Gov. Tony Evers last week opened debate over the state budget by proposing new funding for key priorities such as public schools and Medicaid health programs. Leaders of the GOP-controlled Legislature immediately rejected much of the plan, signaling that the final 2019-21 budget is likely to take a far different form.
Still, it is worth taking a broad look at the governor’s proposal to see how it would affect the state’s spending, taxes, and overall financial health. It will be equally important to examine the Legislature’s eventual budget bill with the same lens.
Evers would increase spending in the state’s general fund, or main account, by 3.8% in fiscal year 2020 to $18.5 billion and by 7.4% in fiscal 2021 to $19.8 billion. This two-year increase of $2.7 billion in general purpose revenue (GPR) does not factor in additional spending of federal funds or money from separate state accounts such as the transportation fund. The budget also calls for significant increases in overall spending. All funds expenditures would rise by a proposed 5.4% in 2020 to $40.7 billion and 4.9% in 2021 to $42.7 billion.
To help cover the new spending, the governor’s budget would use both a net increase in income and capital gains taxes and additional revenues in existing taxes due to economic growth. The governor is proposing a 10% income tax cut for low and middle-income earners plus an expansion of the Earned Income Tax Credit and several other smaller income tax cuts. However, the tax decreases are outweighed by several other larger increases that would primarily affect upper-income earners.
For example, the budget would place limits on who could claim an income tax credit for manufacturers and add to capital gains taxes in certain cases. It would also raise income tax collections by mirroring some provisions of the 2017 federal Tax Cuts and Jobs Act and hiring more auditors to enforce current law.
Overall, the bill would increase state GPR tax collections by $688.7 million over the next two fiscal years. This total does not include $608.7 million in new gas taxes and vehicle registration and title fees sought by the governor that would flow into the state’s separate transportation fund to pay for additional spending on state highways, local roads, and other infrastructure projects.
The additional GPR taxes, however, do not cover all of the proposed spending. The budget bill also would draw down a surplus in the general fund, which is expected to close the current fiscal year on June 30 with $691.5 million. Under the Evers proposal, the state is projected to close the next two-year budget cycle in June 2021 with just $105.3 million in its main account.