Wisconsin’s property tax credit for low-income homeowners and renters is declining because – in contrast to most of the rest of the tax code – it isn’t adjusted for inflation. New figures released last week by the Legislative Fiscal Bureau (LFB) show the credit is falling even faster than the Governor’s budget assumed, and the following chart illustrates the decline.
A proposed property tax cut for businesses would raise taxes for homeowners and other owners of residential property, who are already paying a much larger share of total property taxes than in past decades.
Lawmakers have proposed eliminating the business personal property tax, which is one component of the property tax. Most personal property is exempt from the property tax, but owners of property used for commercial and manufacturing purposes pay a small amount of personal property tax on items like equipment, machinery, fixtures, and boats. The total statewide personal property tax levy in 2013 was $270 million, or 3% of the total property tax levy.
Eliminating the business personal property tax wouldn’t change the total amount of property tax collected by local governments, but it would change who pays property taxes. Cutting taxes for businesses would shift more of the responsibility for paying property taxes onto the shoulders of homeowners, and would increase property taxes by $80 on a typical home. Read more
Governor Walker has made it clear that he wants to continue to cut property taxes. The best way to do this would be to strengthen a state tax credit that helps keep property taxes affordable for people with low incomes. Yet despite the Governor’s focus on property tax cuts, making improvements to the Homestead Credit does not seem to be part of his agenda.
Governor Walker recently said his goal is for property taxes to be lower in 2018 than when he took office in 2011. The legislature already cut property taxes by $466 million in fiscal year 2015, and given Governor Walker’s high priority on the issue, there are likely to be more property tax cuts coming.
The property tax cuts so far have been broadly distributed, meaning that even taxpayers in the top 1% received a tax cut. In fact, the top 1% – a group with an average income of $1.1 million – received an average property tax cut of more than $1,000 in 2014. Read more
Tiny Piece of Projected Surplus Could Mitigate Recent Tax Increases on Families and Seniors with Low Incomes
Many of Wisconsin’s most vulnerable families and elderly adults would not get much help from the Governor’s plan for the projected state surplus. That could change if the Legislature were to use a small fraction of the surplus to undo recent cuts to the Homestead Credit and Earned Income Tax Credit.
Rejected Plan Included Larger Tax Cuts for Most People and Smaller Structural Deficit
The Assembly approved the Governor’s proposals for the projected state surplus today, without any substantial changes, and rejected an alternative plan offered by Democrats. That plan would have reduced the structural deficit, while also providing larger tax cuts to most Wisconsinites, and more funding for technical school training and K-12 eduction.
The plan offered by Assembly Democrats would have replaced the property tax cuts proposed by the governor with a $500 million increase in a current property tax relief program known as the First Dollar Credit. That credit provides the same amount of property tax relief to the owner of a small home as the owner of a very expensive home or commercial property in the same school district.
The major elements of the Democrats’ proposals are the following:
- Decreasing property taxes by an average of $231 in 2014(15), or $100 more than the Governor’s plan.
The distribution of the tax cuts proposed by the Governor isn’t our chief concern about how he would use the projected state surplus. We’re primarily concerned that Governor Walker’s plan ignores holes in the current budget, and creates a deeper hole in the next one – boosting the structural deficit in 2013-15 to about $825 million.
That said, many people have asked us about the distribution of the proposed tax cuts, and we asked the Institute for Taxation and Economic Policy (ITEP) to crunch the numbers for us. The ITEP analysis — which focused just on the two major changes in the Governor’s plan — found that the top 5% of Wisconsinites, who made $161,000 or more in 2013, will get 18% of the tax cuts. By contrast, the bottom 40% get just 15% of the benefit.
If one divides state residents by income into five groups (“quintiles”), the ITEP analysis reveals the following:
- The bottom fifth of Wisconsinites, who were making less than $21,000 per year in 2013, would get 5% of the $500 million tax cut, and an average tax cut of $39.
Governor Walker proposed a $100 million property tax cut at a hastily-called press conference today. The tax relief would be delivered through the school aid formula – by adding $40 million this year and $60 million next year. Because the school spending caps aren’t being raised, schools will have to reduce property taxes to offset the increased state aid. The Governor is calling a special session for next week to expedite legislative action on the plan.
According to a story on Channel 3000.com, Assembly Speaker Robin Vos said the bill will be introduced tomorrow, and he would like the legislature to pass it by the end of next week. The Governor is pushing for fast action on the proposal so the tax cut would be in effect when property tax bills are being calculated later this year.
Walker said that the funding for the property tax cut would come from the state budget surplus. Read more
By including only token increases in local aid, the state budget could lead to cutbacks in local services or further reductions in employee compensation, according to a new budget summary from the Wisconsin Budget Project.
Under the budget, state support for aid to local governments would be frozen or nearly so, according to the summary. This freeze comes after several years of steady decreases in state spending for local assistance.
The budget, which is on the verge of final approval today, makes the following changes to local aid amounts over the two-year budget period:
- Wisconsin Technical College System: +1.6%;
- General transportation aid: +0.5%;
- Mass transit: +0.5%;
- Direct aid to counties and municipalities: +0.4%;
- Funding for juvenile justice services provided by counties: no change;
- Children and Family Aids to counties for services related to child abuse: -1.0%
- Community Aids for counties: no change in the state share.
This budget continues strict controls on the amount of property taxes that local governments are able to raise. Read more
Governing.com Article Raises Questions about Who Should Set Property Tax Rates
Schools in Wisconsin are caught in a very difficult position because their budgets get squeezed by rising costs, cuts or freezes in state aid, and state-imposed revenue caps that are increasingly tightening the state’s grip on local property taxes. Governing.com examines the fiscal challenges of Wisconsin schools in a very good article today.
“A 20-year-old cap on how much property tax revenue Wisconsin public school districts can earn has become a thorn in the sides of local officials as shrinking home values and dwindling state funding have put a squeeze on their budgets. As the provision comes under increased scrutiny in that state in the wake of the Great Recession, larger questions are being raised [about] whether limiting local public education revenue is a sustainable policy for the future.”
I’d like to think that the 2013-15 budget will provide some relief for schools, but I’m not very optimistic. Read more
What Sorts of Tax Changes Does Wisconsin Need?
In his State of the State message this evening, Governor Walker reiterated his intent to cut the state income tax for “middle class” Wisconsinites. We won’t learn any details until the Governor’s 2013-15 budget is introduced next month, so it’s hard to critique the plan now. However, it’s not too soon to raise the sorts of questions and concerns that state policymakers should be considering in the months ahead, as they debate the budget bill.
Can the state afford a significant cut in the income tax?
Policymakers need to carefully consider whether cutting income tax revenue would undermine the state’s ability to maintain support for state investments that are critically important to the state’s workforce, quality of life, and economic competitiveness – such as support for K-12 and higher education. They will need to take into account that new or phased-in tax cuts already on the books are going to reduce state General Fund revenue by $262 million in the 2013-15 budget, and even more in the following biennium. Read more