Question for Scott Walker Recall Fans: How Much Higher Should Wisconsin's Taxes Be?


Wisconsin voters go to the polls on June 5 to see if incumbent Republican Gov. Scott Walker gets to stay in office after pushing to rid collective bargaining for teachers when it comes to retirement and health-care benefits and other controversial moves. Walker says all manner of cost-cutting and efficiency-improving measures are necessary to save the state's finances. Opponents say he's a union-busting zealot who is against the working man.

Both sides look energized:

The turnout offered a hint of what might come June 5 with two energized parties clashing in only the third recall of a governor in U.S. history, said Charles Franklin, who directs the Marquette Law School poll. In 2010, 2.1 million people voted in the governor's race.

"There's every reason to believe we'll hit 2.5 million or higher, easily," Franklin said.

More here.

Supporters of the recall say that Walker is followed a failed European-style austerity plan by cutting spending. That's wrong on at least two counts.

First, Europe's much- and mistakenly reviled "austerity" doesn't exist in the sense most people think. Most of the countries in the euro-zone have either not cut spending at all or just barely, and most have raised taxes. To the extent that austerity plans simply cut spending to reduce publicly held debt, there's a long line of research showing that works. There's no reason to believe that simply jacking spending (stimulus!) works, especially if it's coupled with tax hikes, as many latter-day Keynesians want.

Second, the two-year budget signed by Walker neither cuts spending nor increases (or cuts) taxes. It increases overall spending by around 2 percent.

Which raises a question for those aghast at Scott Walker's budget: How much higher should taxes be in Wisconsin?

According to the Tax Foundation, in 2009, Wisconsin had the fourth-highest combined state and local tax burden in the country, with only New Jersey, New York, and Connecticut residents paying more. 2009 is the latest year available for this figure, but there's little reason to believe much if anything has changed. In 2009, the Tax Foundation found that Wisconsin residents paid 11 percent of their income in state and local taxes. The compared to 12.3 for New Jersey residents (the highest rate) and 6.3 percent for Alaskans (the lowest rate).

Wisconsin has historically been a high-tax state—in 1985 for instance, it had the second-highest combined state and local tax rate in the nation, at 12 percent—but it seems unlikely that increasing taxes to spend more money (or borrowing more money to be paid back later via tax revenues) is a smart way to boost a flagging economy. 

When governments want to spend more money, they can either raise it via taxes or borrowing (the feds, of course, can also print it). Like all states in the industrial Midwest, Wisconsin is facing a long slide in terms of economic and demographic shifts. Old-style industries have been leaving for years, and the general area is depopulating relative to other parts of the country. Going into the last budgeting process, Wisconsin faced a deficit of $3.6 billion on what became a $66 billion budget. Wisconsin already has one of the worst debt-loads per capita in the country and its economy is on life support. Borrowing and taxing more aren't an option.

Despite a lower-than-average state unemployment rate, Walker's job-creation plans have flopped so far (he came in promising to create a quarter-million new jobs as governor but the state has suffered a net loss over the past year) but his opponent, Milwaukee Mayor Tom Barrett, certainly doesn't inspire confidence on that score. In this interview, he complains about cuts in state aid to Milwaukee but doesn't suggest how he'd keep from reducing spending in a time of flat or declining revenues and grants that he used Walker's changes in collective bargaining to save money. In this one, he spends more time fretting over the danger of school choice than about how to create a sustainable budget.

If spending is going to exceed current levels of revenue, taxes (now or in the future, to pay for borrowing) have to go up. Relying on future economic growth to pay for ongoing increases in spending is a  mug's game at the state level, as Reason has shown. Whenever states get a few cents in their pocket, they don't simply spend that amount, they commit to massive new plans to keep spending more and more.

So if you're not for cutting spending, then how much should taxes be raised? That seems to be the question in Wisconsin, and elsewhere, that few people really want to answer.