The Wisconsin Taxpayer A monthly review of Wisconsin government, taxes, and public finance

Transcription

1 A SERVICE OF THE WISCONSIN TAXPAYERS ALLIANCE The Wisconsin Taxpayer A monthly review of Wisconsin government, taxes, and public finance The Unemployment Reserve Fund In 1932, Wisconsin created the nation s first unemployment insurance program. IN BRIEF The Unemployment Reserve Fund is the depository from where benefit payments are made. In 2009, benefits totalled $1.96 billion, while unemployment taxes were $686 million. The balance of the Reserve Fund has declined each year since n From 2000 to 2009, Wisconsin had the 14th-largest decline in its Reserve Fund nationally. n Wisconsin began borrowing from the federal government in February 2009 to pay benefit claims. The state s current outstanding loan balance is $1.27 billion. n For 2010, Wisconsin moved to the highest of the four tax rate schedules (Schedule A). Also in this issue: IRA Conversion Census Forms Arrive Major Problems Unaddressed Benchmarks wis tax 79 Years of Research & Citizen Education Wisconsin pioneered the first unemployment insurance (UI) program in the U.S. Enacted in 1932, UI temporarily replaces a portion of wages lost when a person becomes unemployed through no fault of their own. Although Wisconsin was a national leader in advancing this program to the federal level and to many states, the condition of its UI program today is in question. The centerpiece of the UI program, the Unemployment Reserve Fund, contains the monies used to pay benefits to jobless individuals. From 2000 to 2009, reserves here declined nearly 150% the 14th-largest decline nationally. The Reserve Fund ended 2009 with a shortfall of nearly $900 million, according to the Wisconsin Department of Workforce Development (DWD), the agency that manages the program. Declining reserves are largely the result of two recessions, but even moderate economic slowdowns would have significantly affected the program. Rising benefit costs combined with stagnant tax collections depleted the state s reserves, forcing Wisconsin to borrow from the federal government to cover benefit payments. According to DWD, borrowing could be as high as $2.4 billion by the end of FUND BALANCE Experts suggest the UI program s most serious problem has been the Reserve Fund s declining balance in recent years. The Reserve Fund reached a record high of $1.8 billion in 2000 but declined in each of the past nine years; reserves were exhausted in early Reserves were expected to fall during the 2001 recession, but their continual decline during the mid-2000s, when Wisconsin s economy grew, attracted the attention of state leaders. In recent years, the legislature has made changes to improve the condition of the UI program. To understand the Reserve Fund losses, some basic knowledge of UI revenues and expenditures is needed.

2 Here s the report you requested. It s our gift to you. Here s how to continue reading reports like this... Contributors of the Wisconsin Taxpayers Alliance (WISTAX ) receive our lead research periodicals free. Organized in 1932, WISTAX is a nonpartisan organization dedicated to public policy research and citizen education. WISTAX cuts through the spin of the professional politicians to give you facts.... and here s how you benefit. The most important part of being an annual WISTAX contributor is that you make sure Wisconsin s oldest and most respected source of the truth about state and local government continues its unique mission. Contributors also receive: 27 free issues of our bimonthly newsletter, Focus in-depth analysis of breaking news; Our monthly magazine, The Wisconsin Taxpayer valued research on Wisconsin government; Our annual tax guide, TAXES; Another way to stay informed. Reduced prices on special publications; Access to our first-rate research staff. Becoming a contributor is the most cost-effective way to obtain our research, but you can also subscribe to individual publications. The Wisconsin Taxpayer is our monthly research magazine that covers a wide range of topics, from state and local taxes to school test scores and municipal spending. Focus is our bimonthly newsletter offering analysis of breaking news. wis tax Date: Wisconsi isconsintaxpay axpayer ersalliance 401 North Lawn Ave. Madison, WI Phone: Fax: wistax@wistax.org Name: Organization: Address: City/Zip: I want to become an annual contributor to WISTAX and get my research periodicals free! ($89 minimum) I am contributing: $89 $100 $250 $500 Other $ I want to subscribe to The Wisconsin Taxpayer. One year, $17.97 Three years, $36.97 I want to subscribe to Focus. One year, $54.97 Three years, $ Payment enclosed Visa/MC/AmEx/Discover # Exp. Info Request

