Proposed Income Tax Cut Leaves Out Many Earners with Lowest Incomes
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.