New Version of Tax Cut Remains a Windfall for the Highest Earners

Wednesday, June 5, 2013 at 2:24 PM by

Early this morning, the Legislature’s budget committee passed an income tax cut that could hurt Wisconsin’s ability to be economically competitive, and would give significant tax cuts to the wealthiest while leaving out most low-income people.

Income tax cuts won’t create the job growth that has been alarmingly hard to find in Wisconsin recently. Instead, tax cuts like the one approved today will undermine the state’s future economic competitiveness by making it harder to make the kind of investments that do create jobs.

The package approved by the Legislature’s budget committee reduces state tax revenue by $651 million over the next two-year budget period.  For the cost of the tax cut, Wisconsin could have made much better investments that would make greater contributions to future economic growth. Plowing that money back into the state’s public education system, or using those resources to make sure that students have affordable access to higher education would have a better return for the state’s economic competitiveness.

In addition to limiting Wisconsin’s economic opportunities in the future, the tax cut gives the biggest benefits to the best-off, while giving no benefit to many lower-income people. The tax cut for tax filers earning $50,000 a year or less will average $45 a year, while tax cuts for filers earning $300,000 and up will average $1,440, as shown in the chart below.

Many policymakers have mistakenly claimed that everyone who earns income in Wisconsin will benefit from the tax cut. The latest person to make such an assertion is Assembly Speaker Robin Vos, who in today’s  Milwaukee Journal Sentinel article said “No matter what you earn in Wisconsin, you’ll see a tax reduction based on what we do today.” He is overlooking the fact that an estimated 763,000 tax filers will not receive a tax cut from this proposal, mostly because they earn too little to have an income tax liability. Most people earning $30,000 a year or less will not receive a benefit from the income tax cut, while nearly all the filers in higher-income groups will, as shown in the chart below.

Leaving out three-quarters of a million tax filers from the tax cut is concerning for a number of reasons, including the fact that low-income workers in Wisconsin typically pay a higher share of their income in state and local taxes than the highest-income earners. Taxpayers in the lowest 20% of earners pay 9.6% of their income in state and local property taxes in Wisconsin, compared to 6.9% for people in the top 1% of earners.

The Legislature’s budget committee reduced rates for all income brackets, with the biggest reduction in rates for income between $215,000 and $315,000, as shown in the table below. The smallest reduction in rates is for income above $315,000 and above, but keep in mind that tax filers in the highest categories also receive the tax cuts on their income in lower brackets. The most recent tax proposal reduces the number of tax brackets from five to four, meaning that couples earning $29,000 would be in the same tax bracket as people earning $315,000.

There has been a flurry of income tax cut proposals recently, so many that sometimes it’s hard to keep track of them. A quick recap of the proposals so far:

  • Earlier this spring, Governor Walker proposed an income tax cut that had a two-year price tag of $348 million. Here is our February 21st blog post on this topic.
  • In May, Rep. Dale Kooyenga proposed an income cut that was twice as large as one proposed by the Governor’s plan, and even more heavily tilted towards benefitting the biggest earners. You can read our summary of Kooyenga’s proposed package in this May 30th blog post.
  • This morning, the Legislature’s budget committee approved the most recent version of the tax cut, described in this blog post. The current version is a somewhat scaled-back version of the tax package proposed by Rep. Kooyenga.

The budget now goes to the Assembly and then the Senate for approval, either of which could tweak the income tax cut further.

Tamarine Cornelius

Categories: 2013-15 biennial budget, Blog, income taxes, STATE BUDGET, STATE TAXES | Comments Off on New Version of Tax Cut Remains a Windfall for the Highest Earners

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