June 14, 2021 at 12:03 p.m.

Give the magic money back to taxpayers

Give the magic money back to taxpayers
Give the magic money back to taxpayers

Democrats and liberals are salivating on the good economic news - the state is set to end the 2021-23 budget cycle with a phenomenal $5.8 billion surplus, $4.4 billion more than previously estimated and unheard of in the state's history.

The Democrats want to spend it all, of course, and the faster, the better. The first thing Gov. Tony Evers did after finding out the good news was to cancel all budget discipline for state agencies, unleashing them from previously ordered agency spending cuts.

In essence, the governor suggested that executive agencies write new scripts for his Government Gone Wild production.

Democrats in the Legislature have any number of their own ideas for running through the windfall - invest in teachers unions, schools; invest in broadband; invest in social services; invest in roads and other infrastructure; invest in the UW System; invest in (insert favorite special interest here).

It's like magic, all that money.

But it's not magic at all. As the Legislative Fiscal Bureau pointed out, the jump in aggregate tax collections is built upon unprecedented state tax collections in April and May of this year.

It should be obvious to everyone why it happened - the economy is being driven by federal stimulus dollars, which already amount to trillions of dollars flowing to Americans in various forms, from federal stimulus dollars to expanded tax credits to long-lasting unemployment benefits.

The government is just printing money and handing it out. People are getting it, and they are spending it, and that is driving tax collections higher.

But our state elected officials should resist the temptation to likewise spend this new-found money like an unhinged lottery winner. The record is replete with multi-million dollar lottery winners who subsequently spent themselves into bankruptcy, and that is exactly what would happen to the state if we follow Democrats down their primrose path.

For one thing, and this is actually the most important thing, the revenues represent a temporary, one-time spike, not a level of tax collections that will be sustained. As soon as the federal stimulus spending cools - once people have exhausted their stimulus - tax collections will fall again.

Everyone knows in their own budget that you don't use temporary revenues to fund ongoing expenses because disaster strikes when the dollars stop coming but the monthly bills don't. But this is precisely what Democrats are proposing to do.

A better bet would be to return the tax dollars to the people who gave it to the state in the first place - the taxpayers. That's important for two reasons. First, higher federal taxes are on the horizon. The second is, all this spending is going to help drive prices ever higher, and inflation will erode the value of those dollars that will be coming into the state bank account.

The Biden administration must pay for all those trillion-dollar stimulus moves somehow, and the president has pledged to raise corporate taxes and taxes on the wealthy to fund at least part of it. Don't be fooled by that kind of talk. Corporations pay for tax increases by reducing investment in the economy and passing the increase on to consumers, who will begin to repay their stimulus in higher prices.

Then, too, the increased demand fueled by government-printed funny money will drive prices even higher on their own. The middle class in particular will be buffeted by the sticker shock, and will literally pay the price. The state could give them a cushion against the shock right away with a tax cut using the unexpected tax collections.

We should all remember that many individuals and small businesses are still struggling. Today's boom is merely a recovery from last year's monumental downturn, which wreaked havoc on the financial health of many families. Putting more money directly into their pockets through tax relief is the quickest, best way for government to help them.

We should all remember, too, that Wisconsin remains a high-tax state. In their talk of making "investments," that's one fact Democrats conveniently leave out. But it's true.

Wisconsin's top tax rate of 7.65 percent is the eleventh highest in the nation. The government is obviously taking more money than it should, and this is the perfect time not merely to return the windfall but to restructure and lower taxes across the board, making economic growth more equitably distributed and easier to sustain.

The Wisconsin Manufacturers & Commerce (WMC) has also made some common-sense proposals that the state should implement, including the elimination of the personal property tax on businesses. As WMC has pointed out, a potpourri of exemptions has made the tax unfair in its application, and the record-keeping paperwork it requires is often more expensive than the tax itself, doubly punishing small businesses. Let's get rid of it.

WMC is also proposing to expand the refundability of the R&D tax credit, an idea that Evers has actually endorsed. Doing so would boost investment in this critical economic area.

None of this is to say that none of the money should be used for investments in core government services. It is simply to stress that any such investments should factor in the temporary nature of the windfall, and to use dollars carefully to address deficiencies in core government programs that can be remedied with one-time expenditures that do not require ongoing payments.

Funding programs that fall outside of core government functions - programs that grow government, in other words - should be avoided at all cost.

So Democrats should put away their magic wand and come to the table to work with Republicans to see how taxes can be reduced and sensible investments made. Just because that hard work won't be the product of a magic trick doesn't mean it can't be magical in the end.

Indeed, under the leadership of Gov. Scott Walker and legislative Republicans, the state put in place a sensible budget infrastructure that helped create a dynamic economy and overcome years of fiscal irresponsibility. Those years put Wisconsin in a position to be able to take advantage of this unexpected windfall.

Undoing hard-won gains by investing in magic now would be a tragic mistake.

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