Thursday, October 1, 2015

How can the Lottery cut my taxes? Glad you asked!

There were a couple of lottery-related items in the news today. The one you may have heard of was the $310 million Powerball jackpot that was won last night by someone who bought their ticket in Michigan (and of course, I forgot to buy one).

The one you may not have heard of is a bit closer to home. It was a document sent by the Walker Administration to the Leigslature’s Joint Finance Committee estimating an amount for the Lottery Tax Credit that’ll appear on property tax bills this Fall. This estimate comes out every year around this time, and I wanted to explain a little bit about how it works before I tell you how your bill might change next year.

This Lottery credit is based on proceeds from the many games the Wisconsin Lottery is part of. This amount has gone up in recent years, largely due to more spending by people on the lottery, which meant more money was left over after winnings and costs to be sent back to Wisconsinites for property tax relief.

This tax break was boosted further in the 2013-2015 by the WisGOP Legislature and Governor Walker, when they added $14.85 million a year in taxpayer funding to the school levy credit, instead of having the Lottery Fund chip in to that credit (items 1 and 2 under “Property Tax Credits” in this paper). This didn’t change the amount of the School Levy Credit, but allowed the Lottery Fund to get bigger, which increased the amounts that got taken off on tax bills. Smooth trick, eh?

The Legislative Fiscal Bureau’s informational paper on the lottery credit and related property tax breaks explains that this credit is a flat amount regardless of the value of your property.
Since most properties have a value in excess of the credit base [$11,000 for tax year 2014(15)], most taxpayers' lottery and gaming credits equal the school tax on the credit base. Because of this, most taxpayers in the same school district receive identical credits, and taxpayers with lower-valued properties receive lottery and gaming credits that are a larger percentage of their gross school tax levies than taxpayers with higher-valued properties.

For example, 2014(15) tax credits of $113 would be extended to all properties with values over $11,000 that are located in a school district with a tax rate of 10.25 mills. For a property with a value of $150,000, the credit would reduce school taxes of $1,538 by 7.3%. A reduction of 4.4% would occur for a $250,000 property with a school tax bill of $2,563.
If your school district has a higher mill rate, you get a bigger lottery credit write-off (I live in Madison, and our credit was a little over $131 last year).

The bottom line is that this credit has reduced property taxes on the average Wisconsin home by $28 a year compared to what it did when Gov Walker was elected in 2010.

Average Wisconsin lottery property tax credit
2010(11) $85
2011(12) $89
2012(13) $94
2013(14) $113
2014(15) $113

This $28 increased credit has contributed to a common Walker talking point of “I cut property taxes”, and the LFB indicates that this is the rare Walker claim that has some truth to it, as the tax on a median-valued home in Wisconsin went from $2,963 in 2010 (11) (page 15 of this paper) to $2,831 in 2014(15) (page 3 of this paper).

Of course, what is not usually mentioned by Walker is that the median home value in Wisconsin dropped by nearly $17,500 in that same time period, and he also usually doesn’t mention that the shift away from the Lottery Fund for the School Levy Credit and an increased property tax break for tech colleges added over $840 million to the last budget, crowding out any increases for other needs like roads or public education.

With that background in mind, these updated numbers are intriguing because they indicate a slight slowdown in sales growth, which means a reduction in the Lottery Credit is due to come. I compared the Walker Administration’s report with the projected Lottery Fund numbers in the most recent budget, and you’ll see that taxpayers aren’t slated to get as much of a break as it originally looked like over the next 2 years.

Projected Lottery and gaming Credit, 2015-17

Budget $162.782 million
New projection $161.429 million (-$1.353 million)

Budget $161.531 million
New projection $158.197 million (-$3.334 million)

Granted, if you assume the Lottery Credit on the average home is reduced by the same amount that is made available, it only accounts for a lower credit of 0.8% in year 1 and 2.1% in year 2. That only translates into $1 extra on your next bill and around $2.50 on the one after that, but hilariously, that’s the same amount of property tax “savings” on the median Wisconsin home that Walker was trying to sell as such a great thing in the 2015-17 budget.

And those figures were calculated before bubble-icious home price increases took hold in Wisconsin this Spring, which will be reflected in future property tax assessments and bills. In other words, I hope you haven’t blown all of the projected $3 in upcoming savings in one place, because it seems more likely not to happen.

See, you learned something today, didn’t you? Can’t say it made your life better, but you might score some brownie points at your next social gathering with your new knowledge on the Wisconsin Lottery Fund. You don’t even have to thank me!

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