Wisconsin Budget Surplus Presents Opportunity for Future Growth


As Wisconsin legislators work to finalize the state budget for the fiscal year (FY) 2022-23 biennium that begins July 1, the Wisconsin Legislative Fiscal Bureau (LFB) on Tuesday reported the state has substantially more revenue to work with than was anticipated when the LFB issued revenue projections earlier this year.

Specifically, the LFB’s revised three-year revenue projections are $4.4 billion higher than previously reported: $1.4 billion higher than anticipated for FY 2021, $1.5 billion higher for FY 2022, and $1.4 billion higher for FY 2023. This yields a total expected surplus of $2.6 billion for FY 2021, $3.9 billion for FY 2022, and nearly $5.9 billion for FY 2023. These revenue projections are attributable to a combination of better-than-expected tax collections this spring as the state turned the corner in its fight against COVID-19, as well as the substantial amount of federal aid money the state, its local governments, and taxpayers received amid the pandemic. While the federal aid is one-time money, state revenue officials are anticipating robust revenue growth several years into the future.

Under current Wisconsin law, in any year in which actual general fund tax collections exceed the amount budgeted for that year, half of the surplus revenue is deposited into the state’s budget stabilization fund, which helps ensure the state is prepared for future economic contractions. As FY 2021 comes to a close, actual tax collections are on track to come in about $1.6 billion higher than was budgeted for when the fiscal year 2020-21 budget was enacted in 2019. As a result, approximately $808 million will be automatically transferred to the budget stabilization fund, but the remaining surplus revenue for FY 2021—as well as the revenue growth of historic proportions that is expected for the upcoming biennium—can and should be used for the long-term benefit of present and future Wisconsinites.

There will, as always, be many different opinions on how these excess revenues should be allocated, but as tax relief will no doubt be part of that conversation, it is important to consider how that tax relief can be accomplished in a meaningful and economically efficient manner that will set the state up for continued investment and growth for years to come.

Given the state’s revenue forecast, it makes sense to consider options for returning some of the excess revenue to taxpayers in a structurally sound manner while making Wisconsin more economically competitive in the process. These suggestions—among several others—are described in further detail in our Wisconsin tax reform options guide.

Reduce individual income tax rates. Wisconsin’s top marginal individual income tax rate of 7.65 percent is higher than all but nine states and the District of Columbia, and the second highest marginal rate of 6.27 percent—which kicks in at…



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