When Gov. Tony Evers rejected most of the massive Republican income tax cut in the budget he signed a couple of weeks ago, he left a gaping question: what to do with the roughly $3.3 billion left in the state surplus?
This budget cycle the governor and Legislature had a record $7 billion surplus to work with. They agreed to big increases for public schools, vouchers and local governments. They spent more money to combat PFAS and to increase pay for prison guards, prosecutors and public defenders. The Republicans took what was left and splurged on a tax cut which, not surprisingly, favored the rich. Under their plan those earning around $100,000 would have seen a savings of about $515. Earn over a million? You would have received over $30,000.
So, I think Evers was right to veto yet another top-heavy income tax scheme while he left cuts in the lowest brackets. But here’s the bottom line, which leads to the interesting question. Evers’ tax cut will cost only about $175 million, leaving a surplus of around $3.3 billion. In other words, after Evers’ veto, the whole budget process answered only half the question about what to do with $7 billion.
Evers may be content to leave it that way. For one thing, it avoids a structural deficit in the next budget. When Republicans cut taxes they always have two goals. The obvious one is to benefit high earners but they also want to keep government in perpetual crisis. They want to keep pressure up for cutting programs. So, by leaving better than $3 billion laying around, Evers sets himself up well for the budget in 2025. With that kind of cushion he could even probably weather a recession without having to make significant cuts or raise taxes next time.
On the other hand, if you’re Speaker Robin Vos you may find yourself in the odd role of wanting to spend more. Vos and company will likely make the argument, going into the 2024 elections, that Evers and his Democrats are sitting on the taxpayers’ money, that the voters have been over-taxed and they should get their money back.
That worked spectacularly well for Lee Sherman Dreyfus when he ran as a long-shot outsider against incumbent Democratic Gov. Martin Schreiber back in 1978. At the time the state had a surplus of a similar size compared to the overall budget, but Schreiber insisted on what he felt was the prudent thing: save it for a rainy day. Dreyfus demanded the surplus be sent back to taxpayers. Dreyfus won the debate and the office.
Evers isn’t up for re-election next year, but all the members of the Assembly and half the State Senate will be on the ballot. Moreover, if all goes according to plan, the new liberal majority on the state Supreme Court will supply Democrats with new, more fair, district maps. Combine that with the potent abortion issue and the Dems might have a chance to take back a majority in at least one house. So, while Evers might consider it a good thing, having north of $3 billion laying around may not be such an attractive scenario for legislative Democrats.
And there’s another problem. While I believe Evers did the right thing by vetoing the tax cuts for the rich, he also slashed the cuts that would have gone to the middle class. Those same taxpayers earning $100,000 that would have gotten almost $515? Now they’ll get only about $48.
Evers didn’t have much of a choice in that regard. The problem is that, contrary to the one-bracket, flat tax Republicans want, there aren’t enough brackets. The truth is that we have what is close to a flat tax now. That’s because the middle bracket is way too wide. It covers family incomes from $34,000 to $374,000. That makes it all but impossible to target tax cuts at the middle class when the median household income in Wisconsin is about $67,000.
Anyway, what’s likely to happen is that the Republicans will ignore the massive cut they wanted to hand the rich and they’ll hammer away at the several hundred dollars that they’ll claim Democrats are denying middle-income families. So, in that sense, Vos may have reason to leave well enough alone, just like Evers.
That’s the politics of it. In a pure policy sense, it would probably be better to budget for a pile of money that big instead of just letting it ride. In my view, the most responsible thing to do would be to set aside whatever is needed to avoid a structural deficit in the next cycle, then split what’s left between a restoration of some of the Republicans’ tax cut and Evers’ top priority of more money for public schools and the UW, which suffered a loss in this budget.
While I think that would be the right thing to do, I’m guessing right now that it won’t happen because both Evers, for fiscal management reasons, and Vos, for political reasons, like the cards they’re holding.
Dave Cieslewicz is a Madison- and Upper Peninsula-based writer who served as mayor of Madison from 2003 to 2011. Both his reporting and his opinion writing have been recognized by the Milwaukee Press Club. You can read more of his work at Yellow Stripes & Dead Armadillos.
