What Tax Cut Proposals Could Mean for Wisconsinites

Monday, August 23, 2010 at 5:26 PM by

The Bush tax cuts are set to expire at the end of 2010, and President Obama and Congressional Republicans have offered competing proposals as to which aspects of the tax cuts should be continued. The two approaches would result similar effects for middle and upper middle-income taxpayers in Wisconsin, but they would have different impacts for low-income and especially for the very highest income groups.

President Obama has proposed making permanent the Bush income tax cuts for those making below $200,000 individually or $250,000 jointly and reducing the estate tax. President Obama is also advocating for making permanent the temporary expansions to the Earned Income Tax Credit (EITC) and Child Tax Credit that were included in the Recovery Act. These credits typically benefit lower income workers.

Congressional Republicans have proposed making permanent the Bush income tax cuts regardless of income, eliminating the estate tax, and not extending the EITC or Child Tax Credit expansion.

How would these two different approaches affect Wisconsin families? Citizens for Tax Justice has released a simulation of how Wisconsin families would fare under the competing proposals, broken down by income group. Taxpayers earning in the bottom forty percent would fare somewhat better under President Obama’s plan, with a tax cut of about $110 more, as seen in Chart 1. There would be virtually no difference between the two plans for middle and upper-middle income taxpayers. Taxpayers in the top 1% income group, who earn an average of $1.0 million, would receive a tax cut of $39,327 more with the Republican plan than with the Obama proposal.
That’s not to say that top earners would fare poorly under the president’s plan. Far from it. If Obama’s plan is enacted, the top 1% would still get an average tax cut of $21,739 and receive a 14% share of the total tax cut, as shown in Chart 2. But under the Republican plan, the top 1% of earners in Wisconsin would receive a much bigger share of the total tax cut – 31%. With Obama’s plan, the effects of the tax cut would not be as concentrated among the ranks of the richest taxpayers, although they would still accrue significant benefit. Paul Krugman’s column in today’s New York Times also includes a description of how the tax cuts will disproportionately benefit the richest taxpayers.
It is almost certain that at least some of the Bush tax cuts will be extended, for some taxpayers. The Wisconsin Budget Project blog will continue to follow this issue – look for additional posts on this topic as events unfold.
Categories: Blog, EITC, federal issues, income taxes, Recovery Act, taxes | Comments Off on What Tax Cut Proposals Could Mean for Wisconsinites

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