Tax Day and Potential Tax Cuts
Income taxes are on the minds of many people today, at least among those scrambling to meet the April 15 deadline for filing their tax returns. We’ve been thinking of taxes as well, including the Governor’s proposal to cut the state income tax by an estimated $343 million over the next two years. See, for example, our recent fact sheet about the state income tax, our infographic on where your state tax dollars go, and this column in the Milwaukee Journal Sentinel.
Today is a good occasion to ponder the key questions about the proposal to cut income tax rates, and I’m going to focus primarily on one of those questions: Is the proposed income tax cut equitable?
Tax equity is a subjective term, but by many measures the Governor’s plan falls short. Although some of the proposal’s proponents have said on various occasions that it will provide tax relief for all Wisconsin taxpayers, that’s not the case. One needn’t look any further than the Dept. of Revenue’s figures regarding who would benefit. Those figures show that 2.9 million Wisconsinites file taxes each year, and they estimate that 757,000 filers won’t see any benefit from the $343 million income tax cut proposed by the Governor.
It‘s not like those low-income families and individuals aren’t paying taxes. In fact, state and local taxes consume a larger percentage of their income than is the case for high-income Wisconsinites. (See the distribution of Wisconsin taxes here.) In addition, many low-income state residents now pay more for taxes than they did two years ago because of cuts in the last budget to the Earned Income Tax Credit and the repeal of the statute that adjusted the Homestead Tax Credit for inflation.
A Wisconsin Budget Project analysis released last week found that the average value of the Homestead Credit has fallen by 27% over the last two decades, and the value of the maximum credit has fallen by 37%. If the state can truly afford a significant tax cut, a broader range of Wisconsinites should benefit, including those who are now paying more taxes because of cuts last session to their Homestead Credits and the state EITC.
Another important question is whether the proposed tax cut will help the state economy. WCCF’s executive director, Ken Taylor, tackles that issue in a column in the Milwaukee Journal Sentinel last week. The column summarizes an analysis of the results of two decades of state income tax cuts around the country, which found that most of the states that enacted significant income tax cuts during the 1990s and 2000s have lagged well behind the average economic growth in the rest of the nation.
We have many concerns about the tax cut plan, including the fact that it contributes to a large structural deficit in the 2015-17 biennium. (See this April 13 Green Bay Press Gazette editorial opposing the income tax cut for that reason.) If legislators decide that the state can afford a substantial tax cut, we hope that the plan they approve doesn’t make cuts that are counterproductive economically and that it helps more Wisconsinites than the current proposal.