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Money makes the world . . .
Wisconsin’s fiscal challengeAbout a lot more than budgets.
| 10.04.10
■ WISTAX: teaching, informing . . . angering
■ State economy drives all
■ State finances then and now
■ No help from the outside?
Overview
Economy
Revenues
Budgets Choices“It’s the economy, stupid..”
- Campaign ‘92
The economy drives all.
-7.4%
-2.6%
-0.1%
-6.1%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
1980 1984 1988 1992 1996 2000 2004 2008
WI
Per Capita Personal Inc.: Wis. +/- US
> US
< US
Economy recapped in one slide
66.665.0
69.6
57.1
59.559.359.3
54.5
40
50
60
70
85 90 95 00 05
Wis.
U.S.
How did we manage in the 90s?
% Women working
96.7
99.8
3.0
90
92
94
96
98
100
102
104
106
2000 2002 2004 2006 2008 2010
0.0
1.5
3.0
4.5
6.0
7.5
9.0
10.5
12.0
US - WI difference
US
WI
Mfg. Jobs 6/07-6/10WI -14.8%-75KUS -16.1 -2,246KTot. Nonfarm 6/07-6/10 WI - 6.0% - 173KUS - 5.3 -7,236K
Closer look at the economy . . . jobs
Avg. Earnings/Worker & GDP/Worker (WI % < > US)
-3.8%-6.2%
-12.9%
-10.9%
-13.2%
-12.7%
-14.8%
-5.0%
-20%
-15%
-10%
-5%
0%1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Productivity:GDP/Worker
Avg. Earnings/Job
. . . wages and productivity
$45,823$43,992
$40,225$38,350$38,916$38,032
$36,723$37,146
$33,633
$36,195
$39,249$39,798
$30,000
$35,000
$40,000
$45,000
$50,000
Real wages growing, but slower
WI
US
U.S. Wis. E/I
Paper Manuf. -32.4% -28.9% Exp
Machinery Manuf. -16.3% -12.0% E
Elec. Equip./Appliance Manuf. -31.4% -21.3% E
Printing and related -28.8% 12.6% E
Fabricated Metal Prod. Manuf. -3.1% 14.0% E
Nonstore Retailers -7.9% 6.9% E
Wood Product Manuf. -15.1% -3.9% E
Plastics/Rubber Prod. Manuf. -6.7% 18.7% E
Primary Metal Manuf. -34.9% -21.0% E
Food Manuf. -2.4% 3.0% E
Wisconsin's Top 10 "Key" Industries
Where are our jobs?
1990-2009
Where aren’t our jobs?
Social Assistance 104.4% 156.6% ~Exp
Warehousing and Storage 95.9% 156.7% Imp
Ambulatory Health Services 87.3% 68.0% I
Admin. and Support services 78.9% 98.6% I
Museums/Hist. Sites/Zoos/Parks 78.4% 138.9% I
Educational Services 78.0% 71.0% I
Admin. and Waste Services 75.8% 96.9% I
Amusement, Gambling, and Rec. 74.4% 50.6% I
Securities/Comm. Cont's/Invest's 70.3% 60.7% I
Prof., Sci., and Tech. Services 61.4% 51.9% I
Fastest Growing Industries Nationally
1990-2009
U.S. Wis. E/I
Sector WI US WI USAll 9.1% 7.6% -3.0% 5.2%
Construction 6.6% 9.0% -14.8% -1.7%Manufact'g -2.4% -8.1% -5.4% -3.7%
All - Const'n 9.5% 7.4% -1.5% 6.0%All - Manuf'g 10.1% 8.4% -2.9% 5.6%
05-0901-05
Pct. Change in No’s of Private EstablishmentsThird Quarter of Ea. Yr. Shown (BLS)
> v
How are employers doing?
1993-99 Rank 2005-09 Rank 2009:4 Rank
US 5.6 5.5 5.6WI 4.5 43 4.7 40 4.3 44
1993-99 Rank 2005-09 Rank 2009:4 Rank
US 1.8 1.2 1.2WI 1.4 43 1.0 44 1.0 38
New Firms as Pct. Of All Firms
Employees of New Firms as Pct. Of All Employees
Are we creating new firms?
Firm Creat'n
Rate Wis. U.S.Wis. Diff.
High Firm Creation
StatesWis. Diff.
Construction 7.9% 4.5% 5.6% -1.1% 6.4% -1.9%Prof./Bus. Serv. 6.9% 11.4% 15.4% -4.0% 13.9% -2.5%Information 5.9% 2.1% 2.6% -0.5% 2.6% -0.5%Trade/Trans./Util. 5.7% 22.6% 23.1% -0.4% 23.8% -1.1%Leisure/Hosp. 5.4% 11.1% 12.2% -1.0% 14.8% -3.7%Fin. Activities 4.7% 6.9% 7.1% -0.2% 6.5% 0.4%Educ./Health Serv. 3.7% 16.9% 17.1% -0.2% 16.9% 0.1%Manufacturing 3.0% 19.3% 11.0% 8.2% 8.7% 10.6%
Share of Private Employment
New firms . . . where?
