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Conservatively Speaking

State Senator Mary Lazich (R-New Berlin) represents parts of four counties: Milwaukee, Waukesha, Racine, and Walworth. Her Senate District 28 includes New Berlin, Franklin, Greendale, Hales Corners, Muskego, Waterford, Big Bend, the town of Vernon and parts of Greenfield, East Troy, and Mukwonago. Senator Lazich has been in the Legislature for more than a decade. She considers herself a tireless crusader for lower taxes, reduced spending and smaller government.

Spending remains out of control

Economy, State budget


Stunning news from the Wall Street Journal. The newspaper picked up on a huge story that was missed by most, if not all other media.

The Congressional Budget Office (CBO) unveiled preliminary figures for fiscal year 2010. The big spending machine in Washington is in full throttle.

The Wall Street Journal 
reports, “Spending rolled in for the year that ended September 30 at $3.45 trillion, second only to 2009's $3.52 trillion in the record books. What did Washington spend more money on? Well, despite two wars, defense spending rose by 4.7% to $667 billion, down from an annual average increase of 8% from 2005 to 2009. Once again domestic accounts far and away led the increases. Medicaid rose by 8.7%, and unemployment benefits by an astonishing 34.3%—to $160 billion. The costs of jobless insurance have tripled in two years."

CBO calculates that during the two-year period from 2008 through 2010, federal spending increased by a whopping 21.4 percent. From the Wall Street Journal:

“The 21.4% federal spending increase in two years ought to put to rest any debate about the nature of America's fiscal problem. The Pelosi Congress has used the recession as an excuse to send spending to record heights, and its economic policies have contributed to a lousy recovery. The solution is to stop the spending and change the policies.”

The same holds true for state government.
The current 2009-11 state budget increased spending 9.4 percent according to the Wisconsin Taxpayers Alliance. And that was during a recession. I am pretty confident few households in Wisconsin have increased  their personal spending by almost 10%.

The Wall Street Journal’s solution for the nation’s capital should also be applied at the state Capitol:

“Stop the spending and change the policies.”

Want to reduce poverty? Say "I do"

Economy


Poverty tightens its grip on America.

The U.S. Census Bureau reports poverty increased to 14.3 percent during 2009 from 13.2 percent the previous year. The percentage of Americans living in poverty is the highest level since 1994.

Read more

Wisconsin government keeps growing

Economy


While the private sector struggles across the state and country, state and local government in Wisconsin is growing.

According to U.S. Census Bureau data obtained by the Wheeler Report, state employment accounted for 70,457 full time employees during 2009, up from 69,019 during  2008. Local government employment was 222,214 during 2009, up from 214,332 during 2008.

Read more

The Summer of Recovery hits a brick wall

Economy


The nation’s economy continues to sputter in the wrong direction.  The latest ADP (
Automatic Data Processing) National Employment Report released this week has stunning news that private sector jobs declined by 10,000 from July to August of this year. The decline was seen throughout major employment sectors, a sign the projected economic recovery is in the pause mode. Prior to the August decline, there had been employment increases from February through July.

The ADP National Employment Report calculates employment using an anonymous subset of approximately 500,000 U.S. business clients. You can read the August 2010  ADP National Employment Report here. 

The erosion of private sector jobs is placing incredible hardships on American families. New figures from the American Bankruptcy Institute (ABI) show the number of consumer bankruptcies filed during August 2010 declined nationwide by eight percent.  However, the August 2010 filings are six percent higher than the filings made one year ago, and the total number of bankruptcies is now the highest it has been since 2005. The ABI indicates consumer bankruptcy filings could surpass 1.6 million this year.

These developments are a clear signal that Washington’s spending frenzy exacerbated the economic crisis gripping America. Families are being forced to tighten their belts, and soon they will not have belts to tighten.  Government at all levels is obligated to heed the actions of the American public and act likewise. Placing a greater financial burden on the shrinking workforce and shrinking incomes is fiscally irresponsible.

You do not tax your way out of a recession

Taxes, Economy


Just ask Oregon. The Beaver State has had a long history of scorning taxes.

Nine times residents went to the polls to consider implementing a state sales tax. Nine times voters rejected the idea. Oregon’s constitution contains a ceiling on property taxes. If revenues surpass projections by two percent or more, taxpayers get automatic rebates thanks to an amendment adopted by voters.


It is stunning Oregon residents voted for large income tax increases during January 2010 rather than accept possible spending cuts. It was the first time since the decade of the Depression that Oregon voters approved tax increases.

With an increase of $727 million poring into Oregon coffers, it is the end of budget problems, right? Wrong.

Stateline reports, “In May, stunned lawmakers listened as the state economist outlined a new, $577 million shortfall in the current, two-year budget — the result of continued hemorrhaging in income tax collections. Last month, the National Conference of State Legislatures released a report showing Oregon and Illinois as the only states projecting shortfalls at the end of the budget year that ends next summer.”

What happened to the money from the January tax increases? 

The January tax increase ballots provide a lesson, and will be a hot campaign issue this fall in Oregon. Read more here.

It's true, the economy is recovering

Economy


The future of the economy is looking brighter. The economy is expanding. Economists are predicting an increase in growth.  The construction industry is bouncing back. So are investments in machinery and equipment.

The above is true. However, the pleasant economic outlook is permeating, not through America. Optimism instead is being felt in Britain and Germany.

Allan Meltzer, professor of economics at Carnegie Mellon University and a visiting scholar at the American Enterprise Institute submits the economic turnaround in Europe is a direct result of announced plans to reduce spending. Meltzer writes in the Wall Street Journal:

“President Obama is the victim of bad advice and misinformation. From his advisers, the Democratic caucus and the New York Times, he hears that markets have failed and the country needs more government spending to increase consumer spending. He is told that any plan to reduce government spending and the deficit will bring on another recession and even a new Great Depression. And he repeats the foolish claim that, since the rich spend a much smaller proportion of their incomes, it is good for the country to raise their tax rates.

