One of the main features of Gov. Scott Walker’s biennial state budget is a $343 million income tax cut that will primarily go to the wealthiest Wisconsinites.
But Walker has helped to create that tax cut by shuffling around federal funds that had been meant for programs for the state’s working poor, the Temporary Assistance for Needy Families (TANF) block grant, which supports the state’s child care and Wisconsin Works (W-2) programs.
Walker’s proposed budget also keeps intact the punitive cut he made in his previous budget to the Republican-championed Earned Income Tax Credit (EITC), which helps those who work at low-paying jobs.
“It’s a shell game to move money from the appropriation for low-income families and into other parts of the budget, like income tax cuts,” said Jon Peacock, research director of the Wisconsin Council on Children and Families (WCCF).
The changes, if passed by the state Legislature, would free up about $70 million in state funds per year at the same time demand for public assistance programs is rising.
Peacock warned that if Walker’s budget changes are passed and continued in the following budget, the state would turn the current $84 million TANF balance into a deficit of at least $80 million by the end of 2017.
Walker Is Underestimating Need for Programs
When Walker unveiled his 2013-15 austerity-style budget, he also unleashed a new war on what he called “government dependency” by making it more difficult for those struggling through the recession to access public assistance programs.
Instead of fully expanding Medicaid programs with federal dollars, Walker refused the funding and is attempting to push low-income earners onto the planned health insurance exchanges, part of the federal health care reform package. More than 80,000 Wisconsinites will lose their BadgerCare eligibility if Walker’s plan is passed by the state Legislature.
A WCCF analysis also shows that Walker has included in his budget BadgerCare changes that the federal government had rejected in 2011. The changes would cause at least 29,000 children to lose their BadgerCare eligibility.
Walker’s proposed income tax cut would also help the wealthy while doing little to nothing for low-income earners. Almost half of the regressive tax cut would go to those making upwards of $100,000 annually, while those earning less than $30,000 would receive about 4% of the cut, according to data from the nonpartisan state Legislative Fiscal Bureau.
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That said, the actual amount of the tax credit isn’t a game-changer. The average Wisconsin family earning $50,000 a year would only see a $60 tax break in a year or $5 a month, hardly enough to make a difference in a family’s budget.
Walker’s tax cuts will, however, have a long-term impact on the state budget by reducing state revenue and making it more difficult for the state to fund schools, law enforcement, health care and corrections in the coming years.
At the same time Walker is turning a budget surplus into a structural deficit, he is changing the funding for low-income programs and underestimating the number of people who will use them.
For example, Walker is cutting W-2 cash benefits by $33 million in his biennial budget. But WCCF’s analysis found that Walker is assuming that participation in the W-2 program would decrease by about 1% per month even though placements “increased sharply” this year. Peacock calculated that Walker is shortchanging the program by about $18 million.
Tax Scrutiny Double Standard
Walker is also adding $13 million to his budget to pay for 61 new full-time state staffers who would enhance tax enforcement and give those who claim the EITC or Homestead tax credit extra scrutiny.
Peacock noted that, unusually, those who are found to fraudulently claim these credits would be barred from claiming them for the next 10 years.
“We don’t do that for other credits,” Peacock said.
He pointed to last week’s scathing audit of the Wisconsin Economic Development Corp. (WEDC), which Walker created to replace the state’s commerce department. Walker is the chairman of the WEDC board and the agency has cycled through a number of high-ranking staffers.
The nonpartisan Legislative Audit Bureau (LAB) found that WEDC handed out more than $80 million in taxpayer funds to private corporations in fiscal year 2011-12, yet did little or nothing to track its investments, job creation efforts or loan payments, in part because it didn’t establish accounting policies and procedures. WEDC’s bookkeeping and oversight were so sloppy that the LAB couldn’t evaluate its economic development programs and verify that WEDC had created even one job.
“If you look at the WEDC audit last week, there are a lot of tax breaks being claimed by businesses that aren’t eligible for them,” Peacock said. “I don’t see anything comparable [to the low-income filers’ penalty], saying that they will be knocked out of these programs for ten years.”