3 Financing As with many state programs, UI revenues are primarily taxes. The majority of Wisconsin businesses are subject to the UI employer tax, which is used to fund unemployment benefits. Employers pay two taxes: a basic tax and a solvency tax. The basic tax is based on the employer s unemployment experience employers with more layoffs pay more than those with stable employment. Basic taxes are credited to individual employer accounts. If the employer has UI benefits charged to its account, its basic tax rate can rise. The second tax, the solvency tax, is credited to a general fund and is used to pay unemployment claims that cannot be charged to an employer account. The tax rate is affected by an employer s unemployment experience and payroll size (below $500,000 vs. $500,000 and above). An employer s basic rate and solvency rate are combined to determine its total UI tax rate. Tax rates also depend on the tax rate schedule. The state has four schedules, with the Reserve Fund balance as of June 30 determining which schedule is in effect for the following calendar year. The highest schedule is triggered when the fund balance drops below $300 million. The lowest schedule (most favorable to employers) applies when reserves exceed $1.2 billion. The total tax rate is assessed on the taxable wage base (the amount of employee wages subject to tax). From 1986 through 2008, the first $10,500 of an employee s wages were taxable for UI purposes. The wage base was increased to $12,000 in Weekly benefits are based on an individual s prior four quarters of earnings but are subject to mandated minimums and maximums. The total amount of benefits paid depends on average wages and the number of unemployed workers Decline The chart on page three shows year-end balances of the Reserve Fund from 1975 through 2009, with projected balances in white. Reserves reached a record high in 2000 but steadily declined since, as benefits paid exceeded tax revenues. The main reasons for the decline are covered below, in no particular order of significance. Taxable Wage Base. One reason for declining reserves was the UI taxable wage base. As mentioned, for eight of the nine years studied ( ), the wage base remained unchanged at $10,500. This meant tax collections increased only when tax rates were raised or the workforce grew. Stagnant Employment. Wisconsin employment stabilized after the 2001 recession, but it did not grow at typical post-recession rates. The unchanged taxable wage base and limited job growth resulted in fairly stagnant UI tax collections, even as wages grew considerably. For example, from 2000 to 2009, total wages (of all employees subject to UI) grew by 20.2%; however, taxable wages grew only 4.6%. Rate Schedules. The four tax rate schedules are designed to generate additional revenues when reserves decline. However, because the criteria (reserve balance amounts) for shifting schedules remained unchanged from 1986, the tax schedules did not account for overall economic or wage growth. In addition, the six month delay in changing the tax schedule resulted in reserves continuing to decline before tax increases took effect. Shift to Solvency Account. Over the past decade, an increasing share of benefits has been charged to the solvency (general) account, as opposed to individual employer accounts. This typically occurs when an employee quits one job, is hired by a second employer, and then is laid off shortly after hire. The first employer is not responsible for unemployment benefits because the employee voluntarily quit their job to work somewhere new. The second employer is also not responsible for unemployment benefits, because only a small portion of the individual s wages of the past four quarters were paid by the second employer. Tax rates depend largely on the balance in an employer s individual account. Those balances naturally rose as more benefits were charged to the general solvency account. In turn, many businesses qualified for lower tax rates, which resulted in reduced tax revenues for the UI program. The Wisconsin Taxpayer Publication Number USPS Periodical postage paid at Madison, Wisconsin Subscription Price: One Year, $17.97; Three Years, $36.97 Published each month, except July, by the Wisconsin Taxpayers Alliance, 401 North Lawn Avenue, Madison, Wisconsin Postmaster: Send address changes to The Wisconsin Taxpayer, 401 North Lawn Avenue, Madison, Wisconsin phone: fax: wistax@wistax.org Web site: Officers and Board of Directors: Carol Ward Knox, Chair, Jefferson; J.R. Riordan, Vice-Chair, Madison; Jere D. McGaffey, Secretary-Treasurer, Milwaukee J.L. Adams, Beloit; M.D. Bugher, Madison; C.D. Fortner, Milwaukee; J.D. Quick, Manitowoc; D.R. Schuh, Stevens Point; T.L. Spero, Milwaukee Staff: Todd A. Berry, President; Kyle Christianson, Research Analyst; Dale J. Knapp, Research Director; Sandra Mumm, Business Manager; Kelly Pfeifer; Susan Ryan Page 2 The Wisconsin Taxpayer

