Wisconsin residents strongly favor raising taxes on the wealthy and large corporations to reduce income inequality, a new poll shows. But instead of raising taxes on these groups, Wisconsin lawmakers have taken steps to give significant tax breaks to taxpayers with high incomes and corporations.
Two-thirds (66%) of survey respondents support raising taxes on the rich and big businesses, according to the spring 2016 Wisconsin Survey conducted by the Strategic Research Institute at St. Norbert College. Another 28% of respondents did not support raising taxes, and seven percent weren’t sure.
The poll results show that Wisconsin residents are alarmed about growing levels of income inequality and the widening chasm between the highest earners and everyone else. Wisconsin residents are right to be concerned. The share of income in Wisconsin going to the top 1% has reached its highest level ever, exceeding even levels reached prior to the Great Depression, and has more than doubled over the last 40 years. Read more
Big Change #2: Corporations and Well-Off Are Paying Less in Taxes, and Working Families are Paying More
One year into the state’s two-year budget period, corporations and well-off individuals are paying less in taxes than they did before the budget, and working class individuals and families are paying more.
The budget included two significant tax breaks that have already kicked in. One tax change that benefits multi-state corporations partially rolls back a recent law that made it difficult for big businesses to shift their income between different states to avoid taxation. This tax break reduced the state income tax these corporations pay in Wisconsin by $9 million in fiscal year 2012 (which ended on June 30, 2012), and will cut their tax liability by another $37 million this fiscal year.
A second tax cut in the budget reduced the tax that individuals pay on their capital gains, or profits from investments. Read more
In his State of the Union address, President Obama proposed what many are calling the “Buffett Rule,” which would ensure that taxpayers earning $1 million would pay a minimum of 30 percent of their income in taxes. This proposed policy is named after billionaire investor Warren Buffett, who spoke out against tax breaks that result in Buffett’s secretary paying a higher percent of her income in taxes than he did.
One of the reasons that very wealthy people sometimes pay a smaller percentage of their income in tax than middle class taxpayers is that a greater share of wealthy people’s income comes in the form of capital gains. Capital gains are taxed at a special low rate, lower than the rate that must be paid on income earned through work.
The Senate Committee on Public Health, Human Services, and Revenue held a public hearing today on a bill (SB 160) that would reduce state tax collections by an estimated $27 million per year, starting with tax year 2012. The tax cut would result from making state income tax treatment of capital losses on investments consistent with federal law. The bill is authored by Senator Kedzie, co-authored by Rep. Ott, and there are seven co-sponsors.
Under current state law, the maximum amount of net losses (after comparing gains and losses from various investments) that may be deducted from income each year is $500, whereas the federal limit is $3,000. Net losses that exceed the state or federal cap may be carried forward and used as offsets against capital gains in future years (or deducted against other income, up to the level of the cap). Beginning on January 1, 2012, SB 160 would “federalize” the state cap on capital losses by raising it to $3,000. Read more
Quickly growing CEO pay is a significant contributor to income disparity, according to a recent Washington Post article that ran in the Milwaukee Journal Sentinel. Executive pay has increased fourfold since the 1970s according to the article, while the average worker pay remained relatively flat. Of the top 0.1% of earners in 2008, 59% were CEOs, managers, or financial professionals. This top 0.1% of earners took in more than 10% of total personal income in the U.S.
A number of recent public policy decisions at the federal and state level also contribute to and reinforce income disparity. The Bush tax cuts are among the policies that predominantly help high earners. In a recent blog post, the Wisconsin Budget Project highlighted a new report showing that the top 1% of income earners in the state alone receive 28% of all the Bush tax cut dollars in Wisconsin, almost twice the combined tax savings of the lowest three-fifths of income earners (whose share of the Wisconsin total is just 15%). Read more
Despite widespread concerns over falling revenues and significant cuts in education, health care, and other areas, the budget passed last week by the Assembly and Senate contains a number of new or expanded tax breaks, at a cost of more than $90 million over the biennium and $1.6 billion over the next 10 years. Two of these tax breaks are targeted to benefit Wisconsin investors by reducing taxes on capital gains (i.e., the profits resulting from the sale of stock, businesses, real estate, or other assets). These tax breaks recently received attention from the Capital Times’ Mike Ivey, who wrote about the tenuous connection between these tax breaks and increased economic growth in Wisconsin, as well as the regressivity of these new tax cuts.
This blog post describes the two capital gains tax breaks that were just approved by the Legislature and two other pieces of legislation that would also increase the preference given to income generated by investments, relative to income from one’s own labor. Read more
A couple of industry-backed studies that have come out over the two months cast Wisconsin in a positive light – as a place to do business and make money. As we discussed in a blog post on April 27, a study by Ernst and Young, in conjunction with the Council on State Taxation, ranked Wisconsin as having the 4th lowest state and local taxes on investments made in a new facility or for upgrading an existing facility.
A more recent study contains data estimating the percentage increase in millionaires over the next decade in each state, and it projects that growth to be 12th highest in Wisconsin. According to the industry-sponsored analysis, Wisconsin’s increase is supposed to be 131%, well above the national average of 110%.
The Oregon Center for Public Policy posted an interesting and informative commentary on the study’s findings and their implications for the public policy choices facing that state. Read more
Throughout the debate on the budget repair bill and most of the debate on the biennial budget, we have heard lawmakers argue for the importance of sacrifices that will eliminate Wisconsin’s structural deficit and get the state’s fiscal house in order. Until last week the Joint Finance Committee (JFC) seemed genuinely committed to eliminating the structural deficit, at least while the committee was deliberating on spending issues. But that commitment was no longer in evidence last week when the topic turned to taxes.
The biggest surprise came late on Friday night as the committee was finishing up its work. On a 12-4 party line vote, the JFC approved a motion that adds substantially to the structural deficit by nearly eliminating the income tax for many corporations that produce goods in the state. (See the June 7th Journal Sentinel article by Kathleen Gallagher.) It will have the effect of slashing the tax rate for manufacturers from 7.9 percent down to just 0.4 percent – phasing in a 95 percent reduction in their income taxes over a four-year period. 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