Tuesday, October 21st, 2014

Inside the Walker tax debate: Was budget an increase or a cut?

Supporters and opponents of Gov. Scott Walker are at odds over a simple question: Did he raise taxes?
Supporters and opponents of Gov. Scott Walker are at odds over a simple question: Did he raise taxes?

Did Wisconsin Gov. Scott Walker, the target of a campaign to remove him from office, raise taxes or didn’t he?

Seems like a simple question.

Walker, the Wisconsin Republican Party and other supporters repeatedly claim the GOP governor balanced the state budget "without raising taxes."

Meanwhile, opponents such as the We Are Wisconsin labor unions group and One Wisconsin Now, a liberal advocacy group, insist Walker raised taxes on groups such as the "working poor."

The conflicting claims are likely to continue as Walker’s opponents collect signatures in hopes of forcing him into a recall election in 2012.

So, what’s the truth?

As a candidate during the 2010 campaign, Walker promised to "oppose and veto" all tax increases. That put the issue squarely on our promise-tracking Walk-O-Meter, where we’ve already looked at this question.

In May 2011, we rated this as a Promise Broken, based on Walker’s own 2011-2013 budget proposal, which raised two taxes.

The two revenue raisers aren’t as easily understood as, say, an across-the-board income tax increase. But the nonpartisan state Legislative Fiscal Bureau -- cited by both sides as the official scorekeeper on such things -- has been consistent in considering both steps taken by Walker as tax increases.

Here’s some more on what we wrote at the time.  

Earned income credit

Walker’s budget proposal reduced the earned income credit for low-income working families that have more than one child. Since a tax credit reduces the amount of tax you owe, reducing the earned income credit means higher taxes for those families, or a smaller refund if the families owe no tax.

Walker’s proposal would have raised $41.3 million in additional revenue over two years through the earned income credit change. (The version of the budget adopted by the GOP-controlled Legislature actually made the increase $56.2 million.)

Homestead Credit

The homestead credit is a property tax break that appears as a credit on income tax forms for low-income homeowners and renters. Walker’s budget proposal stopped the inflationary adjustment of this credit. So that means those taxpayers pay more in taxes.

Walker’s plan would have raised revenue by an additional $8.1 million over two years through the homestead credit change. (The budget adopted by the Legislature made the increase $13.6 million.)

So, Walker’s budget proposal would have raised an additional $49.4 million over two years through the two tax credit changes. But because of changes by the Legislature, the adopted budget actually raises an additional $69.8 million through the two changes.

What is Walker’s basis for saying he didn’t raise taxes?

One key reason is the budget -- both Walker’s proposal and the version adopted by the Legislature -- includes tax cuts that more than offset the two tax increases.

Under Walker’s budget proposal, the net tax decrease would have been $33.9 million over two years. Under the budget adopted by the Legislature, however, the net reduction was somewhat less, $23.6 million.

Indeed, Americans for Tax Reform-- which urges candidates to sign a pledge to "oppose and veto any and all efforts" to raise taxes -- said the net tax decrease means Walker didn’t violate his pledge to that group.

But, as we noted in our Truth-O-Meter item, to balance a budget that faced a $3.6 billion shortfall, Walker in effect used the income tax-credit reductions as revenue raisers to partially offset the deficit-enlarging cost of his tax cuts.

The bottom lines?

In saying he balanced the budget, Walker can claim he did so with a net reduction in taxes. And his opponents can claim that his budget included tax increases.