reduced sales tax revenues, which, as a percentage of personal income, are about 10 percent (about $400 million) lower than they were before the recession. That is likely because of the growth of services and remote purchases, neither of which is well covered by the state's sales and use tax. The Walker tax cuts on top of this trend means that Wisconsinites' effective rate of state tax is roughly 10 percent lower than it was a decade ago

Also, there are Walker's property tax cuts. The latest U.S. Census Bureau data on property tax revenues in Wisconsin are for fiscal 2011-2012. In that year, local governments and the state collected approximately $10.1 billion of property tax. Assuming those revenues grew proportionately to aggregate personal income, the total would be about $11.1 billion in 2014-2015. Thus, the $481 million of property tax relief is a cut of about 4.2 percent. The property tax relief is $94 per capita in 2014-2015.

After winning reelection in November with 52 percent of the vote to 47 percent for his challenger, Walker began his second term facing fiscal head winds. Revenues are coming in lower than projected, and to improve cash flow, Walker has postponed the scheduled retirement of more than $100 million in debt. But the governor remains steadfast to his tax cutting ways. In January he told legislators: "Budget reforms over the past four years reduced the burden on the hard-working taxpayers of this state by $2 billion, and we will continue to reduce that burden every year that I am in office." And some of his previously enacted tax cuts will grow automatically. Most notable among those is the manufacturing and agriculture tax credit, which is expected to increase from $72 million in 2014-2015 to $129 million in 2016-2017.

Walker's record on job creation will also be closely scrutinized as he continues his quest for the Republican nomination. Readers can judge the degree of his success for themselves. On the one hand, Wisconsin's unemployment rate in March was 4.6 percent, well below the national rate of 5.5 percent. On the other hand, the net job creation of 138,000 in Wisconsin since Walker took office is below his own goal of 250,000 new jobs, and the percentage increase in jobs of 4.9 percent is below the national average of 7.9 percent.

Read Comments (3)

edmund dantesMay 3, 2015

A more complete review of Walker's record on jobs is in today's Wall Street

As the article is behind the paywall, I'll clip these key paragraphs:

"Since February 2011, the national labor-force participation rate has dropped
to 62.7%, from 64.2%. Wisconsin’s rate, much healthier than the national
average, has also declined but by significantly less, to 68.4% from 69.1%.

"Wisconsin’s current 68.4% labor-force participation rate is particularly
noteworthy because it represents an uptick over the past year from a low of
68.1%. Nationally, the average labor-force participation rate has declined to
lows last seen during the Carter administration.

"Given that Wisconsin’s unemployment has dropped to 4.6% from 5.6% in the past
year, the state is in the enviable position of having lowered unemployment
while increasing labor-force participation. Not surprisingly, this has helped
Wisconsin move up to eighth place in state labor-force participation, from 12th
in 2011."

Cutting taxes helped fuel this positive trend.

edmund dantesMay 4, 2015

@travis, you make an excellent point, I concede I may have over-reached in my
last sentence.

still, i do think the Wisconsin record on boosting employment is better than
Mr. Sullivan portrayed it in the main post. the percentage increase in WI jobs
is below the national average because Wisconsin's job loss in the recession was
also lower, a point made in the WSJ article.

travis rechMay 5, 2015

@Edmund "Cutting taxes helped fuel this positive trend."

2010 was a pretty bad year for America. If you start counting a politician's
record from early 2011 onward, anybody would look really good due to the
general recovery. Be honest: start Obama's record in February 2011 and tell me
it doesn't look like a strong vindication of his policies. Or how about
Governor Moonbeam in California who has had similar economic numbers while
pursuing the opposite policy from Mr. Walker? It's pretty clear to me that a
great many politicians' records benefit from the general macroeconomic recovery
and claiming credit for it is par for the course.

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