Bill for Delayed Tax Cuts Coming Due
The bill for more than a billion dollars in tax cuts will be coming due in the coming years, thanks to actions by the state Legislature that postponed the full implementation of several large tax cuts. That approach made the tax cuts seem affordable at the time they were passed, but will reduce the resources available to invest in our schools, roads, and communities when the full cost of the tax cuts comes due.
Over the next five years, these phased-in tax breaks mean that the state will collect $1.2 billion less in revenue than it would if tax breaks had stayed at the 2012 level. In 2013, $89 million in phased-in cuts will go into effect, an amount that rises each of the following four years until the amount reaches $323 million in 2017. The chart below shows that the tax cuts are fairly evenly divided between individual income tax cuts and corporate income tax breaks, with a much smaller amount in sales tax cuts.
The largest factor in the phased-in tax cuts is an 11th hour amendment to the most recent budget that cuts corporate and individual income taxes for manufacturers – gradually eliminating virtually all of their income tax liability. That new tax credit, which Wisconsin Manufacturers and Commerce called the “icing on the cake” accounts for $155 million of the estimated $323 revenue loss in 2017 (about $83 million from corporate income taxes and $72 million from individual income taxes).
The recently released DOR figures shown in the bar graph are not the end of the story. The price tag for the phased-in tax cuts continues to grow for four more years because of a capital gains tax break that isn’t fully phased in until fiscal year (FY) 2021. According to a June 2011 Legislative Fiscal Bureau analysis, the cost of the delayed tax cuts will grow more than $65 million in FY 2021, compared to FY 2017.
It is hard to reconcile the big tax cuts scheduled in the coming years with some policymakers’ claims last session that that the state was “broke.” Despite the impending loss of state revenue, some legislators have said they will make it a top priority to implement additional individual income tax cuts when the Legislature next convenes. Rep. Robin Vos, who co-chairs a legislative study committee on the income tax, has said he would like the individual income tax to be “flatter,” meaning that big earners would pay less.
Given the substantial price tag of the tax cuts that have been pushed down the road and will come due in the next few years, the state should proceed with caution in implementing new tax breaks, especially for the best off.
Tamarine Cornelius & Jon Peacock