Analysts: Walker’s tax cuts favor rich, are too small to stimulate the economy

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Gov. Scott Walker's proposed income tax cut would give more money back to the rich than the poor, despite his billing it as a boon to the middle class, a new analysis shows.

Experts add that the cuts are so small that they will do little, if anything, to stimulate the state’s lagging economy. But they will give Walker a sound byte for his anticipated 2016 presidential bid, in much the same way that he used smoke-and-mirror budget tactics during as Milwaukee County Executive to buoy his successful 2010 gubernatorial bid, according to his critics.

A family of four making $80,000 would save $106 a year under the tax cut, while those earning $374,000 or more a year would save $285 annually, according to a report from the Wisconsin State Journal dated Feb. 22.

The tax analysis was done by the Institute on Taxation and Economic Policy done for the Wisconsin Budget Project.

The tax cut would probably mean little to a family of four earning just $21,000. With existing tax exemptions and credits, they currently would owe nothing and instead would get about a $575 refund, based on figures compiled by the Wisconsin Taxpayers Alliance.

“The governor has argued that by putting more money in people’s hands, the tax cuts will spur economic growth in Wisconsin,” said Andrew Reschovsky, a UW-Madison professor of public affairs and applied economics. “There is no evidence that the tax cut will do much to encourage growth and job creation.”

Mark Schug, a UW-Milwaukee professor emeritus who now consults in the area of economic education, agreed that such a cut is not likely to be an economic boost.

“I do tend to think that the income tax reduction is not sufficient,” Schug said.

Walker spokesman Cullen Werwie said the proposed tax cut is modest because “we had to work within the constraints of our budget to get tax relief to middle-class families.”

Wisconsin’s state income tax rate ranks among the top 10 for middle class households earning between $40,000 and $150,000 a year, according to a study cited by state budget officials.

Walker laid out his proposed tax cuts in his Feb. 20 State of the State address. His critics were swift to respond.

“Gov. Walker confirmed what we all expected to hear tonight: this budget ignores Wisconsin’s middle-class families and students in favor of special interest giveaways and more tax cuts for the wealthy,” said Senate Minority Leader Chris Larson.

Larson and other critics were particularly angered by the governor’s announcement in his speech that he will increase transportation funding by almost the same amount he cut education funding in his 2011-213 budget. Larson called this move “the clearest example of the unbalanced priorities in this plan.”

“Wisconsin’s budget is still in a values deficit, choosing highways over high schools, asphalt over academics and concrete over our classrooms,” Larson blasted.

As WiG has reported, although Wisconsin highways appear to be among the least congested in the nation, the state ranks 13th in the nation on highway spending per capita – or 24 percent above the national average, according to the Wisconsin Public Interest Research Group. The actual need for building a particular highway project in Wisconsin is only a secondary consideration. The more pressing concern for lawmakers is the projected payout, according to public transit advocates.

Even though highway traffic leveled off in 2004 – and is projected to remain near constant through 2023 – proposals for new roads and highway improvements have continued to multiply, and Walker’s speech signaled even stronger future growth in Wisconsin.

The reason, critics say, is that massive amounts of public money are at stake, and highway builders pay lawmakers on both sides of the political aisle handsomely for the chance to stuff some of that money into their pockets. U.S. Rep. Paul Ryan’s family and countless other politically connected families have become millionaires by giving legislators money in exchange for lucrative road-building projects, whether those projects are needed or not.

“The people who build the highways have taken complete control of the state highway budget,” Steve Hiniker, executive director of 1000 Friends of Wisconsin, told WiG. “They’re essentially the highest paid state employees.”

Rep. Peter Barca, also condemned the governor’s new budget plan as harming the middle class.

“A true middle-class budget would strengthen our public schools, provide a common-sense plan for health care, ensure more economic security for Wisconsin families and balance any middle-class tax cuts with investments that are important to the middle class. This budget incorporate extreme ideas like statewide vouchers and a charter school board that even Republicans have said are wrong for our state. And the governor deserves a 'Spin Zone' award for claiming it was a good decision to turn away guaranteed federal funding that would have given 175,000 people health care coverage and created up to 10,000 jobs.

“Wisconsin is still reeling from the results of the governor’s last budget – we are 42nd in the nation in job creation, one of the leading states in the nation for cuts to K12 and higher education and are projected by Forbes Magazine to be second to last in private-sector job growth through 2016. Middle class families in Wisconsin can’t afford another budget like the last one. Unfortunately, what Gov. Walker unveiled tonight seems like more of the same.”

Walker’s budget it now before the Republican-controlled Legislature, which is dominated by tea party acolytes. They will take the next four months making changes in the budget before voting on it this summer, probably in June.

The Associated Press contributed to this story.