An Overview of Taxes and Revenue in the 2013-15 Budget
The budget includes a significant income tax cut and new resources for tax enforcement. For many people, property taxes will stay relatively flat due to limitations on the ability of local governments to raise money through the property tax. The budget includes several different ways of increasing revenue available for highways at the expense of other important programs, such as education and health care.
As a result of a total of about $1 billion of new tax cuts and previously enacted cuts that are gradually being phased in, General Fund spending will significantly exceed new revenue in 2013-15. A Fiscal Bureau analysis indicates that there will be a hole of roughly $500 million at the start of the 2015-17 biennium.
A “Middle Class” Tax Cut that Largely Goes to the Wealthy
The budget includes an income tax cut that decreases state tax revenue by $651 million over the two-year budget period, compared to current law, plus an additional $30 million cut in the second fiscal year from a new income tax deduction for private school tuition. The tax cut will decrease individual income tax rates as shown in the table below.
Some legislators have said that the income tax cut is aimed at helping the middle class. However, the benefit of the income tax will largely go to the highest earners. Taxpayers earning more than $100,000 make up just 14% of the tax filers, but will receive 55% of the benefit of the cut. The tax cut for filers earning $50,000 a year or less will average $45 a year, while tax cuts for filers earning $300,000 and more will average $1,440.
Many low-income earners will receive no tax cut at all. Only 41% of people earning under $30,000 a year will receive a tax cut, compared to virtually everyone at higher incomes, as show in the chart below.
The budget maintains the tax increases on low- and moderate-income families that were included in the last budget, which made a deep cut to the Earned Income Tax Credit and a more gradual cut to the Homestead Credit.
The budget includes variety of other small tax cuts, bringing the tax cut total in the budget to $784 million over two years. The budget also includes $83 million in tax increases.
Other Tax Changes
The budget makes a number of changes relating to tax credits and deductions, including:
- Providing an additional $75 million in available credits to promote economic development.
- Adding an individual income tax deduction for private school tuition, for $4,000 per year for students in grades K-8 and $10,000 per year for students in grades 9-12. This move is expected to reduce tax collections by $30 million per year, starting in tax year 2014.
- Lifting the cap on the amount of credits available under the angel investment tax credit program. This move will reduce tax revenue by $5 million, starting in 2015
The budget also specifies that if changes to federal law allow Wisconsin to require internet sellers to collect sales tax, the additional revenue would be used to reduce income taxes.
Additional Tax Enforcement and Stepped-Up Scrutiny for Low-Income Families
The budget boosts tax enforcement by increasing Department of Revenue staff by 61 full-time equivalent (FTE) positions. The additional staff and enhanced enforcement actions are expected to cost $13 million over the two-year budget period, and increase tax revenue by $89 million, for a net increase of $76 million in revenue. As part of the enforcement actions, the tax returns of low- and moderate-income families who claim the Earned Income Tax Credit or the Homestead Credit will receive additional scrutiny under the budget proposal.
Limited Resources for Local Governments
This budget continues strict controls on the amount of property taxes that local governments are able to raise. Under this proposal, counties, municipalities, and technical colleges must limit any increase in their levy to the growth in property values due to new construction. The budget includes an additional $30 million in property tax credits over two years that will reduce taxes paid by property owners.
Most state support for counties and municipalities will be frozen for the next two years under the budget. However, the budget does include a 4% increase in local transportation aid, beginning in calendar year 2015. Prior to this budget, state aid to counties and municipalities had fallen by 32% over the last 10 years, when adjusted for inflation.
More Resources for Highways, at the Expense of Education and Healthcare
The budget includes several measures that reduce revenue or increase costs for the General Fund while benefitting the Transportation Fund. Spending from the state’s General Fund supports Wisconsin’s public school system, access to health care for working-class people, higher education, the prison system, and many other purposes. Money from the state’s Transportation Fund largely supports highways.
- Transfers $133 million more from the General Fund to the Transportation Fund. This amount is in addition to a previously-existing requirement that 0.25% of sales tax revenue be deposited into the Transportation Fund instead of the General Fund.
- Speeds the reconstruction of the Zoo Highway Interchange in Milwaukee by increasing bonding, with $200 million of the bonding to be repaid by the General Fund. Traditionally, the Transportation Fund has been the source of bonding for highways.
- Allows the state to sell property, including power plants, with the proceeds going to repay bonds supported by the General Fund.