Economic ideas could use history lesson

By Matt Pommer

As 1979 began, Wisconsin state government‘s projected general-fund surplus was $1.05 billion. That’s a lot of money even today, but a third of a century ago it was huge number.

Four months earlier, Lee Dreyfus had upset the political establishment to win the Republican gubernatorial nomination. He then routed Acting Gov. Martin Schreiber, a Democrat, with promises to return the public’s money and cut taxes.

Democrats controlled the Legislature and they joined in returning the money. The late Bill Bablitch, D-Stevens Point, Senate majority leader then called for an end to “cookie jar” and “rainy day” speeches. Assembly Democrats proposed $1.08 billion in reduction, while their Senate counterparts proposed $853 million in reductions.

It was like letting a kid loose in a candy store. The public loved the resulting tax holiday. It might even have pleased future Tea Party generations.

But the idea of setting aside significant money for hard economic times had disappeared. That would haunt future political leaders during subsequent ups and downs in the economy because demands for government help often increase in tough times.

The Wisconsin Taxpayers Alliance recently noted that Wisconsin was a major manufacturing state and its economy was prone to boom-and-bust cycles. Elected officials long have a history of overlooking potential downturns and acting too quickly when good times roll.

Yet it is unfair to paint Wisconsin as a totally reckless state. Wisconsin has acted responsibility in adding money to the public-employee pension program which covers state and most local employees including teachers. Milwaukee County and the city of Milwaukee have separate pension systems.

Wisconsin is one of only four states that have met the ongoing actuarial requirements of its public-employee pension program. The neighboring states of Illinois and Minnesota face major challenges into the billions of dollars for their teacher retirement systems.

By comparison, Wisconsin is a model of financial integrity in the pension field. It should be noted the WRS came into being during the Dreyfus era as major pension systems were merged.

History also has a way of punching holes in economic theories — such as the touted link between state income taxes and prosperity. Dreyfus and the Democratic legislative majorities made dramatic reductions in the state income taxes during his administration. Despite those reductions, in the early 1980s the state would suffer its worst economic downturn since the Great Depression. Wisconsin had double-digit unemployment rates in the 13 months before Dreyfus left office.

By comparison, in 2009 Democratic majorities in the Legislature and Democratic Gov. Jim Doyle raised both corporate incomes taxes and personal income taxes on the state’s wealthiest citizens. Republicans, however, denounced these tax ideas and swept to legislative and gubernatorial victories last November.

Despite the income-tax increases on corporate Wisconsin and the wealthy, the unemployment rate in Badgerland almost was 2 percent below the national average when Doyle left office in January.

Matt Pommer worked as a reporter in Madison for 35 years. He comments on state political and policy issues.