Collections of the three most important Wisconsin taxes increased less than 1% in the second half of 2007 – falling far short of the 3% assumed growth needed to cover state expenditures this year and raising fears that deep spending cuts will be necessary.
Preliminary state Department of Revenue totals show the personal and corporate income tax and the sales tax brought in $5.13 billion from July through December, an increase of only 0.8% over the same period in 2006.
Those three taxes account for $9 out of every $10 in general-fund taxes.
Every unexpected 1% drop in collections from those taxes means state government will have $120 million less a year to spend. If tax collections don’t pick up, the shortfall would quickly wipe out the projected $67 million surplus Capitol leaders had hoped for this fiscal year and force reductions across state government.
Democratic Gov. Jim Doyle said he will warn of the economic downturn in his sixth “state of the state” message Wednesday. Many states are facing economic slowdowns, and California must fix a $14.5 billion shortfall, Doyle noted.
In his speech, Doyle said, “I’m going to talk pretty directly that this is a challenge that we have ahead of us, and we have to face up to it. Unless the national economy just totally goes into the tank, this is something we can manage and get through. But it’s going to be pretty tough.”
A reduction in the rate of State tax receipt increases makes it unlikely that there will be meaningful reform in redistributed state tax dollars flowing back to local school districts.