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Five Alternatives to an Income Tax Cut

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Governor Walker and legislative leaders are laying the groundwork for a significant income tax cut, probably to be introduced in the upcoming budget. If in fact such a move is sustainable, then we have some ideas about how that money could be better spent in a way that would boost Wisconsin’s economic competitiveness.

Governor Walker has tied the amount of a potential income tax cut to the budgetary surplus that is expected for this fiscal year:

Walker said Tuesday, following a speech at the Wisconsin Technology Council, that he was eying the state’s current projected budget surplus of $342 million for the income tax cut.

“We think it’s reasonable to focus in on the surplus. The surplus is $342 million,” he said. “The taxpayers are obviously at the forefront of making that possible.”

Lawmakers should steer clear from using this year’s surplus to fund the cost of the income tax cuts. Doing so would be problematic because the surplus is a one-time boon, while an income tax cut represents an ongoing cost that could not be covered by one-time surplus revenues.

If Wisconsin does in fact have enough revenue that we can afford income tax cuts on an ongoing basis, then there are better ways we could use that money. Here are five ways, each of which would result in a bigger bang for the buck than an income tax cut would.

1. Roll back recent tax increases on low-income Wisconsinites. In the last budget, the Legislature cut $56 million over two years from state’s Earned Income Tax Credit, which resulted in higher taxes for modest-income working families with children, and another $14 million from a tax credit that helps make sure that seniors on fixed incomes and other people of modest means aren’t taxed out of their homes. We should reverse the tax increases in the last budget before implementing new income tax cuts.

2. Invest in technical colleges to boost the manufacturing sector. The state’s technical college system is one of the most important resources we have in making sure that Wisconsin has a well-educated workforce, and that employers can find employees with the necessary skills sets. State support for Wisconsin’s technical college systems has tanked over the last decade when measured on a per-student basis. It’s time we turn that trend around.

3. Create jobs by hiring back laid-off teachers in public schools. Governor Walker is framing the income tax cut in terms of job creation, but it’s hard to imagine families creating jobs with an extra dollar or two per week, which appears to be what most families would receive under the plan the Governor has outlined. Instead, we could use that money to create jobs by hiring back the public school teachers that were laid off due to budget cuts. Wisconsin’s 424 school districts lost a total of 2,312 full-time positions during the 2011-12 school year, a net loss of 2.3% of school staff statewide, compared to the previous year. By bringing those teachers back, we could help Wisconsin’s children and create jobs at the same time.

4. Fuel the state’s economic engine. Investing in our state’s higher education system would bring more benefits to the state than income tax cuts. The University of Wisconsin-Madison alone contributes more than $12 billion to the Wisconsin economy and supports 128,000 Wisconsin jobs. But the university system can’t bring that kind of benefit to Wisconsin without state dollars. Additional support for the UW System could help keep higher education affordable for Wisconsin residents and help the university system attract more outside investment.

5. Ensure a healthy workforce. Wisconsin could use the income tax cut money to firm up the Medicaid budget, and to ensure that health care supports for low-income Wisconsin families, the elderly, and people with disabilities are adequately-funded through BadgerCare and Family Care.

Rather than rushing to implement an income tax cut, legislators should consider all options. There are several alternatives that have a bigger return for Wisconsin in terms of job creation and economic benefits than an income tax cut.

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