No Runny Eggs

Most of the attacks on revenue limits to the schools have been on the belt-tightening forced upon districts that are shrinking. A story in today’s Milwaukee Journal Sentinel launches a new front; they find that districts that are have increasing enrollment can’t unilaterally increase taxes and spending by an unlimited amount. They even trot out a line from one of the myriad of front groups for the teachers’ union and school districts, the Institute for Wisconsin’s Future – “One of its criticisms is that under the revenue caps, the amount of money a district may raise from year to year is based largely on enrollment, without regard to cost increases for the services that districts provide.”

Ignoring the fact that school districts can and often do bust the caps with voter approval, there is a basic lie in that statement; there is an automatic adjustment for cost increases in the cap. It may or may not be enough for the teat-suckers of WEAC, MEA and WEA Trust, but it is there.

Even though Wisconsin’s forefathers planned for the likelyhood of an unbreakable impasse in the adoption of a new biennial budget by decreeing that state taxing and spending continues at the levels of the previous budget in that event, the not-so-little piggies known as municipal politicans are whining that they don’t know whether they can bust open the tax-and-spend spigot. The editorial-passing-as-a-story money quote: “The general consensus, however, appears to be this: The earlier the resolution, the better. But only if the resolution is a good one.”

One of the nice things about taking those (almost) twice-monthly trips to Madistan for the Center Right Coalition meetings is I find out some very interesting stuff. Case in point; on my desk is the executive summary of Michael Best & Friedrich LLP’s analysis of the Gross Receipts Tax proposal. Lest you think that just because the firm is Pubbie-friendly, it is fatally-tainted, Peg Lautenschlager came to the same conclusion.

In any case, on with a very brief summary-of-a-summary from someone who does not have legal training. There are three Constitutional faults that Michael Best & Friedrich found:

• It violates the Commerce Clause of the US Constitution because the anti-pass through provision impermissibly insulates Wisconsin and only Wisconsin consumers from the effects of the tax. Indeed, the only federal case made under the Commerce Clause against an anti-pass through tax was ruled in favor of the taxed industry.
• It likely violates the Commerce Clause and the Equal Protection Clauses of both the state and US Constitutions because it exempts Wisconsin-produced corn-a-hole and biodiesel. Morever, by basing it on profits, there is no basis for not including other industries with “high” profit margins.
• Given that even the Department of Revenue has conceded that it can’t tell what price fluctuations would be “legal” versus “illegal”, it likely violates the Due Process Clauses of both the state and US Constitutions.

So, what happens when the US Supreme Court strikes this down in 6 or so years? First, let me explain why it would be SCOTUS, and why it would be about 6 years. Because it involves state tax law, it must go through the state appeals process first, which in this case is the DOR, the Wisconsin Tax Appeals Commission, the Circuit Court, the Court of Appeals and the state Supreme Court. Given that Doyle controls the first two and the last 3 are all elected, it is rather unlikely that members of those 6 organizations will risk the wrath of Doyle or the public.

Now, let’s go forward those 6 years. Every penny of that tax collected would need to be repaid in full and immediately. Doyle’s office estimated that would be $912 million, and they also estimated that gasoline would be roughly $2.50/gallon into perpetuity. Given that gasoline hasn’t been $2.50/gallon for several months, and shows no sign of ever returning to that level, a fairer estimate would be somewhere north of $1 billion.

But wait, it gets worse. State law provides that there is a 9% annual interest paid on a refunded tax. Using that $912 million as a base, Michael Best & Friedrich estimated that penalty would be $330 million. As if that weren’t enough, the state would be liable for 6 years’ worth of legal fees.

Where would all that money go? It wouldn’t be going back to the individual taxpayers of the state. Remember; according to Craps and the ‘Rats, we wouldn’t be “paying” this. Rather, the refund and the interest would be going into the pockets of “Big Oil”, while the lawyers would be taking their cut.

Where would that money come from? Knowing Doyle’s penchant for spending every penny twice, not one cent of that collected tax would be in the coffers when the refund bill comes due, much less the money for the interest and lawyers’ fees. Yipee; </sarcasm> another massive tax increase to pay for one that backfired.

Jessica McBride runs with a crAP dispatch that lambastes the Pubbies for passing a budget that the Legislative Fiscal Bureau says raises fees by $256 million and features a heap of ‘Rats piling on (while ignoring the billions-upon-billions the ‘Rats are increasing taxes and fees) and offers a grand compromise – “… how about if they agree to a budget that strips out the tax increases AND fee hikes?”

