Odd Man Out: Unlike the Rest of the Tax Code, Homestead Tax Credit is Not Adjusted for Rising Cost of Living
When it comes to the Wisconsin tax code, the Homestead Tax Credit, which provides property tax relief to owners and renters with low incomes, is the odd man out. That’s because the Homestead Credit is the only significant portion of the tax code that is not adjusted to keep up with the rising cost of living. The consequence is that Wisconsin residents with low incomes see their property tax relief shrink a little more each year.
Nearly all elements of the tax code are indexed, or adjusted to keep up with inflation and other rising costs. For example, each year the income levels for different income tax brackets increase slightly, so that the brackets are kept comparable from year to year. And in the past year, the Legislature has approved bills adjusting a couple of other tax laws for inflation, such as the recent legislation to annually index the EdVest program, which includes a tax deduction for contributions to EdVest savings accounts. 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.
New Analysis Examines Why the Surplus Should be Used to Help Low-income Wisconsinites
In his recent “state of the state” address, Governor Walker said that his plan for using the state surplus aims to “ensure we don’t leave anyone behind in our economic progress.” I applaud the Governor for expressing that objective, but a careful analysis of his plan shows that state lawmakers should amend the special session tax bill if they truly want to accomplish the goal of not leaving behind the Wisconsinites who have been struggling the most in recent years.
After analyzing where the surplus comes from and who gets the benefits, the Wisconsin Budget Project prepared a short paper that explains why some of the surplus should be used to make at least some modest improvements to the state Earned Income Tax Credit (EITC) and the Homestead Credit. You can find that short document here: “Top 10 Reasons to Increase Tax Credits for Low-income Households.”
Our analysis notes that the bottom 40% of taxpayers will get just 15% of the benefit of the Governor’s plan. Read more
Governor’s Remarks Omit the Effect of Cuts to the Alternative Minimum Tax
In his State of the State address last week, Governor Walker talked about two tax cuts he plans to make using the state’s projected surplus: a $406 million cut in property taxes and an income tax cut. With respect to the smaller portion of that two-part plan the Governor said:
“…we will reduce income taxes by $98.6 million. To ensure we don’t leave anyone behind in our economic recovery, we will target this tax relief to the lowest income tax bracket. If you’re a family of four making $40,000, your savings will be $58. No one will get a bigger savings than that.” (emphasis added)
That’s an accurate description of the income tax rate cut the Governor proposed, but it’s far off the mark with respect to his full plans for cutting state income taxes. The biggest problem with his statement is that Walker didn’t mention that his new special session bill will also cut the Alternative Minimum Tax – a change that benefits high income Wisconsinites and has a price tag that will grow to nearly $51 million per year by 2016-17. Read more
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.
Tax Plan Increases Red Ink in Next Budget and Leaves Holes in This One
Governor Walker conceded to reporters that his new tax cut proposals will increase the red ink in the 2015-17 state budget by about $100 million – meaning that lawmakers will have to grapple with a structural deficit of more than $800 million as the state goes into the next budget cycle.
According to initial statements to the press corps, his proposal includes a $406 million reduction to property taxes, a $98 million cut in personal income taxes, and the use of nearly $323 million to adjust income withholding schedules (which costs the state up front, but reduces the subsequent refunds the state owes to income tax filers). Another $100 million or so will be put into the state’s rainy day fund.
The deeper structural deficit is likely to be the most contentious aspect of Walker’s plan among Senate Republicans, but it is just one of many reasons why I think his proposal is extremely disappointing. Read more
A big jump in state revenue that will be announced soon gives lawmakers an excellent opportunity to invest in Wisconsin’s economic future and to put the state on a sounder fiscal footing by filling budget holes.
Important tax credit eligibility information for Wisconsin families.
Governor Signs Property Tax Relief Bill; Assembly Shelves Dem Amendment with Much More Relief for Most Homeowners
Today Governor Walker signed a bill that provides $100 million of property tax relief over the next two years. The bill will do the following:
- Reduce property taxes by an average of $13 this year and $20 next year for people owning median value homes.
- Increase to $725 million the fiscal hole or structural imbalance in the next biennium (which means that first $725 million of new revenue is needed just to maintain flat funding).
- Reduce the projected balance at the end of the current biennium to $125 million, which is enough to cover three days of state spending.
The bill was approved by a lopsided vote in each house of the legislature. In the Assembly, all but 12 Democrats voted for passage of the bill, but not before they offered a substitute amendment that would have provide substantially more property tax relief and would have targeted much more of that relief to residential property owners. Read more
One of the factors contributing to a larger-than-anticipated state budget surplus is a decline of about $11 million in spending for the Homestead tax credit in fiscal year 2012-13. Considering how the surplus was bolstered by that spending reduction, and also by a sharp cut in state General Fund support for the Earned Income Tax Credit, it’s very disappointing that the large tax cuts enacted this year have done little if anything to help low-income households.