4 Rising Benefit Costs. Another reason for the drop in reserves was increases in total benefits paid. Over the past decade, benefits have risen substantially. This was mostly due to rising unemployment during the two recessions and riig wages. Legislated increases in benefits also played a small role in benefit growth. According to the Legislative Fiscal Bureau, benefits were increased from 1994 through 2003, and in 2006, 2007, and Operations Similar to a business, that relies on revenues exceeding expenditures, the UI Reserve Fund needs contributions to exceed, or at least equal, benefits to stay solvent long term. Because reserves are carried over from prior years, the fund can weather short periods when benefits exceed taxes. This has often been the case in Wisconsin. The state has historically built reserves when the economy performed well and has run deficits when unemployment climbed. Although it is always difficult to predict the timing and severity of recessions, the seeds of a downturn are sown during economic stability. The same is true with state programs. The health of Wisconsin s UI Reserve Fund was questioned in the mid-2000s, when DWD projected reserves would fall each year through Because unemployment reserves are more susceptible to year-to-year fluctuations than other reserves (e.g., social security), it is recommended that states maintain healthy reserves to reduce the likelihood of borrowing from the federal government during an economic downturn. Federal standards suggest states should have sufficient reserves so that the probability of borrowing from the federal government is 15% or less. In the 1990s, Wisconsin s borrowing probability ranged between 28% and 34%. When the 2001 recession hit and reserves were used to pay benefits, that probability rose from 35% to 65% by Even after the economy recovered, however, the state s probability continued to rise, reaching 79% in Federal borrowing was seen as virtually unavoidable if even a moderate recession were to occur in HISTORICAL CONTEXT Today, Wisconsin s UI program faces many of the same challenges it faced in the early 1980s. Reviewing that period can be instructive when considering the current imbalance between revenues and benefits. Borrowing The Badger State has borrowed from the federal government to fund benefits twice: now and in the 1980s. According to DWD, beginning in February 1982, Wisconsin borrowed a total of $988 million, and it had a peak outstanding loan balance of $737 million in April With depleted reserves, Wisconsin again borrowed from the federal government beginning in February According to the U.S. Department of Labor, Wisconsin s outstanding loan balance was $1.27 billion as of March 18, Wisconsin s Reserve Fund balance is expected to decline through Wisconsin has borrowed a total of $1.27 billion since February Wisconsin Unemployment Reserve Fund, Actuals, DWD Projections ($ Millions ) 1,708 $1,500 $ Taxes 1,210 Reserve Benefits -$500 -$1, ,695 -$2,500-2,385 Page 3

5 A total of 490,595 Wisconsin residents received at least one UI check in In 1983, UI taxes were increased and benefits reduced. At first glance, it appears today s borrowing is above that in the 1980s. Yet, when adjusted for inflation, the 1980s borrowing would total $2.1 billion in today s dollars. Benefits A total of 490,595 Wisconsin residents received at least one regular UI benefit check in This was up 63.9% from the prior peak of 299,326 in From 1983 to 2009, the number of covered UI employees increased 54.1% less than the increase in beneficiary numbers. In 2009, 34.9% of UI claimants exhausted their regular benefits, compared to 43.0% in On average, individuals have received regular UI benefits for a shorter period of time now than during the 1981 peak. Claimants received benefits for an average of 17.2 weeks last year, compared to 18.0 weeks in The chart on page three projects a decline in total benefit payments from 2010 through 2013, although they will continue exceeding taxes until According to DWD s most recent estimate, tax collections will increase in 2010, 2011, and 2012, but will slow in 2013 and fall in DWD figures are estimated based on the Wisconsin Department of Revenue s quarterly economic forecast and current law. Reserves From 2007 to 2011, the Reserve Fund balance is expected to decline by more than $2.9 billion. If DWD estimates are correct, reserve losses would be greater than inflation-adjusted losses in the 1980s. The Reserve Fund declined from $465.4 million in 1979 to -$627.6 million in 1983, a swing of $1.1 billion. In current dollars, this is equivalent to $2.4 billion. 