The $290 million structural surplus in the 2011-’13 Wisconsin budget is not real because it is based on the assumption that Congress will reinstate the estate tax.
Donna Seidel on Tuesday, July 5th, 2011 in an interview
Wisconsin Rep. Donna Seidel says the $290 million structural surplus in the state budget is not real
Wisconsin Republicans have made much of the fact that their 2011-’13 budget eliminates the state’s long-standing structural deficit.
Indeed, the nonpartisan Legislative Fiscal Bureau says the budget would result in a surplus of $292 million. It’s the first time the fiscal bureau has determined that a budget would result in such a surplus since the agency began the calculations for the 1997-’99 budget.
Republican Gov. Scott Walker and GOP lawmakers argued that previous administrations used one-time fixes, such as tapping special funds and the state’s settlement in lawsuits against tobacco companies, to balance the budget.
Now, Democrats say the Republicans are making a big assumption -- that their counterparts in Washington will allow a tax increase -- to make the budget picture look better than it really is.
And therefore, that the claim of the structural surplus is bogus.
At issue is how the fiscal bureau handled one piece of its projection: The future reinstatement of the federal estate tax, which -- based on a formula -- brings some additional money to state coffers. Under current law, the estate tax is to kick in again in 2013.
If that happens, the fiscal bureau estimates it would mean $219 million more for the state over the course of the two-year budget.
Assistant Minority Leader Donna Seidel, D-Wausau, argues the "$219 million is contingent on Congress reinstating the estate tax, which clearly is a top platform point for the Republicans and is not going to happen."
"So clearly that’s another piece of misinformation," Seidel told the Journal Sentinel editorial board July 5, 2011, arguing the structural surplus is closer to $75 million.
We’ve tackled several recent statements on the structural deficit.
The first thing to remember is this: The two-year budget itself -- by law -- must be balanced when passed. The structural deficit measures the future imbalance between spending and tax revenue as laid out in state law. So you can have a balanced budget, but one built upon assumptions that are projected to result in a deficit later on.
That’s part of what happened in the past, leading to structural deficits reaching as high as $2.8 billion for the 2003-’05 budget.
We rated a statement by Sen. Alberta Darling, R-River Hills, that the budget eliminated the structural deficit for the "first time in decades" as Mostly True. A statement on national TV by Walker that the worst structural deficit was two years ago was False.
The Fiscal Bureau bases its estimate on factors including expected costs (the spending side), projections of how much the state will collect in sales and income taxes (the revenue side) and other sources of money.
In this case, that includes what federal law says about the estate tax.
It’s true that Republicans will push to keep the tax cuts in place -- they already won one extension of the Bush-era tax cuts under President Barack Obama in December of 2010. But Seidel argues it was wrong to include the return of them in the Fiscal Bureau’s calculation.
Assembly Minority Leader Peter Barca, D-Kenosha, who was with Seidel during the Journal Sentinel visit, agreed with the argument that the surplus isn’t real.
"There is no surplus," he said.
Indeed, as Seidel criticizes the inclusion as an assumption improperly made by the bureau, she is making her own assumption: That the extension of the tax cuts will continue.
How does the process work?
As a rule, the fiscal bureau does its calculations based on current law, according to Rob Reinhardt, a program supervisor with the agency. The report on the structural surplus did note the assumption as a footnote.
Indeed, a similar estate tax assumption was used when the fiscal bureau calculated the structural deficit for the 2009-’11 budget prepared by Democrat Gov. Jim Doyle. The bureau’s analysis put that budget’s structural deficit at $2.511 billion.
Applying Seidel’s logic to that budget, estate tax revenue should have been subtracted -- and the deficit would have been even larger.
Indeed, even if the federal estate tax return was removed from the state’s 2011-’13 budget, there still would be a surplus, just a smaller one. Seidel noted this herself.
So where does this leave us?
As the GOP touts passage of a budget that doesn’t include a structural deficit, Seidel claims the number is bogus because it is puffed up by $219 million -- based on current law that calls for the estate tax to go back into effect in 2010.
But the Legislative Fiscal Bureau calculated the budget the way it always has. They even footnoted the issue for clarity. The bureau’s calculations are a picture in time -- where the budget stands today. With her own assumption, Seidel wants to jump to the future to undermine the nonpartisan calculation. We rate Seidel’s claim False.