Nonsense. After Britain's new government announced a multiyear program to reduce government spending, the pound rose against the dollar and the economy continues to expand across the board.

In the euro area, Germany has reduced the growth of government spending to bring down the budget deficit. Following the recent announcement of a credible, long-term German program to reduce future deficits, the euro appreciated strongly against the dollar. Forecasters expect a surge in second-quarter growth when it is reported later this month. A rebound in construction and investment in machinery and equipment shows renewed optimism.”

Meltzer makes the case that the Obama administration should mirror the spending reductions in Europe rather than push another wasteful stimulus package.

In the private sector, businesses attempt to protect themselves from inevitable rising costs of health care and worker benefits by increasing labor-saving capital. Unfortunately, that means layoffs. What can the public sector do? Meltzer suggests putting a stop to new regulations on the private sector.

I appreciate this Meltzer line:

“People are not dumb beasts. Told that the government will spend more, many will expect to pay higher taxes in the future.”

Meltzer says Europe has jumped off the Keynesian bus. America needs to hop as well, and soon.

You can read Meltzer’s entire column here.

The state’s unaffordable debt problem

Economy


More bad economic news for Wisconsin. To confront a decline in tax receipts, the state finds itself in an ugly pattern of issuing debt at a faster rate than other states.

The Wisconsin Policy Research Institute (WRPI) reports that since the Legislature voted to allow the issuance of bonds during 1969, our dependence on debt has skyrocketed. Wisconsin ranks #12 in the nation among the states in debt per capita.
Our $1,720 in debt per capita  is $423 above the national average.

In Wisconsin, we tax, spend and borrow more than we have the ability to pay. The same holds for true for debt that is being issued at a pace the state is unable to afford. Negative ramifications are the result: a strain on the state budget leaving less money  for important programs and services,  an increase in the cost of ongoing programs, and a reduction in the state’s bond rating.


“When the new governor takes office in January of 2011, he’ll have the state’s large debt burden to thank for much of the state’s shabby fiscal condition.“

Read more here.

No sales tax holiday in Wisconsin

Taxes, Economy

 
Soon it will be back to school.

That means sales on clothes and supplies, and 16 states have a back to school sales tax holiday. Eighteen states utilize some form of sales tax holiday. Wisconsin is one of 32 states without the marketing ploy and that might be in our favor. While retailers love the concept, evidence suggests the limited, temporary tax break is ineffective. 


Stateline.org reports, “Louisiana and South Carolina kick off hunting season with a tax break on guns. Louisiana and Virginia begin hurricane season with a tax break on preparedness items such as flashlights, batteries and generators. And six states, including Maryland, Missouri and West Virginia, offer temporary sales tax breaks on Energy Star appliances.”

Come August, sales taxes for a brief time are forgiven on items like pencils, notepads, even computers. Budget crisis infested Illinois welcomes their new sales tax holiday. However, Georgia decided to drop its tax break this year.

Two organizations, The Tax Foundation in Washington D.C. and the liberal Citizens for Tax Justice, according to Stateline.org concur on sales tax holidays: “Since the holidays only include special items — school items during back-to-school season, guns and ammunition during hunting season — they still unfairly impose sales taxes on everything else. In other words, they discriminate against consumers who don’t go hunting every fall and don’t have to buy their children notebooks and pencils.”

The Tax Foundation has just issued a new report on the impact of sales tax holidays. Their conclusion: Bad policy that sounds good. The report states:

“Despite their political popularity, sales tax holidays are based on poor tax policy and distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform. Sales tax holidays introduce unjustifi­able government distortions into the economy without providing any significant boost to the economy. They represent a real cost for busi­nesses without providing substantial benefits. They are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers. Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings."  

Well...I say,The Tax Foundation and the liberal Citizens for Tax Justice can cry me a river.  The vast majority of my constituents appreciate any tax break they can get.  A sales tax holiday is a more worthy stimulus that the stimulus Washington D.C. recently provided.   I do agree that sales tax holidays "still unfairly impose sales taxes on everything else".  Maybe we should eliminate the unfairly imposed sales tax on everything else, rather than use it as a justification not to enjoy a sales tax holiday.

Read more from Stateline and the Tax Foundation.


Soaking the rich backfires

Economy


I quoted highly acclaimed economist Dr. Arthur B. Laffer in my May 23, 2009 blog, “Soaking the Rich.” 

Laffer put it succinctly:

“States cannot tax their way into prosperity.”

Laffer, president of Laffer Associates, and Stephen Moore, senior economics writer for the Wall Street Journal cited a number of states subscribing to the president’s budget philosophy of soaking the rich. They wrote in a Wall Street Journal column:

“Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states. And the evidence that we discovered in our new study for the American Legislative Exchange Council, 'Rich States, Poor States,' published in March, shows that Americans are more sensitive to high taxes than ever before. Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.”

The wealthy move from higher-taxed states to lower-taxed states. There is another negative effect from the simplistic tactic of jacking up taxes for the wealthy. The New York Times reports those with higher incomes are spending less, having a detrimental impact on the economy.

Skittish about the stock market and the economy in Europe, the affluent have tightened their wallets. As a result, the reported recovery is running out of gas, prompting discussion about another federal stimulus.

The New York Times reports, “B
usinesses and economists want to see people of all incomes spending more, because the demand for goods and services would in turn encourage companies to hire workers. The American consumer accounts for an estimated 60 percent of the country’s economic activity. But the Top 5 percent in income earners — those households earning $210,000 or more — account for about one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts, according to an analysis of Federal Reserve data by Moody’s Analytics. That means the purchasing decisions of the rich have an outsize effect on economic data. According to Gallup, spending by upper-income consumers — defined as those earning $90,000 or more — surged to an average of $145 a day in May, up 33 percent from a year earlier. Then in June, that daily average slid to $119.”

Suddenly, the sentiment that we have experienced the worst is gone. Economic anxiety is back.