There are a lot of bloggers taking whacks at the pinata of a plan the Senate ‘Rats spewed forth into the budget (too many to link to here; just search the Cheddarsphere). With a big tip of the hat to the Wisconsin Taxpayers Alliance and their presentation at the July 11th Center-Right Coalition, here’s a couple more whacks:

– First, the alleged $15.2 billion cost for FY2009 is a willful underestimation. “Healthy” (ADDtET) Wisconsin (henceforth refered to as CubaCare Wisconsin because it is shorter) uses the existing health plan as its base (with certain additions and no deletions). The state currently spends somewhere north of $7,000 per participant; yet CubaCare Wisconsin assumes that it would pay just over $4,000 per participant. I know there’s such a thing as volume discounts; however, the state is pretty close to maxed out on that benefit.

Oh, and I didn’t touch on the fact that those teachers insured through WEA Health will keep their level of coverage while “paying” the same amount as everybody else. Guess I just did, and the reason why I put “paying” in quotes is because they and other public employees, and only that group can have their employer (specifically government) pay the 4% that is supposed to be the employees’ contribution without either a decrease in take-home pay or an increase in gross pay (and thus an increase in income taxes). Guess CubaCare Wisconsin isn’t going to come in under budget.

– Second, this is a time bomb waiting to happen. Do note that, as of the end of June, there had not been any analysis by the Legislative Fiscal Bureau, which is required of any item that spends state money. The AARP-funded study by the Lewin Group, which assumed that $15.2 billion initial cost would hold, estimated that health-care costs would go up by 6.5% annually, which is actually less than the 8% annual increase of the cost of the state employee plan. Meanwhile, according to the Department of Revenue, wages, and thus the increase in revenues from the taxes intended to pay for this monster, are expected to go up only by 4.6% annually.

Let’s run the numbers, and remember that, while the rate on employees is a total of 14% (10% from the private employers, 4% from the employee except for government employees and 14% from government-paid wages), since the rate on the self-employed is 10%, and that income not subject to the Social Security tax is captured to the tune of 10%, the revenue is “just” a ballpark number (probably a bit high based on the likelyhood that the ‘Rats wouldn’t be bright enough to create a temporary surplus and the certainty that the bipartisan P-I-G wouldn’t have enough self-restraint to keep their mitts off said temporary surplus):

(Numbers in $billion)
                 Taxes    Cost   Cost
Year  SS Wages    @14%   +6.5%  +8.0%
----  --------  -------  -----  -----
2009    115.0    16.1    15.2   15.2
2010    120.8    16.8    16.2   16.4
2011    126.1    17.6    17.2   17.7
2012    131.8    18.4    18.4   19.1
2013    137.9    19.2    19.6   20.7
2014    144.2    20.1    20.8   22.3
2015    150.8    21.0    22.2   24.1
2016    157.6    22.0    23.6   26.1
2017    164.8    23.0    25.2   28.1

Assuming the “lower” 6.5% increase in health care costs, and assuming that the “ballpark” revenue isn’t high, the program flips into a yearly deficit by 2013 and an overall deficit by 2015. Bump up the increase to the recent history of the state employee health care, and the yearly deficits begin in 2011 and the overall deficit happens in 2012. Since the ‘Rats are starting to take heat for robbing bus systems across the state to pay for the Kenosha-to-Milwaukee choo-choo, I doubt they’ll take the lower-spending route to balance the budget.

I’m surprised that the Journtinel didn’t split this into umpteen stories instead of the two they did split it into, or do this in a day-by-day drumbeat. Let’s explode this one by one:

– “Wah! Milwaukee just can’t spend less than it did last year!” – NRE has issued a Crying River Flood Warning for Milwaukee City Hall and Milwaukee Public Schools headquarters. Since Milwaukee Public Schools doesn’t maintain old budgets online, let’s take a look at the city of Milwaukee budget between FY2003 (the year before the first Doyle budget took effect) and FY2006 (the last year population estimates are available for proper comparison). The city conveniently has a page on their site that summarizes the main budget numbers between FY1988 and FY2006, and that includes not only the amount of total authorized spending (the “Total City budget” line), but the amount of state shared revenue. Despite a drop in state revenue from $249,921,000 in FY2003 to $239,725,000 in FY2006 ($10,196,000 for the math-challenged among you, or 4.08%), and a drop in population from 585,059 in July 2003 (the day after FY 2003 ended) to 573,358 in July 2006 (11,701, or 2.00%), total spending increased from $1,062,827,429 in FY2003 to $1,211,186,519 in FY2006 ($148,359,090, or 13.96%). Inflation was 9.57% over the same period, so if one were to factor both inflation and population loss, if spending were to have remained constant per person, Milwaukee should have increased spending by only 7.38%. Instead, spending increases outstripped the combined effects of inflation and population loss at a 1.61% annual rate.

