Would, or Should, Tax Cut “Help Those Hit Hardest by Economic Difficulties Get Back on Their Feet”?

Sunday, June 2, 2013 at 6:47 PM by

State Lawmakers Should Match Their Rhetoric by Making the Tax Cuts Help More People  

I was surprised to read the following statement in a message that Governor Walker recently distributed via e-mail and tweet:   “Including a tax cut in the 2013-15 budget will help those hit hardest by economic difficulties get back on their feet.”  

It’s a great sentiment and I’d like to applaud the Governor for expressing it, but unless he’s working on a new tax cut plan that he hasn’t unveiled yet, it’s far off the mark.  I think that if you took the Governor’s statement and changed “will” to “should,” there would probably be broad agreement in the goal of helping those hit hardest by the recession.  And if lawmakers can agree on that goal, they should start working on passing a budget that will achieve it.      

As it stands now, the Governor’s tax plan does little or nothing to help Wisconsin workers who are unemployed, working in minimum wage jobs, or working sharply reduced hours because of the deep recession and Wisconsin’s anemic recovery.  According to statistics from the Department of Revenue, more than three-quarters of a million tax filers in our state would not benefit at all from the $343 million tax cut recommended by the Governor.   And keep in mind that low-income Wisconsinites generally pay a higher percentage of their income in state and local taxes than the highest income state residents. 

Whenever progressives draw attention to the fact the proposed tax cuts don’t help low-income households, someone inevitably accuses us of being too dense to understand that income tax cuts shouldn’t be expected to help people who pay little or no income taxes.  Of course, they are right in arguing that high income Wisconsinites pay a significantly larger percentage of income taxes than the low and middle income residents of our state, so the wealthy will benefit much more by cutting income tax rates.  But why do the people who make that point so often argue erroneously that the proposed income tax cut will help “all taxpayers” and that there aren’t alternatives that could help more people? 

In short, a major part of the debate over the shape of the proposed tax cuts comes down to a basic question of whether the goal should be to lower taxes just for those who have an income tax liability (and especially those who pay the most income taxes) or to help all taxpayers, including those “hit hardest by economic difficulties.”  Here are the major reasons why I think it would be unfair and unwise to adopt a tax plan that leaves out so many Wisconsinites (including 27% of those who file tax returns with the Department of Revenue):

  • Lower-income households who don’t owe income taxes nevertheless pay other taxes; in fact, they typically pay a higher percentage of their earnings in state and local taxes than the richest 5% of Wisconsinites. (See Table 6 on p.7 of Fiscal Bureau paper # 280.)
  • Reducing taxes for low-income people generally stimulates the economy more, because they are much more likely to spend their savings locally and keep that money circulating in the Wisconsin economy, whereas much of the tax cuts enjoyed by wealthy people is saved and has less of a multiplier effect.   
  • There is already a growing gap between the rich and the poor, and the proposed income tax cuts would widen that gap.
  • The last biennial budget raised taxes on low-income working parents and the elderly by cutting the Earned Income Tax Credit (EITC) and ending the annual adjustments to the Homestead tax credit.
  • Part of the funding that is being used for tax cuts comes from cutting or lapsing funds for programs intended to help low-income and disadvantaged families – including the funds siphoned off from the Temporary Assistance to Needy Families block grant, the foreclosure settlement funds, and the federal bonus funds earned by Wisconsin for the success of BadgerCare. 
  • Because the tax cuts are partially funded with one-time savings, they are likely to create a hole (“structural deficit”) in the 2015-17 biennial budget, and the spending cuts or tax increases needed to close that hole could adversely affect all Wisconsinites.   

In our next blog post we’ll examine options for devising a package of tax cuts that would help many of the people excluded from the benefits of the plans currently on the table.  

Jon Peacock 

One Response to “Would, or Should, Tax Cut “Help Those Hit Hardest by Economic Difficulties Get Back on Their Feet”?”

  1. Mike says:

    Shouldn’t you be asking the exact same questions of Barack Obama amd Congress?