An economist quoted by the New York Times credits the wealthy for carrying the economy on its collective back and preventing an even worse recession. While the less affluent stopped spending, in large part because of unemployment, wealthier Americans continued to exercise their spending power. The trend is dissipating as those with higher incomes are starting to pull back. America’s economic recovery is the loser.

The New York Times has more details.

Tax collections for June 2010

Taxes, Economy


The Wisconsin Department of Revenue (DOR) has released general purpose revenue collections (state income, sales, excise, and corporate taxes) from June of fiscal year 2010. Compared to June of fiscal year 2009, collections during June fiscal year 2010 show the following:

Income tax collections are up 4.5 percent.

Sales tax collections are up 2.3 percent.

Corporate tax collections are down 8.2 percent.

Excise tax collections (cigarette, tobacco products) are up 18.7 percent.  Wisconsin now has one of the highest cigarette taxes in the nation.

General Purpose revenue collections are up 3.9 percent.

Collections to date show the following when fiscal year 2010 is compared to fiscal year 2009:

Income tax collections during fiscal year 2010 are down 2.2 percent compared to the year before.

Sales tax collections during fiscal year 2010 are down 3.9 percent compared to the year before.

Corporate tax collections during fiscal year 2010 are up 26.9 percent compared to the year before.

Excise tax collections during fiscal year 2010 are up 17. 2 percent compared to the year before.

The bottom line:  Total General Purpose Revenue collections are flat so far during fiscal year 2010, having increased 0.0 percent compared to the year before.

Here are the numbers. 

The economic recovery has yet to arrive. This is not a good time to go on a tax and spending spree.

Americans unimpressed with the stimulus

Economy


As President Obama and some members of Congress consider another federal stimulus package,  only a quarter of Americans think the stimulus created jobs, according to a Rasmussen Reports survey. Only 29 percent think the federal stimulus gave the economy a lift; 43 percent think the stimulus had a negative impact.

Here is a survey result that stands out. By a huge 69 -15 percent margin, Americans support tax cuts as a preferred method to create jobs instead of more government spending. Two-thirds believe decisions made by the private sector will do more to create jobs than decisions made by government.

Here are more survey details.

The Obama Tax Hike Exemption Card

Taxes, Economy


During the 2008 presidential campaign, Barack Obama said this at a stop in Dover, New Hampshire:

“I can make a firm pledge.  Under my plan, no family making less than $250,000 a year will see any form of tax increase.  Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” 

To inform taxpayers of the president’s broken promise, Americans for Tax Reform has produced a clever reminder:

Americans for Tax Reform presents the ‘Obama Tax Hike Exemption Card’. The card fits neatly in your wallet and contains a list of the tax hikes signed into law by President Obama that violate his tax pledge, as well as a few other taxes that have been threatened: a European-style Value-Added Tax, Cap and Trade taxes, and even a federal soda tax.”

Read more here.

How you could spend $13 trillion

Economy


I have blogged in the past about the never-ending, ever-growing out of control U.S. Debt Clock, now at an astounding  $13.1 trillion.

How much is $13 trillion? What does it mean?

MSN Money puts the astronomical figure in perspective with ways the money could be spent:

“With $13 trillion, Americans could buy nine 32-gigabyte iPhones (the 3GS model) for every one of the 6.8 billion human beings on the planet, with a little money left over.

At $101,500 apiece, $13 trillion could buy Tesla Roadsters for 128 million lucky people. That's roughly the population of Japan.


Four years at Yale, including room and board, cost about $190,000 at today's prices. For $13 trillion, 68 million students could be sent to New Haven, Conn. That's 91% of the under-18 population of the country.

Thirteen trillion dollars could buy every person in the U.S. population of 309 million one item off McDonald’s dollar menu every day for the next 115 years. Doing the same for every one of the 6.8 billion people in the world, the money would last a little more than five years.”

There’s more.  

Oh, no, not another stimulus!

Economy, Taxes

Read more

Federal spending by the numbers

Economy, Taxes


Mind-boggling numbers and data highlight the Heritage Foundation’s 2010 edition of "Federal Spending by the Numbers."  The staggering report authored by UW-Madison graduate Brian Riedl, the Heritage Foundation’s lead budget analyst, outlines out of control taxing and spending in Washington D.C. with fiscal irresponsibility reigning.

Read more

If you think things are bad in Washington.....

Economy, State budget, Taxes

 

Read more

Wisconsin economic performance near the bottom

Economy, State budget, Business


When a new economic report is issued about Wisconsin, you can bet the news will be gloomy.

The American Legislative Exchange Council (ALEC) has released its 2010 edition of “Rich States, Poor States” that ranks all 50 states on their economic policies and performance, and also forecasts the states best equipped to rebound from the rough economy. ALEC bases the economic performance rankings of the states on three factors: personal income per capita cumulative growth from 1998-2008, domestic migration from 1999-2008, and non-farm payroll employment from 1998-2008.


Wisconsin has the seventh worst economic performance ranking, #44 (1=best 50=worst). Last year, Wisconsin’s economic performance ranking was #41.

From the ALEC report:

“To give you a more in-depth look at which states are asking more from taxpayers—and in the process making their states less competitive— we have put together our very own top 10 list of biggest state losers for 2010. Wisconsin:  Raised its income tax rate to 7.75% on incomes above $225,000 and also increased cigarette taxes.”

Wisconsin’s property tax burden is the tenth worst in the nation.

Co-author of the report and highly-regarded economist Dr. Arthur B. Laffer said in an ALEC press release, “Tax and economic policies are essential to the competiveness of our states. Most actions being taken in state capitals today—and practically all actions from Washington, D.C. today—are flat-out wrong.”  

“The tax-and-spend attitude in Washington, D.C. is making the problem far worse for states,” co-author Stephen Moore said. “Once the federal stimulus dollars dry up, only federal requirements will remain—and states will be left with bloated programs they are no longer able to afford.”

According to the release, the authors “found that states with a high and rising tax burden are more likely to drive away individuals and business, while those with lower and falling tax burdens are more likely to attract businesses and create jobs.”

