“Tonight, we are laying out a plan to move Wisconsin further down the road to prosperity,” Governor Walker said. “Our friends and neighbors are going back to work and job creators are expanding their businesses. Thanks to sound fiscal management, I am proud to announce further tax relief for Wisconsinites and additional funding for worker training. We will continue to work diligently until everyone who wants a job can find a job.”
Here is a comparative assessment of Wisconsin’s performance, as measured by the Philadelphia Fed’s coincident indices.
Figure 1: Log coincident indicators for California (blue), Minnesota (red), Wisconsin (green), and US (black); observations for 2014M05 are forecasted values using Philadelphia Fed’s leading indices, all normalized to 2011M01=0. Source: Philadelphia Fed and author’s calculations.
From the Philadelphia Fed’s website:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Hence, one can roughly interpret the trend in the coincident index as a measure of real GDP. In this context, Wisconsin growth has lagged the overall United States by 2 percent cumulative growth since 2011M01 (keeping in mind that several prominent individuals have castigated the US growth record over the past two years, while studiously avoiding comment on the lagging growth performance in Wisconsin).
Using the Philadelphia Fed’s leading indices as forecasts, the gap will widen to 2.3 percent in the next six months. The gap between Wisconsin and California will widen to 2.8 percent.
In terms of policies, the governor proposed additional tax cuts. From the Marley and Stein in Milwaukee Journal Sentinel:
He said his “blueprint for prosperity” would trim property and income taxes by $504 million over the next 18 months and put more than $100 million more into the state’s rainy-day fund.
What are the fiscal implications?
Walker’s overall plan would add perhaps $100 million to the $708 million shortfall previously projected for the next two-year budget, under the approach used by the Legislative Fiscal Bureau. If the new tax money were simply put in the bank, the state would go into the 2015-’17 budget with a $1.25 billion surplus, the budget office reported Wednesday.
The fiscal bureau’s so-called “structural deficit” isn’t the only way to measure the health of the state budget, but it’s a tool that many lawmakers embrace.
See also Wisconsin Budget Project for more on blank spots in the proposed budget, the structural budget deficit, and investment (or lack of) in education (including technical colleges).
For a survey of the academic literature on tax cuts at the state level and economic growth, see here.
Finally, for a take on the State of the State, it is useful to refer to employment; employment figures for December are not yet out, but here are the November figures.
Figure 2: Private nonfarm payroll employment for Wisconsin, seasonally adjusted (blue), July 2013 Wisconsin Economic Outlook forecast, interpolated from annual data using quadratic match (red), and Walker’s promised path for private NFP (black). Source: BLS, Wisconsin Economic Outlook, and author’s calculations.
As of November, private nonfarm payroll employment in Wisconsin is 83 thousand below the trend consistent with the 250,000 net job creation target recommitted to by Governor Walker back in August of 2013 (and originally declared in his 2010 campaign).
This is another view of the State of the State.
Update, 1/23 1:40PM Pacific: Reader rd asks for how Washington fares.
Figure 3: Log coincident indicators for California (blue), Minnesota (red), Wisconsin (green), and US (black), Washington state (orange); observations for 2014M05 are forecasted values using Philadelphia Fed’s leading indices, all normalized to 2011M01=0. Source: Philadelphia Fed and author’s calculations.
As far as I recall, Washington state did not embark upon massive cuts to k-12 education, at least nowhere near slash-and-burn Wisconsin. See this CBPP post, and the figure drawn from that post, below.
Figure from CBPP.
So, Wisconsin is 7th…in slashing per pupil spending.
Side note: Has to be read to be believed: .