Tax Filing Season Brings Smaller Credits to Working Families

Thursday, April 5, 2012 at 6:40 PM by

Over 140,000 Wisconsin families will get smaller tax refunds from the state as a result of cuts to the Earned Income Tax Credit (EITC) made by legislators in the 2011-13 state budget, according to a new analysis by the Wisconsin Budget Project. While the Legislature was cutting $56 million from the EITC–effectively raising taxes on low-income working families– businesses and higher-income residents were receiving about $210 million in new tax breaks.

The cuts to the EITC mean a single mother with three children who works full-time at the minimum wage will see her tax credit reduced by $518 for tax year 2011, from $2,473 to $1,955. That is the equivalent of a week-and-a-half of her pay, as shown in the chart below. For a family with two children, the credit will be reduced by up to $154, from $716 to $562, the equivalent of more than 20 hours of work at minimum wage.

Wisconsin’s refundable EITC was signed into law by Republican Governor Tommy Thompson in 1989, and has enjoyed broad bipartisan support since that time. This cut to the EITC puts Wisconsin at odds with the national trend over the last two decades of reducing state income taxes on the working poor, as shown in a new report from the Center on Budget and Policy Priorities. This national report on taxes for the working poor found that Wisconsin is one of just three states that raised taxed in 2011 on workers with income below the poverty line.

Even taking the EITC into account, low-income Wisconsin families currently pay a higher percentage of their income in state and local taxes than higher-income taxpayers. These tax changes will increase this disparity.

The entire analysis by the Wisconsin Budget Project can be found here.

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