The solution for the states: Reasonable spending limits. The report says, “If states would have simply allowed their spending to grow at the rate of population plus inflation (PPI) growth, they would (almost without exception) be sitting on budget surpluses instead of facing deficits.”

Some states have actually cut taxes. Vermont lowered its income tax rate, North Dakota reduced personal income tax rates and property taxes, and Louisiana adjusted its tax brackets. The ALEC report calls efforts to provide tax relief “a silver lining” amidst all the gloom and doom.

ALEC concludes that Washington has actually done more harm than good to states:

Washington would be wise to end all federal aid for states, because the money that Washington spends has to come from states—it is far from being free. Instead state lawmakers should ask Congress to focus on broad economic growth policies that will put states back in the black. This should include low, flat-rate taxes, government spending restraint, sound and stable money, free trade, and minimal regulation. State fiscal policies have a profound impact on their relative economic performance. Governors and state legislators would be wise to tell Washington next time it offers bailout dollars: ‘Thanks, but no thanks’.”

Here is the ALEC report and the ALEC press release.

A bit of good economic news

Economy


According to the Nelson A. Rockefeller Institute of Government, nine states are reporting year-over-year increases in revenue between September and December 2009 and September and December 2008. One of them is Wisconsin that had a 3.4 percent change in tax revenues during the fourth quarter of 2009 compared to the same period one year ago.


Time to crack open the champagne? Unfortunately, no.

Despite a glimmer of good economic news, Stateline.org reports the stark reality:

“States face two or more years of gradual recovery because tax collections plunged more than 18 percent during the recession. States are nowhere near back to normal economic activity. Even when states recover from the recession, they may never return to the boom times of the late 1990s.”

Stateline 
quotes Mark Zandi, chief economist at Moody’s Economy.com “Things are turning around. But while revenues are starting to rise, the budget holes are deep.”

Sound familiar? The Legislative Fiscal Bureau reports that in the next biennium, Wisconsin’s structural deficit is $2 billion, 329 million.

During March 2010, two noted experts shared their economic forecasts at a symposium presented at the state Capitol sponsored by the Wisconsin Legislative Council: Mike Knetter, the Dean of the Wisconsin School of Business at the University of Wisconsin-Madison and Rick Mattoon, Senior Economist and Economic Advisor at the Federal Reserve Bank of Chicago addressed the U.S. economy and its implications for Wisconsin. I wrote:

“Michael Knetter’s outlook and advice for Wisconsin: Unemployment will be nine percent at the end of 2010 meaning there will still be a number of discouraged workers. Wisconsin must defend its strengths and at the same time venture into areas like knowledge and service economies that will garner higher profits and wages. He concludes, ‘We just need to ride out the recession like everyone else.’

Richard Mattoon’s outlook and advice for Wisconsin: The state Department of Revenue predicts pre-recession job levels will not return here until 2012. Wisconsin needs to boost its production and retention of coveted human capital and stabilize its fiscal condition by creating an environment that makes the state a great place to do business.”

Patience. It’s not only a virtue. It’s a necessity.

Wisconsin taxpayers pay and pay and pay!

Taxes, Economy


You know how hard you work to manage your money, and you know that you turn a sizable chunk of it over to government.  How much do you turn over to the government? 

Numerous tax studies abound annually.   A simple and relatable report is the Tax Freedom Day report compiled by the nonprofit national Tax Foundation at Washington D.C.

Tax Freedom Day is the day Americans earned enough money to pay all federal, state, and local taxes for the year. This year, Tax Freedom Day arrives April 9, meaning average Americans will work over three months to fulfill their tax burden at all government levels.

Each state has its own Tax Freedom Day. National Tax Freedom Day is April 9, 2010; however, Wisconsin’s Tax Freedom Day is later, arriving April 12, 2010. That is over one-third of the calendar year. As Wisconsin residents read this, they have yet to work long enough to pay their tax debt to Uncle Sam, Madison, and the local municipality.

Wisconsin ranks #13 on the list comparing the states’ Tax Freedom Days. Alaska with a very low state-local tax burden and modest incomes has the earliest Tax Freedom Day March 26, 2010, ranking #50. Connecticut‘s Tax Freedom Day April 27, 2010, is the worst at #1.  

Read more

WI jobs lost to China

Economy


China
is killing the United States

A Washington, D.C. think tank, the Economic Policy Institute reports that since China became a member of the World Trade organization during 2001, at least 2.4 million American jobs have been lost as a result of increased U.S. trade with China. Contributing factors include our ever-growing debt, lost export capacity, and our trade deficit.
Manufacturers of computers, electronic equipment, and parts have been hit especially hard with 627,700 (26 percent) of all jobs lost between 2001 and 2008.

Also to blame  is competition with low-wage workers from less-developed countries that  has  driven down wages for other workers in manufacturing and reduced the wages and bargaining power of similar workers throughout the economy.  Virtually all production workers with less than a four-year college degree, approximately 70 percent of the private-sector workforce, or about 100 million workers have been affected. The Institute reports that for a typical full-time median-wage earner during 2006, these indirect losses totaled approximately $1,400 per worker.

Looking at net jobs lost between 2001 and 2008, Wisconsin ranks number 15 among the states with 52,300 jobs lost. Ranking the states based on net job loss by share of state employment, Wisconsin comes in at number 14 with 52,300 jobs lost representing 1.84 percent of total state employment of 2,849,100.

What can be done?

The Institute report concludes: “The U.S-China trade relationship needs a fundamental change. Addressing the exchange rate policies and labor standards issues in the Chinese economy are important first steps.”

You can read the Institute’s study here. 

Wisconsin has some of the worst debt in the country

Economy


Wisconsin
has the tenth worst financial condition, number 41, of all states in a ranking compiled by Forbes.com. Wisconsin has a debt per capita of $1,429, unfunded pensions per capita of $16,418, and debt as a percentage of Gross State Product of 22 percent. Our state is classified as a debt disaster.  

