Cost Adds Up for Tax Cuts Included in the Budget

Thursday, July 16, 2015 at 11:40 AM by

Lawmakers included four major tax cuts in the 2015-17 budget, at the same time as they were limiting resources for critically important institutions like the University of Wisconsin system and public schools. When fully implemented, the tax cuts will reduce tax revenue by more than $250 million a year.

The four tax cuts include:

#1: Increasing the school levy tax credit.

Cost: $211 million in 2015-17 ($105.5 million per year)

Lawmakers increased the size of this tax credit paid to municipalities. Municipalities must then pass the money through to property owners in the form of lower property taxes.

Only about half the school levy tax credit lowers property taxes for Wisconsin residents on their primary homes. That means a large part of the remainder reduces property taxes for owners of commercial and industrial property and out-of-state owners of vacation homes.

The higher the value of the property, the greater the school levy tax credit is for property owners within an area. The result is that property owners with high incomes typically receive larger credits than owners with lower incomes, and will receive outsized benefits from the increase in the school levy credit.

#2: Increasing aid to schools, and requiring that the money be used to reduced property taxes

Cost: $108 million a year

Lawmakers increased general aid to school districts, but did not allow districts to increase their budgets to use the additional resources in the classroom. Instead, districts will generally be required to use that money to reduce property taxes.

The increase in aid occurs in the second year of the two-year budget, so the total cost of this tax credit in the current budget is $108 million.

#3: Nearly eliminating the Alternative Minimum Tax

Cost: About $27 million a year

Lawmakers are virtually eliminating the Alternative Minimum Tax, which is aimed at making sure that people with high incomes pay a minimum amount of income tax. The change means that more than 90% of taxpayers currently subject to the AMT will not have to pay it, and the others will pay considerably less than they do now.

Most of the taxpayers who will benefit from this tax cut earn more than $200,000 per year.

This change doesn’t take effect until late in the two year budget period, so it reduces revenue by only $6 million in the 2015-17 budget. But that cost balloons to $25 million in fiscal year 2018 and then $30 million the following year.

#4: Cutting income taxes for married couples by increasing the standard deduction

Cost: About $21 million a year

The budget increases the amount that married couples are allowed to deduct from their income when calculating the amount of state incomes taxes owed. Most of the value of the tax cut will go to married couples earning under $100,000 a year.

This measure will cut taxes for married couples by $21 million in the second year of the budget, by about that much each year going forward.

These and other tax cuts make it harder for Wisconsin to support excellent public schools, accessible higher education, and a healthy workforce. A continued emphasis on tax cuts will require lawmakers to shortchange investments important for growing Wisconsin’s economy.

For more on changes to taxes and revenue in the state budget, read our recent summary of the issue.

Tamarine Cornelius

Categories: 2015-17 biennial budget, Blog, In Focus State Taxes, income taxes, STATE BUDGET, STATE TAXES | Comments Off on Cost Adds Up for Tax Cuts Included in the Budget

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