Somehow, I doubt that MPS showed any more restraint than the city between 2003 and 2006, and I know neither showed restraint last year. They could both use a trim, and a 3.5% trim to put them back at per-taxpayer/per-student FY2006 levels is a good start.

Oh, and Milk Carton. Where were you and your concern for the taxpayers of Milwaukee when your buddy Craps slashed and burned shared revenue to Milwaukee County to try and punish Scott Walker as he was contempating a gubernatorial run? Oh that’s right; unlike you, Walker knows how to live within his means, even as he gets sabotaged by a tax-and-spend County Board.

– “Wah! Without massive state subsidies, we won’t have Ambert Alerts anymore!” – NRE has issued a Crying River Flood Warning for Wisconsin Public Radio and a Crying River Flood Watch for Dane County Public Safety Communications Center. While WPR is currently the main dissemination source of statewide activations of the Emergency Alert System, the main EAS system is designed to be quite robust. Indeed, WTMJ-AM/WKTI-FM (Milwaukee’s Local Primary-1 stations) have the same direct link to the state Emergency Operations Center, which creates the statewide activation of the EAS outside of Amber Alerts, that the WPR stations that are the State Relay stations have through WPR’s dedicated monitoring studio (I don’t know if Rhinelander’s SR station, a non-WPR station, has that link to WPR’s monitoring studio yet). All the other LP-1 and LP-2 stations monitor WTMJ, either through a dedicated ISDN line or through a satellite, and have a spare monitoring slot that can be hooked into the state EOC.

Why the lawmakers chose to bypass the state EOC and create a separate activation authority for Amber Alerts, and incorporate only one dissemination channel through WPR, is beyond a sane person’s comprehension. Further, seeing that there already is one private radio station that is a SR station, there needs to be no requirement that the remainder remain welfare radio stations.

– “Wah! We won’t be able to make UWM/Wisconsin State University into a rival for the Madistan campus!” – NRE has issued a Crying River Flood Warning for UWM. News flash; we can’t afford two huge public universities, especially with UWM undercutting UW-Madison’s tuition.

– “Wah! We can’t possibly make those getting into the most-lucrative business in Wisconsin pay anything approaching what their education is worth!” – NRE has issued a Crying River Flood Warning for the University of Wisconsin Law School. Lawyers, especially in Craps’ Wisconsin, stand to make a mint. Why in the hell can’t they pay $17,000 in tuition? And don’t give me the “It would make Madistan’s law school among the most-expensive in the Big 10.” Last time I checked, Northwestern was the only private university in the Big 10.

– “Wah! We can’t possibly keep overpaying nutjob lecturers and offering everybody backup jobs on just a 3.1% annual increase in taxpayer subsidies!” – NRE has issued a Crying River Flood Warning for the entire University of Wisconsin system. In a high-tax, low-income state, we can’t afford the 8.7% annual increase in the subsidy to the money pit known as the UW system the ‘Rats want.

Revisions/extensions (10:17 pm 7/13/2007) – Corrected something related to how the EAS operates.

I’m a bit late to this party, but the Tax Foundation ran some interesting numbers on just the $15.2 billion-in-FY-2009 tax increase. I don’t particularily like the first chart they produced that had the tax increase representing 50% of the FY-2009 general fund revenue because it understates the actual increase. They also ignored the $1.6 billion increase in the rest of the taxes. Let’s redo that chart of top percentage tax increases between 2000 and 2006 (plus Wisconsin) to reflect the percentage increase and both the total tax increase passed by the state Senate and the portion that isn’t going to CubaCare:

(N/A) – Wisconsin proposes an increase in taxes by 110.5% in 2009 with the full monty tax increase
#1 – Nevada increased taxes by 16.4% in 2004
#2 – New Hampshire increased taxes by 15.7% in 2000
#3 – Tennessee increased taxes by 13.3% in 2003
#4 – Nevada increased taxes (again) by 11.6% in 2005 (making for a 29.9% increase from 2003 to 2005)
#5 – Indiana increased taxes by 11.1% in 2003
(N/A) – Wisconsin proposes an increase in taxes by 10.5% in 2009 with CubaCare taken out (essentially the Doyle increase)
#6 – Idaho increased taxes 9.7% in 2004
#7 – New Hampshire increased taxes by 8.1% in 2001 (making for a 25.1% increase from 1999 to 2001)
#8 – Oregon increased taxes by 8.1% in 2004
#9 – New York increased taxes by 6.6% in 2004
#10 – Ohio increased taxes by 6.5% in 2004

It gets worse. Again, the Tax Foundation neglected to take the Doyle increase into consideration when they considered the increase as a percentage of the gross state product, so let’s do that:
(N/A) – Wisconsin proposes a tax increase equal to 6.632% of the GSP in 2009 with the full monty increase
(N/A) – Wisconsin proposes a tax increase equal to 0.632% of the GSP in 2009 with just the Doyle increases
The previous #1 – Indiana passed a tax increase equal to 0.446% of the GSP in 2003

You read that one right kids. Even if you took out CubaCare, Wisconsin would still have the largest tax increase as a percentage of the economy in the recent history of the country. Specifically, it would be 42% larger than the next-largest tax increase as a percentage of the state’s economy. Keep in mind that is just the increase to the state.

But wait, it gets EVEN WORSE! The Tax Foundation went and calculated what the total state-and-local tax burden would have been if we had these tax increases this year. While they assumed that both the $15.2 billion for CubaCare and the additional $1.6 billion would have been applied in full this year, I’ll assume a 3.3% annual inflation for the 2-year difference. Let’s run the 2007 state-and-local tax burden as a percentage of income chart again:

(N/A) – Average federal take 21.7%
(N/A) – Federal take from Wisconsin taxpayers 20.0%
(N/A) – Wisconsin 19.8% with the full-monty increase (increase adjusted downward for inflation)
#1 – Vermont 14.1%
#2 – Maine 14.0%
#3 – New York 13.8%
(N/A) – Wisconsin 13.0% with just the Doyle increase (increase adjusted downward for inflation)
#4 – Rhode Island 12.7%
#5 – Ohio 12.4%
#6 – Hawaii 12.4%
#7 – Wisconsin 12.3% (current)

Do note that this does not include either any out-of-state tax increases or any local tax increases in Wisconsin. If CubaCare and the rest of the tax increases pass intact, we’ll be paying nearly as much to Uncle Craps as we do Uncle Sam. That hasn’t happened since FDR rolled in with the SocSecurity Ponzi scheme. Even if we “just” get Doyle’s increases, we’re back within striking distance of #1.

Congratulations, voters. Congratulations, Dale Schultz and Mary Panzer. Thanks to your stupidity, we’re on our way to doing something we never have done; be the most-heavily-taxed state in the nation.

Revisions/extensions (4:42 pm 7/6/2007) – corrected a typo.

Or, if you prefer, “The state Senate wants to raise your taxes $1.74 billion $2.1 billion $2.6 billion more than $34 billion over the next 2 years”. By comparison, Doyle’s budget, which included that (not-quite-acknowledged) $2.6 billion 2-year increase, anticipated taking in $26.5 billion in taxes.

Item #1 – THE BIG ONE, the “universal health care” item (thanks to WisPolitics for the link to the document). This $30+ billion (over the 2 years) boondoggle is to be funded by a massive payroll/self-employment/income tax (depending on a person’s source of income):

– From employees who have Social Security taxes withheld and are under 65, 4% of the amount subject to the Social Security tax (the document says between 2% and 4%, published reports say 4%) unless they’re close to the poverty line (those earning under 150% of the poverty line pay nothing, those without dependents earning between 150% and 200% and those with dependents earning between 150% and 300% a sliding scale between 0% and 4%).
– From the self-employed, between 9% and 10% of the amount subject to the Social Security tax.
– From those who don’t pay Social Security taxes and are eligible for the boondoggle, 10% of their adjusted gross income up to the maximum amount that would be subject to the Social Security tax.
– From employers (which means, from employees), 10.5% of the portion of their payrolls subject to the Social Security tax.

Rick Esenberg has an excellent analysis of what this will do to the labor market. I’ll be back later to add to that.

Item #2 – A reinstituted “combined reporting” requirement that would raise business taxes $180 million over the next 2 years by making Wisconsin subsidiaries pay taxes on what their parent company makes outside of Wisconsin. The excuse from Judy Robson is that everybody else does it. Hey Judy, if everybody else was jumping off the bluff at the end of Oakwood Rd., would you be jumping too?