Forbes.com makes this observation:

“Of the 10 states in the worst financial condition, eight are among a total of 23 defined by Gallup as ‘solidly Democratic,’ meaning the Democrats enjoy an advantage of 10 percentage points or greater in party affiliation. These states include Illinois, New York, Connecticut, California, and New Jersey, as making up the bottom five, plus Massachusetts, Ohio and Wisconsin.”

Kent Redfield, professor emeritus of political studies and public affairs at the University of Illinois' Center for State Policy and Leadership attributes the state struggles to, as Forbes.com writes, “a larger appetite for public programs,” an assertion I have made about our state government numerous times on my blog.

Daniel Fisher of Forbes Magazine correctly emphasizes that states like Wisconsin face major problems combating debt. Paying debt off is difficult, and Washington is often looked to for assistance. That puts states in direct competition with the federal government for taxpayer funds.

How many warnings and wake-up calls do we need in Wisconsin before we finally put a halt to runaway spending?

Wisconsin's Economic Recovery Will Require Patience

Economy, Business


Wisconsin
was hurt less than other states during the recession. However, Wisconsin does not possess a magic formula to rebound quickly. Job growth is coming. Unfortunately, a return to prosperity will take a long time.

Two noted experts shared their economic forecasts at a symposium presented at the state Capitol sponsored by the Wisconsin Legislative Council. Mike Knetter, the Dean of the Wisconsin School of Business at the University of Wisconsin-Madison and Rick Mattoon, Senior Economist and Economic Advisor at the Federal Reserve Bank of Chicago addressed the U.S. economy and its implications for Wisconsin.

The absence of certain factors prevented Wisconsin from suffering a more severe recession. Wisconsin did not experience the level of overbuilding and excessive lending that swept other parts of the country. News that only Iowa outperformed Wisconsin in the Midwest region during the recession and that Wisconsin’s economy is stabilized provides little, if any consolation to struggling families.

Wisconsin’s unemployment rate has not risen as quickly as the nation’s. American job losses have piled up and returning to previous employment levels will be a daunting task. During August 2009, there were 1.3 million fewer jobs in the United States than had existed during 1999. Richard Mattoon of the Federal Reserve Bank in Chicago does not foresee job growth for a protracted time in part because businesses are hesitant to bring on new employees until they are confident that the downturn is over.

Mattoon offered the audience what could definitely be classified as a worst-case scenario, a study by Rutgers University. Authors calculated America’s job deficit, i.e., job losses plus lack of new job creation, would total 9.39 million by December 2009.America’s New Post-Recession Employment Arithmetic” reports, “Erasing this deficit will require substantial and sustained employment growth. Even if the nation could add 2.15 million private-sector jobs per year starting in January 2010, it would need to maintain this pace for more than 7 straight years (7.63 years), or until August 2017, to eliminate the jobs deficit!”

So what about Wisconsin? We have our strengths. Remember, we excel in manufacturing, a sector the state has outperformed the rest of the country. Agriculture, higher education, patent counts, research and development, licensing and royalties, and a devoted workforce levels are also huge plusses.

Our weaknesses prevent a faster climb out of our economic abyss. Manufacturing, a longtime Wisconsin trump card, has taken a back seat to a national shift toward knowledge and service economies. Wisconsin has a world class university meaning the state is a high producer of human capital. However, we train these intelligent young people and we export them and their innovations.  Additionally, ideas, products and services created in Wisconsin get commercialized elsewhere due to a culture that is big on modesty and low on willingness to take risks.

UW Business School Dean Michael Knetter contends that because Wisconsin is heavy on manufacturing and light on knowledge and service economies, the state seriously lags the rest of the nation in income and wealth. Richard Mattoon sees Wisconsin’s continuing budget deficits as an issue in need of attention.

Michael Knetter’s outlook and advice for Wisconsin: Unemployment will be nine percent at the end of 2010 meaning there will still be a number of discouraged workers. Wisconsin must defend its strengths and at the same time venture into areas like knowledge and service economies that will garner higher profits and wages. He concludes, “We just need to ride out the recession like everyone else.”

Richard Mattoon’s outlook and advice for Wisconsin: The state Department of Revenue predicts pre-recession job levels will not return here until 2012. Wisconsin needs to boost its production and retention of coveted human capital and stabilize its fiscal condition by creating an environment that makes the state a great place to do business.

Wisconsin closer to allowing Roth IRA conversions

Economy, Legislation, Taxes

Read more

Obama-itis

Economy, Legislation


Maybe we should call it Obama-itis, an affliction caused by either a desire to inflate or an inability to honestly project job creation numbers.

The president and his administration sold America a bill of goods on jobs supposedly created by the massive stimulus expenditures. 

Obama-itis has trickled down to the state level.

Read more

"Don't hold your breath"

Economy, State budget


If you believe as many economists do that our recession is over, it will be disheartening to know that our recovery is going to take some time. As I wrote during November 2009, 
“’The recession is officially over’ should be a great headline. However, the good news won’t kick in for months, possibly years later.”

State Legislatures magazine in its February edition concurs with even more grim news reporting that high employment and lower revenues will haunt state governments “well into the next decade” despite some recent glimmer of hope.

The stock market rise continues and the third quarter GDP (gross domestic product) showed growth. However, tax revenues are flat or on the decline, unemployment is high, and demand for state government services also remains high.

Donald J. Boyd, a senior fellow at the Nelson A. Rockefeller Institute of Government, says the timetable to real economic recovery is going to grind and grind. Boyd told State Legislatures magazine, “If you look at the last recession from the point at which the GDP began to recover, it was 17 quarters before employment wages got back to where they were when it started. Consumption is typically highly related to people’s incomes. You expect consumer spending to take a little time to recover. There are reasons to believe it will take a long time.”

NCSL (National Conference of State Legislatures) Executive Director William T. Pound offers analysis I have written about in the past. Pound calls it the “cliff effect,” the sudden end of stimulus funding to the states from Washington D.C.

