Important tax credit eligibility information for Wisconsin families.

Congress faces a choice.

It can extend a tax break for a tiny number of wealthy estates. Or — for about the same amount of money — Congress can continue improvements to two tax credits that encourage work and help millions of people pull themselves out of poverty.

In Wisconsin, the tax break for wealthy estates would benefit only 40 estates a year, according to a new report. In contrast, the improvements to the tax credits would give a boost to 155,000 low- and moderate-income working families in Wisconsin. 

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3,800 to 1 = Ratio of WI Families Hurt by Tax Credit Changes, Compared to the Estates Benefiting from Estate Tax Cut

 In the next two or three months, Congress will have to choose between two starkly different tax options that have divided the U.S. House and the Senate. It’s a choice that has been overshadowed by other parts of the debate over expiring tax provisions, but it will be a telling vote on legislative priorities.

Lawmakers can extend a tax break for a tiny number of wealthy estates. Or – for about the same amount of money – Congress can continue improvements to two tax credits that encourage work and help millions of people pull themselves out of poverty.

In Wisconsin, the tax break for wealthy estates would benefit only 40 estates a year, according to a new report. In contrast, the improvements to the tax credits would give a boost to 155,000 low- and moderate-income working families in Wisconsin. Read more

If you don’t read the WCCF blog, let me bring you up to date on what we know and don’t know about funding in the next biennial budget for the state’s Earned Income Tax Credit (EITC). 

The Dept. of Children and Families’ budget request for the 2013-15 biennium recommends a large reduction in one of the funding sources for the EITC.   Beginning in fiscal year 2014-15, DCF proposes cutting $37 million from the portion of the credit’s funding that comes from the block grant known as Temporary Assistance for Needy Families (TANF).  But since the rest of EITC funding is the responsibility of the Dept. of Revenue, the DCF recommendation doesn’t tell us whether the intent is to reduce total EITC funding or only to shift the funding sources.

In a post on the WCCF Blog on Monday, I explain why a funding shift could be a good thing for important programs for low-income kids, such as the Wisconsin Shares child care subsidy program. Read more

Categories: 2013-15 biennial budget, Blog, EITC, refundable tax credits | Comments (1)

Working Class Families Would Pay More in Taxes

Compared to President Obama’s tax plan, the tax package supported by Congressional Republicans would give big tax breaks to the top earners in Wisconsin, while raising taxes paid by working class families in the state.

The President’s and the GOP plan differ in two main respects: First, President Obama’s plan continues the Bush tax cuts for income up to $250,000, while the GOP plan continues the tax cuts for all income levels. Under the president’s plan, high earners would still receive tax breaks on the first $250,000 of their income.

Second, the president’s plan also continues improvements in tax credits for working-class and middle-class families. The GOP plan does not continue these improvements.

On average, Wisconsin taxpayers earning less than $250,000 would pay an average of $50 more in taxes under the GOP plan than the Obama plan, according to a report released by Americans for Tax Fairness. Read more

Wisconsin families with children could lose $139 million in tax credits next year – nearly $900 per affected family – unless expansions of two tax credits aimed at working families are preserved. President Obama and Congressional Democrats have proposed extending the expanded credits, and Congressional Republicans favor letting the expansions expire.

In jeopardy are the Child Tax Credit and the Earned Income Tax Credit, both of which were expanded by the Recovery Act in 2009. The effect of expanding the credits was two-fold: the credits helped pump more money into the economy to boost consumer demand, and they also helped mitigate the worst effects of the recession for the families receiving the credits. The expansions are set to expire at the end of 2012, at the same time the Bush tax cuts expire, the temporary payroll tax cut expires, and the federal unemployment program ends.

President Obama has proposed to make the expanded versions of the tax credits permanent. Read more

IRP Research Shows Antipoverty Programs Reduced Unofficial Poverty Rate in Wisconsin in 2010 

A report released Wednesday by the Institute for Research on Poverty (IRP) at UW Madison examines the effects of the antipoverty programs on the poverty rate in Wisconsin.  Not surprisingly, the official measure of poverty shows an increase in Wisconsin between 2009 and 2010.   However, the IRP’s alternative gauge of poverty (the “Wisconsin Poverty Measure” or WPM) showed a decrease in the poverty from 11.1% to 10.3%.

Whereas the official poverty measure is based just on pre-tax cash income, the WPM uses a broader lens that also examines taxes, tax credits, and “near cash” income such as food stamps. Last year the IRP concluded that from 2008 to 2009 the alternative poverty measure was flat in Wisconsin, because the drop in families’ income was offset by tax credits and food assistance benefits, which were enhanced that year by the federal Recovery Act. Read more

As the calendar turned to 2012, many of Wisconsin’s working families began to feel the effects of state budget cuts and policy changes made in the biennial budget bill signed into law last July. According to a new synopsis of delayed budget changes by Wisconsin Council on Children and Families, working families are beginning this month to be adversely affected by a number of changes, such as reduced tax credits, higher health care premiums and copays, and a new waiting period for unemployment insurance benefits.

“The range of changes that will make things tougher for Wisconsin families starting this year is startling,” said Ken Taylor, executive director of the Wisconsin Council on Children and Families. “At a time when so many working families are just starting to get back on their feet in the wake of the recession, it’s troubling to see just how many policy changes are going to make it more difficult for them to bounce back economically.”

Read more in today’s WCCF blog post or in the new two-page synopsis of the delayed budget changes. Read more

The Joint Finance Committee (JFC) voted Tuesday evening for a package of state policy changes that cut taxes for multistate corporations and the wealthy, while raising taxes on working poor families with two or more children. As Jason Stein reported in the Milwaukee Journal Sentinel, Rep. Tamara Grigsby (D-Milwaukee) called the committee’s combination of actions “Robin Hood in reverse.”

The changes to the Earned Income Tax Credit (EITC) endorsed by the JFC will reduce the state credits in the coming biennium by a total of $56.2 million (relative to the cost to maintain current law). The Finance Committee’s actions not only increased that cut, but also changed how working families will be affected. Their version will reduce the maximum cut for families with two children to $154 (compared to $307 in the Governor’s plan), while increasing the annual cut to families with three or more kids to as much as $518 (versus $154 in the Governor’s bill). Read more

The federal Recovery Act kept 4.5 million people out of poverty, according to a recent Center on Budget and Policy Priorities (CBPP) analysis of Census Bureau figures.

Back in September, the Census Bureau released figures showing that according to the official measure of poverty, the poverty rate increased from 13.2 percent in 2008 to 14.3 percent in 2009. The Wisconsin Budget Project blog post on that topic is here.

The official poverty measure paints a somewhat incomplete picture, since it doesn’t include tax credits or non-cash assistance when determining whether an individual falls below the poverty line. This means the official measure may have somewhat overstated the percent of people in poverty, since the measure did not take into account the assistance many struggling families received through provisions in the Recovery Act.

CBPP’s report highlights recently-released poverty figures from the Census Bureau that rely on alternative measures of poverty. These alternative measures include tax credits as well as non-cash benefits and therefore give a more complete picture of the change in poverty status between 2008 and 2009. Read more