The Legislative Fiscal Bureau (LFB) recently released new revenue estimates for 2013-15, which were $575 million higher than its January forecast. As is customary, legislators responded by suggesting how the money should be used. However, several factors argue for a cautionary approach to the revenue surprise.

First, of the $575 million, less than half is in hand, or nearly so. LFB notes that tax revenues for this fiscal year are running ahead of projections; they estimate the state will have, by the end of June, $215 million more than expected. However, state law requires half of that go to the state’s rainy day fund, leaving available only $107.5 million.

While the LFB news is welcome, the Fiscal Bureau notes that this year’s new-found money is primarily due to nonwage business and investment earnings, which can be volatile. Significantly, income tax withholding from wages has been weak.

Over the next two fiscal years, LFB expects the state to collect $360 million more ($180 million/year) in individual and corporate income taxes. This is not money in hand. Should the economy slow or not perform as expected, these dollars may not be forthcoming.

As the chart below shows, economic shifts affect the accuracy of revenue estimates. As Wisconsin’s economy recovered from the 2001-03 and 2008-09 recessions, tax revenues exceeded LFB estimates at the time the budget was enacted. However, the opposite was true as recession approached. Forecasts were too optimistic; indeed, tax revenues were often below expectations by $200 million or more.

This economic “recovery” is aging. The 2008-09 recession officially ended in June 2009, so it is now four years old. Since 1960, the average economic expansion is about five years, which begs the question: Is another recession likely during the next two years?

This is why sufficient ending balances are important. They act as a cushion should revenue growth be less than expected. The governor’s February budget proposal left an ending balance of only $23 million, or less that 0.2% of spending. The new estimates raise the projected balance to $525 million, or 3.4% of spending. Ultimately, the size of the cushion will depend on how much caution legislators take in approaching the new-found money.

Can changing the wording of a line on a tax form change how taxpayers behave? New figures from last year’s income tax filings (for tax year 2011) indicate it can.

When state residents make online purchases, they often are not charged sales tax because the seller (e.g., Amazon.com) does not have a physical presence in the state. However, Wisconsin law requires the purchaser to pay the tax (technically a “use tax”) to the state.

Wisconsin provides a line on its income tax form for taxpayers for this purpose. From 2007 through 2011, the line read:

During those years, about 1% of filers paid some tax. In 2011 (tax year 2010), total collections were just under $2 million.

Last year, the line was changed to clarify that use tax was due on Internet purchases.  More significantly, filers not reporting tax due had to certify that the amount was zero (see below).

Compliance more than tripled to 3% of filers, and the amount of sales tax paid more than doubled to $4.3 million (see chart).