1980s Fixes As is evident from the previous discussion, there are many parallels between the current condition of the UI program and that of the early 1980s. What remains to be seen is how the state will deal with the latest crisis. In the 1980s, the state legislature increased unemployment taxes and reduced benefits in an effort to replenish the Reserve Fund. The legislature sought to balance benefit cuts and tax increases as evenly as possible, so as not to unfairly burden employers or the unemployed. In the early 1980s, Wisconsin was one of the most generous states in terms of benefits, and in the middle of states when comparing taxes. On the expenditure side, the amount of time regular benefits could be claimed was reduced from 34 to 26 weeks in most circumstances. The number of weeks of covered employment needed to qualify for benefits was raised from 15 to 18 weeks. Minimum and maximum weekly benefits were also frozen. Significant tax increases were also passed in the early 1980s. The taxable wage base was raised to $8,000 for 1983, with additional increases reaching $10,500 scheduled through A second change involved tax rates. Prior to 1984, a single rate schedule determined employer tax rates. Effective in 1984, the legislature switched to multiple rate schedules that would increase or decrease tax rates based on the financial condition of the Reserve Fund. Revenues generated from benefit cuts and tax increases were used to repay outstanding loans from the federal government. As expected, tax increases resulted in employees paying a higher percentage of their wages in UI taxes. In 1982, UI contributions accounted for 1.0% of wages. Between 1984 and 1987, contributions averaged 2.2% of wages. In addition to tax hikes and benefit cuts, the legislature had to find a new revenue source since interest on federal loans could not be repaid from the Reserve Fund. The source was a special annual assessment imposed on employers subject to UI taxes. For 1983, the assessment was between about $3.60 and $4.80 per employee. According to DWD, Wisconsin repaid its federal loans by May After that, the fund s condition improved and the legislature reversed some of its earlier changes UI tax rates were reduced and benefits again increased. By 1991, tax contributions were again less than 1.0% of wages. NATIONAL COMPARISONS In addition to our own past, interstate comparisons can also shed light on the relative health of Wisconsin s UI program. This section uses calendar year-end figures from the Department of Labor. Fund Balance One way to compare the condition of UI programs among states is to study reserve balances over time. Reserves are compared here Page 4 The Wisconsin Taxpayer

6 Wages Subject to Wisconsin UI Taxes Changed Little from 2000 through 2009 Taxable Wage Base, Contributions Collected, Benefits Paid, ($ Thousands) Taxable Wage Contributions Benefits Paid Chg Chg Chg. Ill. $9,000 $12, % $1,093,063 $1,853,128 $1,563, % $1,155,272 $2,209,468 $4,454, % Iowa 17,300 24, % 175, , , % 203, , , % Mich. 9,500 9, % 1,016,490 1,495,409 1,408, % 888,583 2,149,288 3,771, % Minn. 19,000 27, % 345, , , % 374, ,866 1,731, % Wis. 10,500 12, % 440, , , % 508, ,815 1,955, % from 2000 (a high point for most states) to yearend During this time, Wisconsin s reserves declined from $1.8 billion to -$895.7 million (see table below). The 148.8% drop was the 14thlargest decline nationally. States with the largest declines were New York (-275.8%), Texas (-272.8%), North Carolina (-235.1%), and California (-201.2%). Reserves in most states declined during the period studied, but they rose in three states. Reserves increased in North Dakota by 199.5% ($33.1 million to $99.0 million), in Alaska by 36.1% ($219.2 million to $298.4 million), and in Washington by 32.2% ($2.0 billion to $2.6 billion). When reserves for all 50 states were combined, the national decline was 130.3%. Among neighboring states, reserves from 2000 to 2009 were hardest hit in Michigan (-199.2%) and Illinois (-155.4%) Minnesota reserves declined 137.7% and Iowa s reserves declined 53.4% (see table below). A number of factors, including benefit increases, the 2001 recession, tax rate schedules, and unemployment, explain reserve losses here. As already discussed, another reason for Wisconsin s significant drop in reserves was due to the taxable wage base. Here, the first $10,500 of an employee s wages were subject to UI taxes from 2000 to 2008, and the first $12,000 in Placing added pressure on the UI program, benefits also rose due to rising wages and legislative action. As unemployment rose in the early 2000s