Item #3 – Remove the property tax exemption for ATM machines. Oh goody; now the fees at the ATMs will go up even more.

Item #4 – Increase heavy truck registration 10%, bring in an additional $53.4 million to the Craps Slus…er, Transportation Fund over the next 2 years, just because those taxes haven’t been jacked up in a decade.

Item #5 – Reward the Regional Transit Authority’s wasting of all but $50,000 of its $2 rental car fee on lobbyists by increasing that to $15.

The ‘Rats are well on their way to ensuring there is zero after-tax disposable income.

(H/T – the lovely, talented, and blogging again Jenna)

In what is likely the only victory for Wisconsin taxpayers, the Joint Finance Committee voted 10-6 to continue to exempt cell phone users from the state Universal Service Fund, as they have since 2001 (not to be confused with the federal Universal Service Fund; side note, the federal USF does tax cell phone users). Predictably, the tax-and-spenders at The Capital Times took exception to that. Let’s see what the state USF does:

• Give telecommunications equipment to non-profits – Golly, isn’t it nice that the state is so damn generous with my money. Of course, if they didn’t take over 10% of what the Wisconsin economy produces, maybe those non-profits would get enough donations to cover the expense.
• Give telecommunications equipment to “non-profit” and rural health care providers – The rural portion is duplicated by the feds. The “non-profit” portion is answered above.
• Help subsidize telecommunications equipment for the deaf – I can’t argue with the general premise; however, this is not means-tested.
• Low-income assistance – This is also duplicated by the feds. Further, there are some pretty damn cheap cell phone plans that don’t require credit – as an example, Net 10 offers 60 days/300 minutes of service for $30 (plus sales tax), phones for less than $40, and those unused minutes do roll over.
• Pay-phone subsidies – This is pretty much a self-limiting “problem” as more people get cell phones. Of course, if it becomes more expensive to get cell phones, then more people are going to need pay phones.
• “High rate” assistance – Again, duplicated by the feds. One of the main reasons for high rates is the level of taxation, including the duelling USFs.

It sure looks like it’s time to consider getting rid of the state USF, and I wouldn’t be opposed to dumping the federal USF as well.

The Wisconsin Taxpayers Alliance figured out that, as a percentage of personal income, the Wisconsin tax bite dropped from 12.18% in 2003-2004 (fiscal year 2004) to 12.13% in 2004-2005 (fiscal year 2005), which dropped our national rank from 6th to 8th. Shhh, don’t tell the tax-increasers in Madistan because that will cause them to redouble (again) their efforts to make us #1.

Before the rest of you break out the bubbly, there are several rather ugly caveats:

• First, the Census Bureau, which provides the numbers that WTA looks at, is about 2 years behind. Anybody care to guess what the FY2006 and FY2007 numbers will read?
• The WTA said in that press release, “The drop in rank was due primarily to increased taxes elsewhere, rather than reduced taxes here.” So, I’ll explore that.
• Both corporate income taxes (up from 0.41% of personal income in 2004 to 0.44% of personal income in 2005) and property taxes (up from 4.42% to 4.43% of personal income) went up faster than total income, which went up 6.54% (combining a 0.47% increase in population and a 6.04% increase in per-capita income; numbers collated by me from from the Census Bureau). In terms of dollars, corporate income taxes went up 14.77% while property taxes went up 4.94%.
• That rather-astonishing increase in total income masked increases in personal income taxes (4.07%) and sales taxes (3.26%).
• With inflation between July 2004 and July 2005 at 3.17%, and population growth at 0.47%, every major category other than sales taxes went up faster than the combined effects of inflation and population growth.

I don’t know about you, but I can’t afford a $3 billion tax increase between now and 2009.

Revisions/extensions (11:23 am 6/8/2007) – Since Blogger seems to be having an issue sending out pingback requests, others that picked up on this from here….

– Dad29, who points out that we’re also in the lower quintile of GDP growth
– Headless Blogger, who asks if 0.05% is significant (it’s $25 for somebody making $50,000, so it’s not exactly significant).

After reading the WisPolitics’ Budget Blog pinprick-by-pinprick method of the Joint Finance Committee’s expansion of the $1.74 billion $2.1 billion $2.6 billion damn-near-$3 billion-and-climbing tax hikes in the budget, I’ve run out of vendictives to toss at the asshats at Madistan.