“The combination of continuing state revenue shortfalls and the decline in federal stimulus funds over the next two years points to a very difficult road ahead for the states,” says Pound.

Rosy proclamations by some economists that the worst is over do not resonate or even matter to the average struggling American. Mitch Bean, director of the House Fiscal Agency in the state of Michigan told State Legislatures magazine, “What’s important to most people is employment. People who are looking for work are not going to recognize the end of a recession because they are either unemployed or underemployed.”

Bean predicts economic conditions will actually get worse before they get better, a sentiment echoed by David Wyss, chief economist at Standard and Poor’s. Wyss says, “Don’t hold your breath. I think we’ve got at least four or five years before we get back to anything approaching normal.”

The time for fiscal restraint is greater now than ever before.

Read more in State Legislatures magazine

Doyle has no solution for WI economy, Scott Walker does

Economy, State budget, Taxes


The State of the State is historically a speech that is upbeat and optimistic. There’s little positive to say about the state’s current fiscal climate and our immediate future.

Wisconsin’s unemployment rate is just under nine percent, and yet we continue to tax and spend at very high levels. All reports indicate every state in the country will take a long time to recover from the recession. Our stimulus money has all been spent without creating the jobs promised.

The governor should have been brutally honest about the economic problems that still lie ahead and the measures we need to take to climb out of our deficit, the largest in the state’s history.
We cannot afford any new spending programs. We need to cut spending and eliminate recent tax increases.

The governor claimed job creation will be his top priority. That is too little too late. The governor should have emphasized job creation in his first State of the State speech, not his last.

The governor bragged about job creation, a slap in the face to the many that are unemployed.

A new health care program was proposed when the state cannot operate existing health care programs without scandal or appropriate oversight.

The governor called global warming legislation a jobs bill when a recent study demonstrated the bill will result in lost jobs and increased taxes and energy costs. A Pew Research Center poll on issues of most concern to Americans during 2010 ranked global warming dead last.

The governor tried to pass himself off as a champion of the property taxpayer at a time that Wisconsin property taxes are some of the highest in the nation. During his tenure, the governor has proposed and signed into law huge tax and spending increases that have gotten the state into our current fiscal crisis.

Overall, the governor’s speech did little to build the optimism of Wisconsin job seekers and taxpayers that our economic strength will be restored.

I stood in support of Scott Walker with my Republican legislative colleagues today during his speech in the Capitol rotunda. Scott Walker is correct that tax cuts are an essential component of a successful plan to restore Wisconsin’s economic strength. If Scott Walker’s comments today are a preview of his approach as governor, that is exactly what Wisconsin’s economy needs.

It is time for Governor Doyle to be brutally honest

State budget, Taxes, Economy


According to the website Stateline.org, 37 governors are delivering State of the State messages knowing they face voters this November. The best advice for the incumbents given dire economic straits is to play it safe and refrain from any bold overtures.


Stateline.org has reviewed the 27 State of the State speeches given thus far finding that “the recession — which many economists believe ended late last year — has not yet turned the corner into a quick recovery for most states. Governors are using their annual speeches to brace state lawmakers and voters alike for another year of deep budget cuts, which will be made all the more difficult because the ‘easy cuts,’ as they like to say, have already been made.”

Governor Doyle is not up for re-election. Therefore, the governor has a golden opportunity to be brutally honest about our true status during his last State of the State speech Tuesday night.

Here are ten items Governor Doyle should openly discuss in a candid, frank manner with the Wisconsin people Tuesday night:

1) Some experts might be suggesting the recession is over. However, in Wisconsin, we are still reeling and the worst may yet to come.

2) The latest figures show state unemployment around nine percent. Wisconsin’s jobless should be ingrained on our minds during every fiscal and policy decision we make.

3) Our deficit is worse than it has ever been in our state’s history. Undoubtedly, the legislature will have to work this year on a budget repair bill. Given our rocky economy, we must act accordingly.

4) The stimulus is gone. The pot that we thought contained magical gold is now empty. It didn’t work. We will not have a similar reserve to fall back on.

5) We cannot afford any new spending programs. The time to make fancy promises that are simply unaffordable is over.

6) We need to cut spending. Families across Wisconsin are making painful yet prudent decisions everyday. So can and should state government.  During his January 18, 2010 State of the State speech, Mississippi Governor Haley Barbour (R) told legislators, “I urge you to be prudent and conservative…to err on the side of less spending, lest you make next year even worse.” That is a key message we need to hear from our governor Tuesday night.

7)  Eliminate recent tax increases.  While people are losing jobs and taking salary cuts, where is new tax money supposed to come from? May I remind everyone of Governor Doyle’s statement during his 2003 State of the State address: "We should not, we must not and I will not raise taxes." In the past, the governor liked to trot out the bullet point that he didn’t raise state income or sales taxes. That’s impossible Tuesday night. Of the many tax increases contained in the 2009-11 state budget, the largest was individual income taxes totaling $529.8 million according to the Wisconsin Taxpayers Alliance.

8) Every fiscal or policy decision should be examined, analyzed, and then be decided upon with the taxpayer, job creation, and the dramatic improvement of our business climate in mind as our top priorities.

9) We must examine ways to shrink the size of government. Stateline.org reports, “Almost every governor’s speech to date has contained references to the need for a smaller and more efficient state government. Washington Gov. Chris Gregoire (D), for example, said she would seek to eliminate 78 boards and commissions and close 10 state institutions, including five prison facilities. Iowa Gov. Chet Culver (D) called on lawmakers to approve efficiencies he said would save taxpayers $200 million a year.”

10) We cannot budget on a wish and a prayer. Stop making fiscal policies based on wild hopes that Washington will pump more money into Madison and rescue us from our fiscal crises. A certain special election in Massachusetts should have started turning the spending spigot in the nation’s capital toward the off position.

