Friday, March 04, 2011

Another non-sarcastic ACTUAL BUDGET SOLUTION to a crisis that doesn't exist. (Publicus Proventus)

If we're near, in Wisconsin, a "Constitutional Crisis" as the Daley-Family-Wannabe Fitzgeralds insist, it's not because of the 14 Democrats who are refusing to pretend that democracy works when run by lying power-grabbers working for the Koch brothers; if there is such a crisis, it's because the Governor Patsy administration increasingly is ignoring Constitutional rules while making up a fictitious fiscal problem and refusing to consider reasonable solutions -- such as the one I'll propose herein -- to solve minor financial dilemmas.

First the Constitutional problems: The Fitzgerald Clan, more like a criminal gang than a political dynasty (that's what you get when hicks discover patronage) has helped authorize the detention -- not arrest, the GOP loves its wordplay -- of the missing 14 Senators, ignoring Article 4, Sec. 15 of the Wisconsin Constitution, which protects legislators from civil or criminal arrest. (The GOP is well aware of this privilege, using it to keep girl-punchers in power in Arizona).

More seriously, and posing more long-term problems but as yet largely unremarked, is Governor Patsy's proposal to shift $1.2 million in funding from the Department of Public Instruction, whose head is independently elected and a Constitutional officer, and therefore not subject to Governor Patsy's direct control; the law requires that DPI, not the administrators appointed by Governor Patsy, direct education... but Governor Patsy evidently believes that "the law is an ass," or at least that voters are, because he's just barging ahead anyway and nobody's paying attention.

There are, as I've pointed out before, long-term structural budget fixes that DON'T require shredding the constitution and transferring power to Governor Patsy, let alone don't require cutting government services that don't need to be cut.

We don't overspend, we underspend, and cutting taxes is counterproductive. Here's why:

Let's assume that government is costing too much, and let's assume that Governor Patsy cuts out all waste and all overspending. Let's, in fact, assume he slashes government spending by 50%, so that beginning in 2012 we live in a paradise where our now-lower taxes exactly match the government spending that is at the exact right level and which features no waste or fraud whatsoever.

That's great, right?

What happens next?

Nobody in charge of the let's cut all spending and all taxes forever hurrah governing parties --which includes both Democrats and Wife-Beating/Child Killing Republicans -- has thought that far, but I have and here's what happens next:

What happens next is 2013 comes, and prices rise. The cost of living inevitably goes up, because that's inflation and it always happens. So, your government, perfectly priced and perfectly budgeted in 2012, is going to cost a bit more in 2013.

What will you do then?

Cut more spending to avoid raising taxes? But the hypothetical says that government spending is perfect: we're at the right level in 2012, so if you cut spending in 2013, you cut essential services.

And if you do that to balance the budget without raising taxes in 2013, cutting into services you thought were essential in 2012, essential and perfectly priced, what happens in 2014? And 2015?

If you never raise taxes and only cut spending, eventually you will have no further spending to cut, and that means you will have no government services. And shut up, Tea Party Morons, because no government means no police, no roads, no fire departments, no health inspectors... no society.

If men were angels, no government would be necessary. But we're not angels and we need to pay taxes and as long as the price of living rises, so will taxes.

But here's yet another fix that I, as a lawyer and blogger, have thought up but nobody in power has thought up yet because they're not thinking about this the right way.

Here's the fix, and it's painless, or very nearly so:

Raise personal income taxes by 3% on everyone in Wisconsin...

... bear with me here...

.. and then provide a deduction from income for Wisconsin taxes on federal government income taxes.

Right now, Wisconsin does not provide a tax credit or deduction for federal taxes paid -- not so far as I can find, anyway -- which means you're taxed, in Wisconsin, on income used to pay federal taxes. (Mostly; Wisconsin uses Federal AGI, which is your gross income less certain deductions, but those deductions do not include taxes paid to the federal government.)

Changing that will let Wisconsin taxpayers actually benefit. Right now, in Wisconsin, the top income tax rate is 7.75% on incomes exceeding $220,000. I'll use simple math and assume that the tax is 7.75% on 200,000 income, or $15,500.

With no deductions for anything else, the tax on that $200,000 at the federal level is $49,000 or so. So let's stick with a simple example: The Hypothetical Taxpayer here makes $200,000, and pays the federal government $49,000 of that. He then has $151,000 in income left, but Wisconsin taxes him at $200,000, and he pays $15,500 of that to Wisconsin, leaving him with $135,500 of after-tax income.

Under my plan, with an income deduction for federal taxes paid, that same Hypothetical Taxpayer would pay, with a 3% higher top rate, $21,500 to Wisconsin -- $6,000 more in revenues to our state.

That seems like a loss -- but it's not, because the federal government lets you deduct state taxes from income -- so the Hypothetical Taxpayer doesn't pay the US the same $49,000. Instead, his federal taxable income, after deducting the (now-higher) Wisconsin taxes, is $178,500, so he'll pay only about $41,000 to the federal government.

His ultimate tax burden is $62,500 (or so) under my plan, with about 1/3 of that going to the great state of Wisconsin, while his ultimate tax burden under current law is $64,500, with less than 1/4 of the money going to Wisconsin.

In other words, under current law, the GOP is okay with more of your money going to Washington, while you get less state services; under my plan, most people would see a tax decrease without any reduction in government services.

Why isn't anybody talking about this?

I understand there's some jiggering of the math to do -- because Wisconsin can't know what the federal income-less-taxes is until the Wisconsin state tax exemption is calculated -- but that could be worked out by allowing deductions this year for last year's federal taxes, so it's not an insurmountable hurdle, and the bottom line is that by allowing deductions from Wisconsin taxable income for federal taxes paid will have the effect of letting Wisconsin residents pay a greater percentage of their taxes to Wisconsin than to the federal government -- increasing Wisconsin's tax base without any harm to the taxpayers.

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1 comment:

Andy said...

You followed me on Twitter so I popped in to check out your blog. Clearly we are political opposites. Nevertheless, I was intrigued by your idea for the state to increase tax flow.

Without paying mind to the many "minor" details that would need to be hashed out, I see one big flaw with your idea:

Since the federal deficit and debt is an absolute train wreck like no other, I envision a day when fewer & fewer deductions will be allowed - and the deduction for state income taxes may very well be eliminated in the future. That in and of itself would be a big shock to taxpayers - especially those of us living in states with high income taxes already. So if/when that day comes we are screwed even harder because the state is taking a bigger cut too.

I could maybe get behind it if the law was written so that should the feds end the state income tax deduction the Wisconsin rate would automatically roll back to present day levels.

I really do believe a good deal of tax deductions will come to an end over the next decade or so. If we were to go your route we are once again kicking the can down the road. Just how far its being kicked nobody knows.

Peter's rendition of Don't Stop Believing is a nice touch. Almost makes up for the rabid liberalism on display here. :-)