and benefits exceeded taxes, the state drew down reserves to pay benefits. Neighboring states took a different approach. Except Michigan, all other states increased the amount of an employee s wage subject to tax more than Wisconsin did. The largest increases were in Minnesota, where taxable wages increased 42.1%, and Iowa (41.6%). States with the largest taxable wage increases also experienced the largest increases in UI tax collections. Contributions increased 130.3% in Minnesota and 100.7% in Iowa. Other factors, including tax rates and overall wages, also impact UI taxes. The table above shows UI contributions here increased 55.8% from 2000 to 2009, while benefits grew 284.8%. Wisconsin s contribution growth relative to benefits was below that in Michigan, Illinois, and Minnesota, but above that in Iowa. The table also highlights the substantial benefit increases from 2008 to Benefit payments more than doubled in Minnesota and Illinois, and nearly doubled in Wisconsin and Iowa. Benefits went up 75.5% in Michigan. Federal Borrowing In addition to a state unemployment tax, the federal government also levies its own tax. The Federal Unemployment Tax Act (FUTA) imposes a 6.2% tax on the first $7,000 of an employee s annual salary. To encourage states to adopt their own UI programs, a 5.4% offset credit is available. Currently, all states have federally approved programs. UI Reserves Decline Sharply Five Largest Reserve Losses, Wisconsin and Neighboring States, , ($ Thousands) Reserves Change State Rk Dollars Percent N.Y. 1 $1,204,694 -$2,118,437 -$3,323, % Tex ,276-1,282,382-2,024, % N.C. 3 1,174,664-1,587,455-2,762, % Calif. 4 5,803,711-5,873,814-11,677, % Mich. 5 3,067,381-3,044, , % Wis. 14 1,834, ,714-2,730, % Ill. 13 2,091,829-1,159,557-3,251, % Minn , , , % Iowa , , , % Currently, 31 states have outstanding loans with the federal government. Page 5

7 Wisconsin has the 12th-highest outstanding loan balance. Page 6 The Wisconsin Taxpayer The federal tax is used to fund three areas of the UI program: federal and state administrative costs, extended benefits during periods of high unemployment, and a federal loan pool from which states can borrow. As of March 18, 2010, 31 states (and the Virgin Islands) had outstanding loans with the federal government, ranging from $8.1 billion in California to $16.3 million in Vermont. Loans totalled $36.7 billion, with a median (half higher, half lower) of $437.8 million. The Department of Labor expects 40 states to borrow from the federal loan pool by the end of 2012, with total outstanding loans potentially reaching $90 billion. Wisconsin has a current outstanding loan of $1.3 billion, ranking 12th-largest nationally. Loan amounts can also be compared to taxes collected. Although states can increase or decrease tax collections, this provides some perspective on challenges states, and taxpayers, face in repaying loans. Wis. Benefit Payments Rise, Fluctuate as Share of Wages Avg. Weekly Benefit Payment, Benefit Payment as % of Wages, $ $ $200 $100 $55.21 $ Outstanding Loans as Share of Taxes 10 Largest Outstanding Loans, 2009 Taxes, (Loan Amounts As of March 18, 2010) Outstanding 2009 Loan As State Loans Taxes % of Taxe Ind. $1,760,205,384 $499,134,000 #DIV/0! 352.7% S.C. 826,758, ,283,000 #DIV/0! 320.1% Mich. 3,684,482,333 1,408,730,000 #DIV/0! 261.5% N.C. 2,061,520, ,452,000 #DIV/0! 256.6% Ohio 2,144,495,799 1,106,204,000 #DIV/0! 193.9% Ky. 735,500, ,783,000 #DIV/0! 186.3% Wis. 1,272,040, ,240,000 #DIV/0! 185.4% Calif. 8,090,133,851 4,725,433, % Tex. 1,912,947,515 1,190,144,000 #DIV/0! 160.7% Fla. 1,414,800, ,639, % $ $ % 35% 25% Wisconsin s current $1.3 billion federal loan is 185.4% of 2009 UI taxes collected ($686.2 million), according to the Department of Labor. Although higher tax collections are expected for 2010 and the years following due to changes in the tax rate schedules and increases in the taxable wage base, Wisconsin s outstanding loans are nearly double 2009 taxes. As a share of taxes, loans here were seventh-highest nationally (see table, left). Indiana (352.7%), South Carolina (320.1%), and Michigan (261.5%) were highest. Illinois and Minnesota s loans as a share of tax ranked 13th and 22nd highest, respectively. Tax and Benefit Comparisons In 2009, UI taxes averaged 0.79% of employee wages; in other words, less than 1% of an average worker s salary was used to fund the UI program. Wisconsin s tax-to-wage ratio was 14th highest nationally. Rhode Island (1.30%) had the highest tax rate relative to wages, while Virginia (0.23%) had the lowest. Michigan (1.03%) and Iowa (0.82%) both had higher UI tax rates than Wisconsin. The average Wisconsin weekly benefit payment was $287.50, or 34th highest nationally. All