Refrain from comparing Wisconsin to other states. There is a temptation to assert that Wisconsin is better off than some states like California, Illinois and Michigan. That is a message that will not resonate and will be of little or no consolation to struggling Wisconsinites. Besides, it is arguably untrue.
The Pew Center for the States released a report, "Beyond California: States in Fiscal Peril" that outlines 10 states, including Wisconsin that are experiencing the same kinds of problems that drove California into disaster. While Wisconsin doesn't have the magnitude of the problems California is facing, our state has similar problems.

Governor Doyle could be more forthright with the Wisconsin public. Tuesday night is his last major opportunity to come clean and tell it like it is. If he is truly honest, his speech will address the themes I have outlined.

Read more from Stateline.

The recession ends, our fiscal collapse continues

Economy, State budget


Pummeled in the press daily for its massive fiscal dilemma, the state suffered from a host of economic setbacks: loss of state revenues, huge budget gaps, increasing unemployment, high rates of foreclosures, and questionable fiscal management policies.

Read more

Wisconsin needs to act now on Roth IRA conversions

Economy, Legislation


A possibly lucrative retirement account conversion went into effect January 1, 2010. Under a new federal rule, people earning more than $100,000 may convert their assets from a traditional IRA to a Roth IRA. Previously, only people earning less than $100,000 could make the switch without penalties.

The beauty of the conversion is that Roth withdrawals are tax-free.

However, there is a big problem.

Wisconsin residents are unable to take full advantage of the Roth conversions because the state Legislature has failed to take action to approve the tax changes in compliance with the new federal rule. Adding insult to injury are reports that Wisconsin could be the only state in the country that is not in line with the new federal tax changes.

How did that happen?

The all-important decision by the Legislature to adopt changes so conversions to Roth IRA’s could take place penalty-free should have and could have been made during last year’s 2009-11 state budget process. However, Democrats that control the Legislature’s Joint Finance Committee balked.

What does that mean for holders of traditional IRA accounts that want to convert to Roth IRA’s?

Until Wisconsin adopts the new federal tax rules, account holders that make conversions from traditional IRA to Roth accounts could, according to the Milwaukee Journal Sentinel, “pay initial penalties of as much as 5.3% of the money they transfer, and 2% a year from there on.”

The Journal Sentinel also wrote about a November 12, 2009, report by the Legislative Fiscal Bureau’s Rick Olin:

“If Wisconsin went along with federal rules, the state would pull in $1 million of tax revenue in fiscal 2011 and $1.5 million in fiscal 2012 because it would collect taxes on the money converted, the report says. That would turn around in fiscal 2013, when the state would potentially lose $1.7 million of tax collections because the Roth withdrawals would be tax-free, it says. The state Revenue Department estimates that 2013 loss at $1.3 million.”

State coffers aren’t the big losers. That distinction belongs to innocent Wisconsin citizens that are being penalized for being unaware of the changes in federal tax laws and the state’s inaction on the matter.

Another effect of the Legislature’s failure to adopt the new tax rule changes is that financial experts spend extra time and money in their tax preparations. The tax laws are complex enough without accountants in Wisconsin having to deal with laws that differ from those issued by the federal government.

The state Legislature needs to adopt the necessary changes quickly so that Wisconsin residents can begin to consider whether converting to Roth IRA’s is beneficial. One financial expert told the Journal Sentinel such a move by the state should be a layup. Unfortunately, nothing supposedly this simple comes easy in Madison.

Business experts pessimistic about jobs outlook

Economy


"I don't really see the private sector hiring much in the next few months.”

Brian Bethune, an economist at Global Insight made that grim statement to CNBC. The reason for this pessimism? Business owners fear they will simply be unable to take on more workers due to a wave of increased taxes and new business regulations.

This comes as little surprise. Last year, Wisconsin businesspeople told lawmakers loudly and clearly that bigger taxes and over-regulation were forcing employers to cut jobs or, in the worst case scenario, close up shop completely. 

High taxes kill jobs. The national Tax Foundation in Washington D.C. writes:

“Taxes matter to business. Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state's economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), workers (through lower wages or fewer jobs), or shareholders (through lower dividends or share value). Thus, a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.

States do not enact tax changes (increase or cuts) in a vacuum. Every tax law will in some way change a state's competitive position relative to its immediate neighbors, its geographic region, and even globally. Ultimately it will affect the state's national standing as a place to live and to do business. Entrepreneurial states can take advantage of the tax increases of their neighbors to lure businesses out of high-tax states.

The ideal tax system, whether at the local, state or federal level, is simple, transparent, stable, neutral to business activity, and pro-growth. In such an ideal system, individuals and businesses would spend a minimum amount of resources to comply with the tax system, understand the true cost of the tax system, base their economic decisions solely on the merits of the transactions, without regard to tax implications, and not have the tax system impede their growth and prosperity.”


Businesspeople are anything but confident. The National Federation of Independent Business (NFIB) in its Small Business Economic Trends, January 2010 writes:

“The ‘job generating machine’ remains in reverse, jobs are being lost and new hiring is very weak. Ten percent of the owners increased employment, but 22 percent reduced employment (seasonally adjusted). While the trend for increased employment is going in the right direction, there is no indication that job growth will be strong enough to dramatically reduce the unemployment rate. Ten percent (seasonally adjusted) reported unfilled job openings, up two points from November, a good sign. Over the next three months, 15 percent plan to reduce employment (down two points), and eight percent plan to create new jobs (up one point), yielding a seasonally adjusted net negative two percent of owners planning to create new jobs, a one point improvement from November.”

The NFIB concludes, “There is little hope and the change that is being delivered is far from encouraging. Washington is offering nothing but higher taxes and fines and fees and more regulation. Congress is passing bills with thousands of pages of hidden bombs that will go off as the legislation is passed and implemented. Federal spending has soared amazingly, yet been ineffective except at pushing the federal deficit to incomprehensible heights, promising to double our national debt in just a few years. The interest burden this will place on average Americans is
astounding. Uncertainty is the enemy of economic growth and investment, and Washington, D.C., the usual source of uncertainty, is delivering plenty of it. Confidence in our political leadership has tanked.”

