One Year Later: Big Changes in State Tax Policy
Big Change #2: Corporations and Well-Off Are Paying Less in Taxes, and Working Families are Paying More
One year into the state’s two-year budget period, corporations and well-off individuals are paying less in taxes than they did before the budget, and working class individuals and families are paying more.
The budget included two significant tax breaks that have already kicked in. One tax change that benefits multi-state corporations partially rolls back a recent law that made it difficult for big businesses to shift their income between different states to avoid taxation. This tax break reduced the state income tax these corporations pay in Wisconsin by $9 million in fiscal year 2012 (which ended on June 30, 2012), and will cut their tax liability by another $37 million this fiscal year.
A second tax cut in the budget reduced the tax that individuals pay on their capital gains, or profits from investments. This tax cut reduces the income taxes paid by mostly well-off taxpayers by $16 million in the fiscal year that just ended, and another $20 million this year. If past patterns hold true, Wisconsin taxpayers earning $200,000 and more – less than 2 percent of the population – are receiving nearly half the benefit of this tax break, as shown in the chart below. Only five other states offer tax breaks on capital gains along the same lines as Wisconsin.
There is one more significant tax cut in the budget that will start to be phased in next year (TY 2013), so it hasn’t yet begun to affect taxpayers. But this tax break is worth mentioning, because when it is fully phased in, it will nearly eliminate the income tax paid by manufacturers and some agricultural businesses. This tax break will reduce the taxes paid by these businesses by $10 million in the second half of this fiscal year, and the estimated loss to the state treasury balloons to $129 million in 2017. To put that larger dollar amount in context, it’s almost as much as the state spends on the entire technical college system in Wisconsin.
Meanwhile, working class families and low-income seniors are paying higher taxes since the budget passed. That’s because the budget scaled back two tax credits that reduce the amount of taxes these Wisconsinites pay. The budget cut $56 million over two years from an income tax credit for working families, and another $14 million in a property tax credit for low-income seniors and other individuals. (See our analysis of how that change is especially a problem for those relying primarily on Social Security benefits for their income.)
The changes to the Wisconsin tax system that were implemented in the budget shift the responsibility for paying taxes away from corporations and the wealthy, towards working-class and low-income individuals and families. These changes also reduced revenue, requiring deeper cuts to investments in our schools and communities, and the depth of those cuts may increase as the large corporate tax break is phased in.