surrounding states had higher average benefits, ranging from $ in Minnesota to $ in Michigan. One explanation for Wisconsin s relatively low benefit payment could be that Wisconsin has traditionally been a state with relatively low wages. To account for this, benefits as a share of wages are compared. The average weekly benefit here was 38.5% of the average weekly wage, ranking 29th highest nationally. Wisconsin ranked higher than Illinois (35.5%) and Michigan (36.9%), but trailed Minnesota (41.4%) and Iowa (45.2%). The chart (left) shows that although weekly benefit payments have increased steadily since 1970, benefits as a share of wages have declined slightly. This means that even though claimants may receive larger benefit checks, their payments are likely to be a smaller share of income. OUTLOOK With employment not expected to reach prerecession levels until 2012, Wisconsin s UI program will face challenges in the coming years. Depleted reserves, coupled with substantial levels of federal borrowing, will force the state to

8 make significant changes to restore solvency to the Reserve Fund. Recent Actions Wisconsin has taken steps to improve the health of its Reserve Fund. However, most of those steps were taken before knowing the severity of the recession or the extent of federal borrowing. Revenues beyond what the state had earlier expected will likely be needed. As mentioned, Wisconsin increased the taxable wage base. For 2009 and 2010, the first $12,000 of an employee s wages are subject to UI taxes. That amount is scheduled to increase to $13,000 in 2011 and $14,000 in DWD expects each $1,000 increase in the wage base to generate an additional $60 million in the first year and about $20 million annually for the fund in the long run. The state has also altered the tax rate schedule and tax rates. For 2010, employers face Schedule A tax rates, the highest of the four schedules. The move to Schedule A will generate an additional $90 million in The tax tables used by employers have also been changed to generate additional revenue for the Reserve Fund. Basic tax rates have been reduced and solvency rates increased. Because benefits are increasingly paid from the solvency fund rather than from individual employer funds, this change will strengthen the overall UI program by generating additional tax revenues. Benefit eligibility was also changed in Individuals are now required to have total base period (usually 52 weeks) wages of at least 35 times their weekly benefit rate. Under prior law, claimants were required to have wages 30 times their benefit rate. Challenges Most agree that the UI program needs to find a balance between revenues and expenditures. In the past, benefits have increased without corresponding increases in tax collections. This can be sustained when unemployment is low and business numbers are growing. But when unemployment rises and benefits exceed tax collections, even substantially large reserves like Wisconsin had from the 1990s can be sustained for only a short time. In the 1980s, Wisconsin increased taxes and reduced benefits to repay loans by During that time, Wisconsin taxes ranked in the bottom half of all states, while benefits as a share of weekly wages were in the top 10 states. When taxes were increased, Wisconsin moved into the top 10 highest-taxed states until Currently, Wisconsin has the 14th-highest UI taxes relative to wages, and the 29th most generous benefits nationally. Unlike in the 1980s, tax increases or benefits cuts now will likely be more painful for businesses and the unemployed than in the past, when our taxes and benefits were generally favorable compared to most states. Federal Borrowing A difficult choice for the state is whether to continue borrowing from the federal government or take steps to fund benefits on its own. If borrowing is stopped while unemployment remains high, immediate tax increases and/or benefit cuts would be likely. However, some experts question whether trimming benefits and raising taxes is the best option when economic recovery is unclear. If the state continues borrowing, as expected, future tax increases are likely. A FUTA credit reduction occurs when the year-end balance of a state s reserve fund is negative for two consecutive years and federal loans are not repaid before November 10 of the following year. Wisconsin will likely have until November 2011 to repay loans before the FUTA credit is reduced. A reduced credit results in higher federal UI taxes for Wisconsin employers. Without federal changes to temporarily waive interest payments or the federal credit reduction, DWD expects the Badger State to face $51 million and $102 million credit reductions in 2012 and 2013, respectively. A