Because I'm a budget nerd, I perked up today when I saw this item pop up on The Wheeler Report today. It was a summary from the Legislative Fiscal Bureau on the tax changes that have already hit the state due to December's tax bill that went through Congress, and it also described the effects o the budget that would occur if the state copied all the other tax deductions.
First of all, there are some revenue changes that are already “baked in the cake”, because state law is set up to match federal law for certain provisions (something that has become more common in the ALEC-GOP era). Most of these baked-in changes have to do with what is known as Section 179 Expensing.
Under state and federal law, qualified property, generally tangible personal property purchased in the active conduct of a trade or business, including off the shelf computer software and qualified real leasehold improvement, restaurant, and retail improvement property, can be immediately expensed under Section 179. For tax year 2017, the maximum amount of qualified property that could be expensed was $510,000 per taxable year. The maximum expense limit was reduced by a dollar-for-dollar amount for qualified property expensed in excess of $2.03 million. The expensing limit and threshold amounts were indexed for inflation beginning in tax year 2016. Prior to tax year 2018, for sport utility vehicles (SUVs) expensed under Section 179, the maximum that could be expensed was $25,000 in any taxable year.This accounts for $70.5 million in reduced revenue in the next 2 years, with the Section 179 break decreasing in later years after most people have already taken advantage of the change. It also makes for a nice double-tax cut for Wisconsin businesses in 2019, since they are already getting a personal property tax exemption on tools, machinery, and other related equipment (yes, that’s my head hitting the desk).
Beginning in tax year 2018, the Act increased the maximum amount a taxpayer may expense under Section 179 to $1.0 million, and the threshold after which the limit is reduced is increased to $2.5 million per taxable year. The higher expensing limit, the higher threshold, and the $25,000 limitation for SUVs subject to Section 179 are indexed for inflation under the Act beginning in tax year 2019. Qualified property subject to Section 179 expensing is expanded to include certain property used predominately to furnish lodging or in connection with furnishing lodging. Qualified real property eligible under Section 179 is expanded to include the following improvements to nonresidential real property placed in service beginning in 2018: (a) roofs; (b) heating, ventilation, and air-conditioning property; (c) fire protection and alarm systems; and (d) security systems.
Which again reminds me of this Tammy Baldwin tweet from last week asking "How many more tax breaks do you (corporations) need?"
The real question that follows is whether the state will change its tax laws to match other provisions from the Piece of Shit tax bill. Basically, the income that Wisconsin taxes is determined at a higher-up line in the 1040 tax form, so many federal adjustments to that income doesn’t count in Wisconsin. This is why there aren’t too many Wisconsin revenue changes “baked in”, despite the huge changes to taxes in DC.
If Wisconsin lawmakers did codify the DC tax changes into “Wisconsin income”, the largest potential tax breaks would be as follows:
1. Cutting 20% of pass-through income for LLCs and other sole-proprietor businesses- Would cut Wisconsin tax revenue by $242.5 million next year, and by $1.26 BILLION by 2025.
2. Bonus depreciation – Goes from 50% to 100%, and stays at 100% through 2022. This would cut Wisconsin tax revenue by $241.1 million next year, and by $494.7 million by 2023. Interestingly, the LFB says this would start adding back revenues to the state after that, since there would be less depreciation happening then.
3. Simplified accounting for small business- I’m not going to pretend to understand half of those items, but it seems to be based on not having to account for as much in inventory and other cost items, so less things to track and pay on. Adding this tax cut would cost the state $53.4 million next year, and $71 million in the next 2 years before having those costs go down in future years.
There also are a few tax hikes that would hit if the state decided to copy the new federal tax codes, including a limitation on the amount of losses that pass-through owners can write off, and a limit on how much interest a business can write off. The LFB says these items could be sources of revenue raisers to the tune of 141.5 million next year, and exceeding $175 million by 2025.
It's also worth noting that Wisconsin taking on the federal income standard would result in tax hikes in many other areas starting in 2021-22 with those tax hikes getting bigger in the 5 years after that. The main reasons are twofold.
1. The stimulus of the initial years wears off and less economic activity happens in the following years vs what would have happened if the law didn’t change (it’s like how buying a car now lessens your need to buy a car in the near future).
2. Many of the federal tax cuts are temporary, as a means of holding the total cost of the Piece of Shit package under $1.5 trillion, which allowed it to be passed with 50 votes in the US Senate. Of course, most of the GOPs who voted for this pile of trash are hoping to be cashing in on a big-money lobbying career at that time, and they’ll be benefitting from the lower tax rates on the rich in the meantime.
I think it's also important to have these ideas in the back of your head, because when State Rep. John (Wacko) Macco talks about wanting to do tax reform at the state level in 2019 (if the voters are dumb enough to keep WisGOP in power), "federalizing" the state's tax laws to fit the new tax laws would seem to be a logical place to start. And it would likely make our already-regressive and pro-corporate income tax code even more so, particularly when Macco and his fellow ALEC goofballs have also talked about raising sales taxes by "closing exemptions" on many products that currently don't pay sales tax.
And in fact, there is already going to be a vote in the Assembly's Ways and Means Committee tomorrow on a bill would do this sort of "federalization" to a number of Wisconsin tax provisions. The provisions are minor, involving switching back from Roth to Traditional IRAs (and vice versa), making members of Congress not be able to write off expenses incurred when living in DC, counting student loan forgiveness in case of death and disability, and (the most concerning) allowing 529 college savings plans to be used for private school tuition at the K-12 level.
If a person can't get a voucher, will this guy pay for their private schools?
The LFB and Department of Revenue indicate that the revenue effects of tomorrow's bill will be minor, but I sure don't trust what might come in the future as an after-effect of the GOP's Tax Scam from DC. And given how we're handing out pre-election tax exemptions and added spending, whatever surplus we might have as a projection feels like it's disappearing by the day.