Proposed Income Tax Cut Leaves Out Many Earners with Lowest Incomes

Monday, March 18, 2013 at 12:47 PM by

The income tax cut proposed by Governor Walker would cut taxes for many Wisconsinites, but more than three-quarters of a million Wisconsinites would not receive any benefit from the tax cut. Nearly all the people who would not receive a tax cut make less than $30,000.

The proposed income tax cut would reduce income taxes for 73% of tax filers, according to an analysis from the Legislative Fiscal Bureau. The remaining 27% of tax filers – an estimated 757,000 people – would not receive any benefit from the income tax cut.

Nearly all of the tax filers who would not receive an income tax cut are low-income. More than half a million Wisconsinites who earn less than $10,000 a year would not benefit from the income tax cut. Another 166,000 people earning between $10,000 and $20,000 would not receive a benefit, as would 32,000 people who earn between $20,000 and $30,000. About 9,000 people who earn $30,000 and more a year would not receive an income tax cut.

Most people earning under $30,000 would not receive an income tax cut under the plan that Governor Walker has proposed. Just 41% of tax filers who earn under $30,000 would receive a tax cut. In comparison, more than 99% of tax filers earning more than $100,000 would receive a tax cut, as shown in the chart below.

 

Although many low-income earners have no income tax liability and would not receive any benefit from the income tax cut, they typically pay a higher share of their income in state and local taxes than do Wisconsinites with the highest incomes. People in the bottom fifth of earners, who on average earn about $13,000, pay 9.6% of their income in state and local taxes, as shown in the chart below. That’s a bigger chunk of their income than people in the top 5% of earners pay in taxes, yet most of those low-income earners would not receive an income tax cut under the current proposal.

If lawmakers want to implement a tax cut that would primarily benefit moderate and low-income families, they should beef up the Earned Income Tax Credit. The EITC encourages work, helps families lift themselves out of poverty, and reduces taxes paid by the lowest-income earners. The current budget surplus means we have an opportunity to undo the very significant cuts to the EITC that were included in the 2011-13 budget.

Tamarine Cornelius

2 Responses to “Proposed Income Tax Cut Leaves Out Many Earners with Lowest Incomes”

  1. Harry Balzergood says:

    So what! These low income people contribute nothing to income taxes. Plus, they have wealth re-distributed to them thru the Earned Income Credit.

    You are in the poverty business–a poverty hustler. Liberal-Progressive-Democrats have spent trillions of dollars over the last 50 years and poverty has only increased. Don’t you think its time to do something else other than throwing more money at it?

  2. […] Tamarine Cornelius from the Wisconsin Budget Project argued that if lawmakers want to implement a tax cut that would primarily benefit moderate and low-income families, they should beef up the state’s EITC, instead of passing Gov. Walker’s income tax cut that would not benefit any Wisconsin families with incomes less than $30,000. The current budget surplus means there is an opportunity to undo the $41.3 million in cuts made to the EITC in the 2011-13 budget. (Wisconsin Budget Project) […]