Recent word of surprise tax revenues and higher-than-expected state surpluses are setting off the predictable fiscal feeding frenzy in the Capitol. There is talk of further income or property tax cuts or, perhaps, updating state income tax withholding tables.
The latter is long overdue. State government has been withholding about 20% more from our paychecks than it needs, returning it as much as a year later as income tax refunds. With budget crises and cash-flow problems behind it, state government can and should trim withholding to normal levels, leaving taxpayers with more income to save or spend.
One idea that is probably not on the radar screen of state politicians also deserves mention. Over the past two decades, state budget problems prompted governors and lawmakers to use repeated accounting tricks to “balance” what would otherwise have been unbalanced state budgets. Some of these tricks involved changing the timing of state aid and property tax credit payments to local units of government—i.e., shifting costs from one fiscal year to the next.
One good-government alternative for using new-found cash is to “buy back” or “undo” some of these past accounting tricks. These gimmicks permanently increased by hundreds of millions of dollars deficits reported in official state financial statements prepared using general accepted accounting principles (or GAAP). This type of accounting is different from the cash accounting lawmakers use to balance the budget.
Paying for some state spending items in the current fiscal year rather than delaying payment until the following year would reverse poor budgetary decisions of past years while permanently lowering the GAAP deficit, which has ranged from $1.7 billion to $3.0 billion in recent years. It would also strengthen budget balances going forward, improve chances for a hike in Wisconsin’s relatively low bond rating, and increase the ability of state officials in 2015 to undertake needed and major reforms in taxes, education, or local government finance.