It is high time we start to listen and adhere to the expertise of the people who create the jobs that drive our nation’s economy, and do it fast.

Read more from CNBC

More evidence stimulus $$$ should have been used for water

Great Lakes, Legislation, Taxes, Economy


I blogged about the need to direct Wisconsin stimulus funds to fixing our water problems:

A better use of our stimulus $$$: Fix our water problems 

I repeat: Use stimulus money to clean up Lake Michigan 

However, The problems go beyond Wisconsin. It seems a greater emphasis on how we spent stimulus money should have been placed on the nation’s water supply.

The New York Times reports:

More than 20 percent of the nation’s water treatment systems have violated key provisions of the Safe Drinking Water Act over the last five years, according to a New York Times analysis of federal data.

That law requires communities to deliver safe tap water to local residents. But since 2004, the water provided to more than 49 million people has contained illegal concentrations of chemicals like arsenic or radioactive substances like uranium, as well as dangerous bacteria often found in sewage.

Studies indicate that drinking water contaminants are linked to millions of instances of illness within the
United States each year.”

The newspaper 
found violations of the Safe Drinking Water Act in all 50 states.

So again, I say that if the nation was going to spend such an incredible amount of stimulus money, a top priority should have been targeted toward sewer and water.

Instead, we have made a colossal waste of our opportunity.

"Why did the turtle cross the road?"

Economy

Read more

Paul Ryan calls for major fiscal reforms

Economy, Taxes


Wisconsin Congressman Paul Ryan, the ranking Republican on the House Budget Committee is calling for significant reform in tax, monetary and entitlement policies. Ryan characterizes President Obama’s federal budget as taxing "work, savings, investment, capital and risk-taking far more than we are today" and "hurting our chances of coming out of this recession robustly."

Ryan spoke with the Manager of Media Relations for the nonpartisan Tax Foundation in Washington D.C. about his reform ideas.

Listen to the Tax Foundation podcast with Congressman Ryan

Rhetoric masks real goals

Economy


During
1919, Wisconsin became one of the first states to enact a minimum wage.  It was 22 cents per hour.  Today, the minimum wage is $6.50.  This week, Senate Democrats voted to increase the minimum wage to $7.60 by June of this year, and to index it to inflation every year thereafter.  It is only fair; they say poor families are losing ground to inflation.

Well, let us take a look.  During 1919, our minimum wage was 22 cents per hour.  Adjusted for inflation, according to the bureau of labor statistics, that today would be $2.70.  Today’s actual minimum wage is over twice that amount.

During 1956, the minimum wage was increased to 70 cents per hour.  Indexed to inflation, that would be $5.47 today.  During 1989, the wage became $3.65; today, that would be $6.25.  Again, growth in the minimum wage outstripped inflation.

Moreover, it is still outstripping inflation.  June 1, 2005, Wisconsin’s minimum wage went from $5.15 to $5.70, nearly an 11% increase.   June 1, 2006, one year later, it was increased another 14%, to $6.50.

This latest increase, if it becomes law, will be another 16.9% increase.  That will be a 47.6% increase just since 2005.  Inflation has not been anywhere close to that increase.

Clearly, this is not about lifting people out of poverty, or keeping up with inflation as proponents say.  It is about power, government power, and the power to take money from one person, and give it to another person.  To stick government fingers deeper and deeper into other people’s pies, and set the stage for even more government power by pitting groups of citizens against each other.

Proponents of increasing the minimum wage hope to convince us that the government must act, and act big, to save us all.

It is likely we will see that strategy replayed repeatedly during this session of the Wisconsin Legislature.  To save us all from the rising cost of health care, Democrats are already pursuing policies that will force increases in the cost of health insurance.  As those costs rise, more people will be unable to afford health care, and government health care will be the only answer!

To save us from a bad economy, Democrats will spend billions upon billions of our dollars and create a lot of debt burdening us, our children and grandchildren, and convince us that government action alone saved us from the recession!  Never mind that their own government policies of high taxes, constant regulation, and a new bureaucracy for every problem create a bad economic environment and prevent businesses from using their dollars to build business and add jobs in our state and in our country.

The irony is, if lawmakers during 1919 had been able to see the path they were starting with their 22-cent minimum wage, they likely would not have done it.

Federal stimulus would hurt Wisconsin

Economy


I blogged that the federal stimulus package being considered by Congress will not solve budget problems being encountered in all states, including Wisconsin.

Governor Doyle in his State of the State address said the stimulus package would not solve Wisconsin’s budget deficit. The Wisconsin State Journal writes the stimulus could make our budget problems even worse. The newspaper writes:

“The federal largesse — up to $4 billion or more for Wisconsin alone — carries the potential of leaving the state budget worse off in the future if the economy doesn't recover and lawmakers don't do a better job than they have in the past of making sure the state lives within its means.”

You can read the entire State Journal piece here.

I voted against the minimum wage increase

Economy


Today on the floor of the state Senate, I voted against an increase in Wisconsin’s minimum wage. 

The timing of the proposal is horrible given our recession.  A new survey shows 25 percent of American companies are planning a salary freeze. Residents across Wisconsin are accepting pay cuts just to preserve the jobs they have. The state Senate wants to impose a salary hike on Wisconsin businesses that will kill jobs and hurt businesses.

I received several communications from a constituent very concerned about the impact on camps. The constituent correctly points out that the minimum wage increase bill contains a 24 percent increase for minor staff and an 11 percent increase for adult staff at camps.  The increases that would go into effect this June would create an immediate $10,000 shortfall at the constituent’s camp.  Camp directors do not want to see themselves put in the terrible position of contributing to increasing the unemployment numbers. 

Because this bill will create layoffs, kill jobs, and raise unemployment at the worst possible time in our state and national economies, I voted against the minimum wage increase on the floor of the state Senate today.