A Bad Idea Made Worse
Proposed Tax Cut Would Harm Wisconsin’s Ability to be Competitive
A new tax plan proposed today by Rep. Kooyenga would create a very large hole in the next budget and undermine the state’s ability to invest in services critical for Wisconsin’s future economic competitiveness.
The new proposal would reduce state tax revenue by $752 million over the two-year budget period compared to current law, mostly by reducing income tax rates and making other changes to income taxes. It would make the income tax much flatter by reducing the number of tax brackets from five down to three, which would apply the same income tax rate for all married couples with taxable income between $14,500 and $319,500.
Relative to the Governor’s tax cut proposal, Kooyenga’s proposal cuts taxes by an additional $409 million in the coming budget period and cuts business fees by about $20 million. The additional tax cuts, beyond what the Governor proposed, are primarily for individuals making more than $163,000 and couples making more than $217,000. That change is illustrated in the chart below, which compares the tax rates proposed by Rep. Kooyenga for tax year 2015 with the income tax rates proposed by Governor Walker and the current rates.
Kooyenga’s plan, like the Governor’s proposal, would leave out more than three-quarters of a million people, nearly all of whom make less than $30,000 a year. Keep in mind that Wisconsinites who are low-income typically pay a higher share of their income in state and local taxes than do people with the highest incomes.
Rep. Kooyenga’s proposal also includes the following changes:
- Elimination of 18 little used tax credits, including $5.2 million of refundable tax credits, starting in the second year of the two-year budget period;
- Increasing state General Purpose Revenue (GPR) support for the Wisconsin Economic Development Corporation by $8 million per year by using state general fund revenue to replace business fees that are being cut;
- Automatic adoption of future federal tax changes, unless the Legislature decides to opt out of those changes;
- Elimination of the state’s alternative minimum tax, which as of tax year 2010 applied to about 5,000 tax filers and generated about $5.6 million per year; and
- Specifying that if Congress passes legislation making it easier for states to collect the sales tax due on internet purchases, Wisconsin will use the additional revenue to reduce income tax rates further.
According to the Legislative Fiscal Bureau, the cost of the plan grows by about $360 million in the 2015-17 biennium (about $168 million in 2015-16 and $193 million in 2016-17, relative to the 2014-15 cost). Because of the growth in the next biennium and the fact that the plan is financed in this biennium partly with one-time revenue, the proposal is likely to significantly increase the structural deficit – creating an even larger hole in the next biennium than the $664 million gap that the Fiscal Bureau previously estimated the Governor’s budget would create in 2015-17.
Rep. Kooyenga’s proposal in particular has a disturbingly large price tag. His proposal will force deep cuts in public investments that will damage Wisconsin’s ability to create jobs. If the Legislature approves Kooyenga’s plan, Wisconsin will have fewer resources to help educate our future workers, insure a healthy workforce, and build safe communities.
Jon Peacock & Tamarine Cornelius