Governor is Focused on Property Tax Cuts, but Overlooks the Best Solution
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.
If lawmakers are set on cutting property taxes further, a better way to do it would be to make sure the tax cuts go to people who need it the most, by strengthening the Homestead Credit.
In 2011, lawmakers froze the formula used to calculate the Homestead Credit, driving up property tax bills for people with low incomes. Each year the formula remains frozen and is not adjusted for increases in the cost of living, the value of the credit drops, and many Wisconsinites lose eligibility as their incomes gradually climb above the upper income limit.
The erosion of the Homestead Credit is an example of how failing to account for even small increases in the cost of living can harm tax relief in a significant way. In the three years after the formula was frozen, the number of Wisconsin residents receiving the credit dropped by nearly 28,000 and the average amount of tax relief declined by $41.
Nearly all other elements of the tax code except for the Homestead Credit 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.
The cost of strengthening the Homestead Credit is tiny compared to the size of tax cuts recently passed by the legislature. By setting aside 6¢ from every $100 in tax cuts passed for 2015, lawmakers could make sure that property tax relief is available for people who need it. Lawmakers who want to cut property taxes should start fixing the Homestead Credit.