Dueling Wisconsin income tax cut proposals to be decided tomorrow

Tomorrow we are scheduled to see the end of the Joint Finance Committee's debate on the Wisconsin state budget. And the biggest topic to be decided is on the subject of income taxes. Both Governor Evers and Republicans in the Legislature have tax cut packages, and it'll be intriguing to see which wins out. So let's look at these two proposals, and see who would (or would not) benefit.

It’s worth noting that Evers’ proposed income tax cut of $833.6 million was NOT among the provisions removed from the budget last month by the Republicans on Joint Finance. And the Legislative Fiscal Bureau says that Evers’ plan would give a few hundred dollars for a majority of Wisconsinites.

For tax year 2019, the average credit is estimated at $216. Because married joint filers have average net tax liabilities that are higher than other filer types, the average credit for married joint filers ($305) would be higher than the average credit for other filer types ($156). Because the credit would equal 10% of net tax liabilities and net tax liabilities increase with income, average credit amounts also increase with AGI. However, average credit amounts decline after AGI exceeds the initial phaseout thresholds, and no credits are available to tax filers with AGI exceeding maximum income thresholds. Reflecting the targeted design of the credit, Attachment 1 indicates that the credit would deliver a tax reduction to more than 90% of the filers with AGI between $30,000 and $100,000, even though the credit would provide a tax reduction to only 60.3% of all tax filers. Taxpayers with Wisconsin AGI between $30,000 and $125,000 would receive 82.1% of the estimated tax decrease and would comprise 70.7% of the taxpayers with a tax decrease. The tax year 2019 reduction in state tax collections of $409.1 million that is reflected in Attachment 1 would increase to an estimated $412.0 million in tax year 2020.

The LFB then compares the Evers tax cut to a proposal that would mirror what Republicans passed earlier in the legislative session, but was vetoed by Evers as the Governor complained the tax cut was not paid for and the budget had not been submitted as of that time.

As an alternative to the proposed family and individual reinvestment credit, the sliding scale standard deduction could be expanded to provide approximately $400 million in annual tax relief to roughly the same taxpayers eligible for the family and individual reinvestment credit. Table 4 compares the parameters for the tax year 2019 deduction under current law and an expanded deduction. Under this alternative (Alternative 2), the maximum deduction and initial phaseout income levels are increased by 23%. The phaseout percentages were decreased by 10% for married and head-of-household filers and increased by 10% for single filers, thereby reducing the gap between single and other filers…

Just over two million taxpayers would receive a tax decrease, or 64.4% of all tax filers. Among these taxpayers, an average tax decrease of $200 is estimated, with married joint filers receiving an average decrease that is more than twice the average for other filers ($286 versus $139).

The average tax decrease by Wisconsin AGI category would increase until peaking at $70,000 to $90,000 for married joint filers and $30,000 to $50,000 for other filer types. These income ranges are slightly below the midpoint of the proposed income phaseout ranges for each filer type.

Taxpayers with Wisconsin AGI between $30,000 and $125,000 would receive 83.4% of the estimated tax decrease and would comprise 68.8% of the taxpayers with a tax decrease. The tax year 2019 reduction in state tax collections of $404.5 million that is reflected in Attachment 2 would increase to an estimated $415.8 million in tax year 2020.

So basically the same totals, but as you can see from these two charts, there are slight differences in who benefits under which package. But it creates an unusual juxtaposition from what we’re used to seeing in Wisconsin, as it appears upper-middle-class Wisconsinites benefit more from the Evers plan, while working-class individuals seem to get more from the GOP’s proposal.

(Side note - The reason the total price tags end up $12.5 million higher than what Wisconsinites would see in tax relief in a given year is due to the fact that fiscal years start on July 1 and run through June 30, while tax years count the savings that accumulate throughout the year and are eventually paid back through tax filings).

However, the LFB also notes another plan has been bandied about where all tax brackets would be reduced by 1/25. This would be a significantly more regressive tax cut, as people making $40,000 or less would get less than $1 a week, but Wisconsin millionaires would get an average write-off of more than $8,300, and would get $62 million of the $399 million a year that would be given out.

If the across-the-board tax cut gets passed, then it becomes a lot easier for Evers to veto it, or at least the part that helps the richest people (it seems like that’s an acceptable form of veto). It would be a major screw-up for Republicans to do that instead of the more targeted, lower-income tax cut, but given how bought-off and pig-headed they are, it may well be what they choose.

From what I’ve generally added up, there is enough money in the budget (for now) to pay for either of these individual tax cuts. But given that the GOPs are petty enough to demand Evers follow what THEY want, my guess is either the sliding scale deduction or the "reduce all brackets by 4%" plan will emerge from Joint Finance and eventually the full Legislature.

Regardless of the outcome, it’ll tell us whether the GOPs are going to try to get something workable and wise, or if they decide it’s all about game-playing, and helping their rich donors. I'm going to bet the latter.