Saturday, May 13, 2017

No one's liking this latest Koo-Koo tax plan

As we get more time to digest the "flat-tax" plan from State Rep. Dale (Koo-Koo) Kooyenga, we see what a regressive giveaway it is. You may have seen the top-line numbers to the LFB’s memo, which were reflected in news stories like this one in the Wisconsin State Journal.
The plan’s tax cuts would be spread across income levels in its first year, tax year 2018, the analysis shows. Of the state’s 3.1 million tax filers, more than 2 million would see a tax cut averaging $80.

Many of the tax credits eliminated under the plan disappear in tax year 2019, causing more than 740,000 tax filers to see a tax increase that year averaging $248, according to the analysis. About 1.5 million filers would see a tax cut averaging $262.

By 2029, when the flat-tax proposal would be fully implemented, the wealthiest Wisconsinites would reap a tax-savings windfall.

By then, more than $2 billion of the roughly $2.7 billion in tax cuts the proposal would make in that year alone would go to taxpayers earning $100,000 or more. More than $519 million in tax cuts would go to those making $1 million or more.

Taxpayers earning $1 million or more also would see the biggest percentage tax cut under the plan — a 49 percent decrease.
I think Mark Sommerhauser is misreading the memo. It seems to be describing the cumulative effect of these tax cuts, basically saying that total income tax revenues would be $2.7 billion below what would otherwise be the number in 2029. All the changes don’t hit at once (as the article hints at), but it’s more an adjustment over time.

And it is noteworthy in how the distribution of benefits and tax increases changes, in particular in how many members of Wisconsin’s middle class get socked with a tax hike after the 2018 elections. In 2019 alone, the number of Wisconsinites who will be paying higher income taxes under this plan than they would under current law rises from just over 172,000 to more than 743,000. This includes over 27% of Wisconsinites making between $15,000 and $70,000, and 44% of tax filers making between $70,000 and $150,000, and the average tax hike ranges between $125 and $215.

This is where I’ll remind you that the Institute of Taxation and Policy says that the richest Wisconsinites already pay the lowest percentage of their income in state and local taxes, while the middle class pays the most.

This Koo-Koo tax plan would put that disparity on steroids. Even though the tax giveaways start off relatively tepid and even in 2018, beginning in 2019, the benefits start sliding increasingly to the rich, with that trend accelerating in the out years. Tamarine Cornelius has a good rundown of just how much this income Koo-Koo tax plan would help the rich at the Wisconsin Budget Project website.

(insert charts)

And by the time we get to 2029, that tax cut would greatly handcuff the state’s finances, and would further harm state services that have already taken on major damage in the Age of Fitzwalkerstan.
The extremely slanted nature of this proposed income tax cut is a significant drawback to the new tax proposal. But it is not the only drawback: the tax package also comes with an alarmingly high price tag of $2.7 billion a year once it is fully phased in. To put that amount in context, it is more than the state spends on the University of Wisconsin System, the state’s technical college system, and the state’s prison system, combined. Such a large tax cut, targeted at people who are already doing well, would make it much more difficult for Wisconsin to make the investments in schools, health care, and the state’s workforce that help build a strong economy.
The LFB admits that the tax plan is so complex and with interacting parts that it can’t get an exact estimate on many of the proposed provisions.
Other provisions of the tax and transportation proposals are not reflected in the attachments because they cannot be simulated reliably. These relate to state and local sales taxes, the motor fuel tax, a fee on hybrid vehicles, the excise tax on little cigars, property tax credits, the historic rehabilitation credit, the income tax credit for taxes paid to other states, and contributions from individual retirement accounts to charitable organizations.
And most of those provisions would raise taxes the most on middle and lower-class Wisconsinites, while giving extra tax breaks to richer Wisconsinites. In other words, the extra benefits that the rich get over everyone else would likely be even larger than the LFB’s numbers indicate.

Even more intriguing is this hit job analysis from Scott Walker’s own Department of Revenue, which was relayed by, and it seems to lay the smack down on the Koo-Koo plan as much as any Democrats have. Not only does it repeat many of the items on how unequal this tax cut plan is, but it seems to take particular aim at measures that would raise property taxes by reducing certain write-offs.
•The plan eliminates the First Dollar Credit on property tax bills. This would result in a property tax increase for homeowners and other property owners. This would raise property taxes statewide by $150 million. The impact on the median-valued home would be a property tax increase of $67.

•The plan reduces the amount appropriated for the School Levy Credit by $40 million compared with your 2017-19 budget proposal. This increases property taxes by $12 on a median-valued home.

•In total, when these two provisions are fully phased in, property taxes would be $79 higher on a median-valued home compared with your budget proposal.
Well sure, those increased property taxes are one of the many trade-offs for lower tax rates under the Koo-Koo plans. And it’s the only way that the numbers can balance in 2017-19, along with retaining $81 million that has been going to the Transportation Fund, and $43 million that is generated from county sales taxes on gasoline (which the counties don’t get to keep, which seems borderline illegal).

The DOR analysis also derides the added gasoline taxes that go toward fixing the roads, claiming that the driver of a sedan would pay $39 in additional gas taxes and an SUV driver would pay $54. The memo adds that it is unknown whether any money would be made up by paying lower prices on gasoline due to a reduction in the minimum markup, but it’s quite clear that the Walker Administration is trying to stick to a “no tax increase, lower property tax” pose, no matter how badly it messes up the rest of the budget.

Nowadays, Kooyenga is mumbling that his tax plan is only a “conversation starter”, but it seems to be attracting plenty of criticism for its crippling price tag and offsets that clearly seem to shift the tax burden from the rich down to the middle and lower classes.

There’s a lot more to come on this, and given the tightness of the current budget there won’t be much of this that becomes law anyway. But it’s very noteworthy to see how much Koo-Koo’s plans are being ripped apart from all parties, which is one of the few things that people are agreeing on when it comes to this gimmicky house-of-cards budget.

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