<
>
1994-2009
1.93%
1.90% 1.86%
1.77%
2.08%
1.77%
1.87%
1.70%
2.10%
1.50%
1.75%
2.00%
2.25%
1963 1971 1979 1987 1995 2003
MN
WI
Wis. % of US GDP
A marketing view . . . share
-80
-40
0
40
80
-60 -40 -20 0 20 40 60
^ wyak
ny
vaca
de
tx
ma
IA
WI
MI
MN
ILms
scky
"Stars"
"Dogs"
ar|id
WI98
GDP % chg
GDP pc
Strategic view . . . market position
State finances, then and now
Wis. Fin. Stmts ($b), GAAP
-2.46
-2.42-2.28
-1.27
-0.83
-1.21
-2.24
-1.93
-2.15
-2.44 -2.50-3.0
-2.0
-1.0
0.098 00 02 04 06 08 10e
- $2.71 billion
Other states?
State finances in context (GAAP)
Prepared for recession? (NASBO)
■ Surpluses % spdg. 2008 2009 ▪ Wisc vs. avg. 1.0% vs. 8.60.7% vs. 4.7 ▪ States > WI 49 41
■ Spending % inc. 2010 2011 ▪ Wisc. (pre-lapse) +5.3%+5.2 ▪ 50-state avg. -6.8% +3.8%
43 cut 22 < +2%■ 2010-11 tax increases ▪ Only five states > in raw amt. (inc. CA, NY)
55.99
26.27
62.19
26.67
0
20
40
60
GPR All-Funds
+1.5%
+11.1%
$b
2007-09
2007-09
< ?! >
2009-11
Budget decisions made, 2009-11
+1.5
+11.1
2,511+200
11 rev (+ 12)
Budget decisions postponed
1,232+200
Long history of structural imbalances.
“ … the pace of the recovery is expected to slow and will not return to pre-recession levels until 2013 . . .” − DOR, 8.20.10
Projected growth in personal income
CY WI-May WI-Aug US-Aug’10 3.0% 2.5% 3.2%’11 4.6 4.4 4.7’12 4.4 4.3 4.8’13 4.4 4.1 4.8
Why this matters.
Recovery dividend?
Structural deficits + slow growth =
■ GPR tax revenues (2010-11) $12.88 billion
■ Pers. income growth: 4.5% / yr.
■ 12.9 x 4.5% = $520 million
520 + (520 + 520)
■ Structural ‘deficit’ ~ $1.23b + $200m = $1.4b
395.9
1,084.9
854.8
776.4
546.6
735
464
217350
313
179
0
250
500
750
1,000
98 99 00 01 02 03 04 05 06 07 08 09
Total
Family/BC
Other
Participants (000)
Medicaid:
’98: 1/13’08: 1/5
MA deficits, fed help?
Options narrowed?
■ Corporate income e.g. comb. reporting, throwback
■ Individual incomeTop rate up, cap. gains newsCredits, but small, odd ‘mix’
■ Tobacco (but . . .)
PS: $3.0 billion new taxes/fees 2008-09-10-11
Low-hanging fruit picked?
How Wisconsin Taxes Compare NationallyRevenues as Pct. of Pers’l Income; FY 08: US Census
Revenue US
% Inc. % Inc. +/- US Rank Rk Chg. % Inc. Rank
Taxes 11.20 11.76 5.0% 13 Up 1 11.75 14
Property 3.45 4.26 23.5% 8 2 4.23 10Sales 2.56 2.20 -14.1% 33 0 2.24 33Tobacco 0.14 0.23 64.3% 12 12 0.16 24Ind. Income 2.56 3.20 25.0% 12 2 3.19 14Corp. Inc. 0.49 0.42 -14.3% 23 2 0.46 25Curr. Chgs. 3.15 3.22 2.2% 29 2 3.05 31
Own Rev's 16.37 16.71 2.1% 21 2 16.53 23Fed. Rev. 4.05 3.56 -12.1% 38 -1 3.60 37
Wis. Wis. '07
And, by the way . . .
Political reality: (electorate and elected)
■ Public mood
~70% state gov’t fair/poor job
~60% state priorities: jobs/econ. + tax/spendno others >~10%
■ Political dysfunction: ▪ 10-15 years of fiscal denial (R and D)
▪ careerism + power + special interest allies▪ protect status quo; major policy changes?▪ Wisconsin leader?
Possibilities and implications
■ Pendulum: 3D to at least 1R, perhaps
2R??
■ Polls: governor; modeling: legislature
■ Split governance: the good and the bad
■ Issue approaches?─ K-12 education (kids/unions vs. tax relief)─ Medicaid─ Higher education─ Prisons
164.7200.2
256.8
153.4
539.5
365.2
282.1
0
100
200
300
400
500
91 95 99 03 07
Correct'n s
MA (Fed+St)
*School Aids/Crs.
cpi
Does legislative make-up matter?
Now help from elsewhere
■ “. . . US government debt held by the public has grown rapidly . . . it is now higher than it has ever been except during . . . World War II.”
■ “. . . deficits will cause debt to rise to unsupportable levels.”
▪ Crowding out of private savings/investment ▪ Rising interest costs forcing program cuts▪ Higher marginal tax rates “would
discourage work and saving and further reduce output”
There is no rich Uncle (CBO, 7.27.10)
*The alternative fiscal scenario deviates from CBO’s baseline projections, beginning in 2010, by incorporating some changes in policy that are widely expected to occur and that policymakers have regularly made in the past
. . . And he’s in denial
CBOJune 09
US GDP
Federal Debt Held by the Public Under CBO’s Long-Term Budget Scenarios (Pct. GDP)
Your turn
The Wisconsin Taxpayers AllianceOur eighth decade of teaching and informing the press and public about how their government works, taxes, and spends.
Thank you for making our nonpartisan researchand citizen education possible.
www.wistax.org