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. (Indexing the EdVest tax deduction will reduce state revenues by an estimated $200,000 a year.)
No such adjustments are made to the Homestead Credit. Income caps and other factors used to calculate credit levels have been frozen for most of the last 20 years. As a result, fewer Wisconsin residents are eligible for the credit than would otherwise be, average credit levels have shrunk, and Wisconsinites with low incomes are paying more in property taxes. (Read more here about erosion of the credit.)
The cost of indexing the credit would be modest – about $7 million in FY 2015. That’s less than 2% of the cost of the $404 million untargeted property tax cut that the Governor has proposed and the Assembly has approved. It’s also only about a third of the savings in the 2013-15 biennium from recent downward revisions in the projected cost of the Homestead Credit.
Unfortunately, lawmakers do not seem inclined to include a measure indexing the Homestead Credit in with the Governor’s tax cut proposal. The result is that the Homestead Credit will continue to be the odd man out in the tax code, and residents with low incomes will pay higher taxes.