Tiny Piece of Projected Surplus Could Mitigate Recent Tax Increases on Families and Seniors with Low Incomes
Many of Wisconsin’s most vulnerable families and elderly adults would not get much help from the Governor’s plan for the projected state surplus. That could change if the Legislature were to use a small fraction of the surplus to undo recent cuts to the Homestead Credit and Earned Income Tax Credit, according to a new report from the Wisconsin Budget Project.
According to the Legislative Fiscal Bureau, over $30 million of the projected surplus is from lower-than-expected spending on those two tax credits that help lower-income households. The Homestead Credit is especially important to Wisconsin’s senior citizens. In 2012, nearly a third of those receiving the credit were 63 years old or older, and one out of 11 seniors in the state–more than 80,000 older Wisconsinites–benefit from the credit.
The Homestead Credit is one of the only parts of the tax code that doesn’t get adjusted regularly for inflation. The Legislature changed the Homestead formula to take inflation into account in the 2009-11 state budget, but the very next biennial budget undid that change.
The failure to annually adjust the Homestead Credit for inflation has cost Wisconsin seniors dearly. A typical person living on Social Security in Wisconsin has paid nearly $12,500 more in property taxes over the last 20 years than he or she would have if the Homestead Credit formula had been adjusted to keep up with the cost of living. The chart below shows how the failure to adjust for inflation has caused the value of the credit to drop over time.
According to the Budget Project’s new analysis, it would take only about $7 million of the $406 million the Governor has proposed in untargeted property tax cuts to stop the erosion of the Homestead Credit and help ensure that property tax relief is available for people who need it most. Unfortunately, that option for using a small fraction of the surplus hasn’t been included in any of the Republican proposals nor in the chief alternative offered by Democratic lawmakers.