Top 5% of Wisconsin Residents Get 18% of Tax Cuts Proposed by the Governor

Friday, January 24, 2014 at 2:00 PM by

The distribution of the tax cuts proposed by the Governor isn’t our chief concern about how he would use the projected state surplus. We’re primarily concerned that Governor Walker’s plan ignores holes in the current budget, and creates a deeper hole in the next one – boosting the structural deficit in 2013-15 to about $825 million.

That said, many people have asked us about the distribution of the proposed tax cuts, and we asked the Institute for Taxation and Economic Policy (ITEP) to crunch the numbers for us.  The ITEP analysis — which focused just on the two major changes in the Governor’s plan — found that the top 5% of Wisconsinites, who made $161,000 or more in 2013, will get 18% of the tax cuts. By contrast, the bottom 40% get just 15% of the benefit.

 If one divides state residents by income into five groups (“quintiles”), the ITEP analysis reveals the following:

  • The bottom fifth of Wisconsinites, who were making less than $21,000 per year in 2013, would get 5% of the $500 million tax cut, and an average tax cut of $39.
  • The middle fifth of state residents, with incomes between $37,000 and $60,000, would receive 16% of the tax cut and an average of $117.
  • The top fifth, who have incomes over $88,000, would get 44% of the total tax cut and an average cut of $308.
  • More specifically, the top 1%, who made $380,000 or more in 2013, would enjoy 7% of the total tax cut and an average cut of $951.

2014-tax-cut-two-charts-3

In considering these numbers, keep in mind that the ITEP analysis doesn’t account for changes the Governor’s proposal makes in the alternative minimum tax, with a price tag of roughly $37 million in this biennium and much more in the next biennium, and which primarily benefit a relatively small group of wealthy state benefits. 

The distributional effect isn’t a big surprise, considering that wealthy people own more property and pay more property taxes. Thus, an identical cut in the mill rate for all property tax owners will yield much larger savings for those who own more property and have more valuable homes.

Although the distribution of the tax cuts is not our primary concern about the plan for the projected surplus, the ITEP analysis helps illustrate why legislators might want to consider other options. There are alternatives that would better target tax reductions to those who are struggling the most to pay their property taxes and their other pressing bills, such as the very high heating costs this winter.

Among those alternatives, one of the easiest things to do is simply to reverse the tax increases for families enacted in the 2011-13 budget, when state lawmakers made a substantial cut in the earned Income Tax Credit and a harmful change in the formula for the Homestead Credit (by repealing the annual adjustments for inflation).  In fact, the state should go further than that and increase the Homestead Credit and the current income ceiling.  (Read more here about why that is particularly important for seniors.) 

However, the chief problem with the Governor’s plan is that the state would squander a great opportunity to get its fiscal house in order.  By ignoring holes in the current budget and digging a deeper hole in the next budget, the Governor’s proposal creates significantly greater risk for the education systems so vital for Wisconsin’s future economic success, as well as risk for the safety net programs to assist vulnerable Wisconsinites and those who are still suffering from the recession.

Jon Peacock

3 Responses to “Top 5% of Wisconsin Residents Get 18% of Tax Cuts Proposed by the Governor”

  1. […] – the exact amount isn’t known at this point – into the rainy day fund, and use the rest for tax cuts and reduced tax […]

  2. […] Unfortunately, the LFB paper does not shed light on the income distribution of the AMT changes, nor does the analysis last week by the Institute on Taxation and Economic Policy (ITEP), which examined the distribution of the property tax cut and the $99 million cut from the change in income tax rates.  Even without factoring in the AMT changes, ITEP calculated that the top 5% of Wisconsinites, who made $161,000 or more in 2013, will get 18% of the proposed tax cuts, whereas the bottom 40% get just 15% of the benefit.  (Read more here.)  […]

  3. […] That analysis by the Institute on Taxation and Economic Policy doesn’t include the rapidly growing effect of […]