reduction of $153 million is expected for As in the 1980s, Wisconsin will also need to find new revenues to pay interest on its loans, as federal law does not allow interest to be repaid from the Reserve Fund. The most likely source is a special assessment on businesses already subject to Wisconsin UI. The assessment would be used until Wisconsin s outstanding loans were repaid. DATA SOURCES: U.S. Bureau of Labor Statistics, Department of Labor, Internal Revenue Service; Wisconsin Department of Revenue, Department of Workforce Development, Legislative Fiscal Bureau, Legislative Reference Bureau, Unemployment Insurance Advisory Council; and WISTAX calculations. A FUTA credit reduction is expected for 2012, 2013, and A special assessment on Wisconsin businesses is likely in order to repay federal interest. Page 7

9 wistax wis Wisconsin Taxpayers Alliance 401 North Lawn Avenue Madison, WI PERIODICALS USPS WISTAX NOTES IRA Conversion. On March 15, Governor Jim Doyle (D) signed into law a bill conforming Wisconsin income tax treatment of individual (IRA) and other retirement accounts to federal tax law. Other states were already aligned with prior Internal Revenue Code changes, such as the liberalization of conversion to Roth IRAs. Had Wisconsin law not been changed, taxpayers could have faced penalties on some IRA conversions and excess retirement contributions. The measure is expected to reduce state tax collections by nearly $74 million in the next biennium. Census Forms Arrive. Households throughout the country received forms from the U.S. Census Bureau in mid-march. As required by the U.S. Constitution, census counts are completed once every 10 years and are used to determine political representation and to distribute federal monies for education, transportation, infrastructure, and other programs. People are required to fill out the forms and return them by mail. Census officials expected $1.5 billion would be saved in follow-up visits if each household returned its completed form. In 2000, about 67% of households responded to the mailings. Wisconsin had the second highest response rate nationally (75%). WISTAX FOCUS Major Problems Unaddressed. Many of Wisconsin s major problems financial, educational, political have remained largely untouched for years. Why Wisconsin s major problems go unaddressed (Focus #3-10) seeks to explain why the state s current problems are the same as they were 10 or even 20 years ago. One explanation has been the state s financial condition. Since the mid- to late 90s, state government has been on the fiscal brink. Deficits and structural imbalances have left state officials politically unable to engage in much, if any, significant reform. No surplus money in the short term has meant no major change in the long term. WISCONSIN S REPORT CARD IS READY... And It May Surprise You Producing over $240 billion of goods and services annually, the Wisconsin economy is the driving force behind the state s fiscal health and competitive position. As with any successful venture, it is important to monitor its performance carefully. That s why, for the 12th consecutive year, WISTAX has partnered with Competitive Wisconsin, Inc., to provide the state s only annual report on the state of Wisconsin s economy. The latest edition of Measuring Success: Benchmarks for a Competitive Wisconsin provides a snapshot of the state in recession. That said, some of the 33 benchmarks improved. Others declined: Wisconsin s per capita personal income lost ground on neighboring states and remained below the national average, and rising energy costs are emerging as a new problem for the Badger State. Building on its tradition of educational success, high school graduation rates and the population s share of college graduates in the state rose. Wisconsin s export sector reached a record high level of manufacturing output. Benchmarks tracks 33 indicators in six major areas. In addition to grading the state against its own past, the report card compares state performance against neighboring states and the nation. To obtain a copy of this one-of-a-kind project, contact WISTAX today. Benchmarks is only $3 and quantity discounts are available. WISTAX donors are entitled to free copies. To order, call WISTAX at , wistax@wistax.org, or visit us on the Web at The Wisconsin Taxpayers Alliance, founded in 1932, is the state s oldest and most respected private government-research organization. Through its publications, civic lectures, and school talks, WISTAX aims to improve Wisconsin government through citizen education. Nonprofit, nonpartisan, and independently funded, WISTAX is not affiliated with any group national, state, or local and receives no government support.