New Figures Highlight Need to Adjust Homestead Credit
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.
According to the new LFB paper (#596) and our analysis of their figures and past Homestead spending amounts:
- Total spending for the Homestead credit is now expected to decrease by $12 during the biennium, a drop of $3.2 million more than the reduction assumed in the budget bill.
- The amount of Homestead credits in fiscal year 2016-17 is now projected to be a little below $112 million, which is $21 million less than the amount in FY 2010-11.
- The inflation-adjusted level of spending for the credit in 2016-17 will be about $29 million or 21% less than the value of the credit in 2010-11, and $32 million less than the value in 2005-06.
Part of the decrease might be attributed to an improving economy; however, the portion of people in poverty hasn’t been improving very much. The primary reason for the credit’s decline is that the state no longer makes inflation adjustments to the credit formula factors, such as the income ceiling for eligibility and the maximum size of the credit. Some of the effects of the formula freeze include the following changes during the period 2005 to 2015:
- The income ceiling to qualify for the credit dropped by $5,300, or 18%;
- The maximum tax credit has dropped in value by $250; and
- The value of the average credit has fallen by $120 over that 10-year period, and will drop even more over the next two years.
It’s time to halt the continued erosion of the Homestead credit and improve property tax relief for low-income households. Our alternative budget plan, the “Better Choices” budget, would accomplish just that by restoring provisions in state statutes to annually adjust the credit for inflation and would finance that by shifting $11 million from the poorly targeted school levy credit. Restoring those annual adjustments to the Homestead credit could also be accomplished simply by maintaining the base funding level, rather than standing idly by as this tax assistance for vulnerable, low-income household falls in 2015-17 by an additional $12 million.
Read more in our short issue brief regarding the relative merits of the Homestead credit and the school levy credit. The Joint Finance Committee is expected to vote on both property tax credits at its Thursday, May 14th meeting.