Republican lawmakers plan to pass a package next week that would cut income taxes, reduce a business tax and pay down state debt, but their plan does not include the boost in school funding that Democratic Gov. Tony Evers has sought.Let's dig into the LFB's breakdown of the GOP tax cut package, and we find out that the way taxes will be cut is by increasing the state's standard deduction, which will give a tax cut to most tax filers.
Republicans who control the Legislature said they were united and would send their plan to Evers in less than a week. But an aide to Evers criticized the proposal, raising questions about whether it could get the governor's signature.....
Under the Republican plan announced Friday, tax filers on average would see their income taxes reduced by $106 this year. Most would see the benefit of that early next year, when 2020 taxes are due.
The income tax cut would cost about $248 million in the next fiscal year and $224 million a year after that, according to the nonpartisan Legislative Fiscal Bureau.
The bills would result in an estimated 2,030,662 tax filers, or 64.1% of all filers, experiencing an income tax decrease in tax year 2020. Married joint filers comprise 787,786 of the estimate, and the remaining 1,242,876 taxpayers are other filing types. Among taxpayers experiencing a tax decrease, an average tax decrease of $106 is estimated, or 4.85% of those taxpayers' net tax. A higher average tax decrease is estimated for married joint filers ($145), but they would experience a somewhat lower average percentage decrease in net tax (4.54%). The converse is estimated for other filing types -- a lower average tax decrease ($81) but a higher average percentage decrease in net tax (5.27%).It’s basically a rehash of what Republicans wanted to do in early 2019, which was vetoed by Governor Evers because the GOPs tried to shove it through before we had the rest of the budget figured out. The 2019-21 budget ended up having an income tax cut that reduced the state's middle income tax rates, and Wisconsinites will see the effects of that tax cut in the form of higher refunds when they file over the next 2 months.
The tax reduction is targeted to taxpayers with incomes below the expanded income phaseout levels of $144,669 for married joint filers and $120,360 for single and head-of-household filers. A small number of filers with higher incomes would also experience tax decreases, but they total 82 filers with decreases of about $7,025, or about $86 per filer. These are part-year residents or nonresidents who calculate their standard deduction based on federal AGI, rather than Wisconsin AGI.
It’s good targeting, as it grabs a lot of people, but the richest Wisconsinites get nothing due to the phase-out levels. And if that's all there was in the GOP's package, it would set up an interesting debate between Evers and the GOP on “property tax cuts vs income tax cuts” and “school spending vs tax cuts." But in typical GOP style, they can’t keep it simple and have to play games with the rest of the bill.
Always be scheming
The first bit of sketchiness is a cut in property taxes…that won't go to homeowners.
The bills would exempt machinery, tools, and patterns assessed as personal property of manufacturers from the property tax effective with property assessed as of January 1, 2019 [the 2019(20) property tax levy]. The existing state aid program administered by DOR to make aid payments to each local taxing jurisdiction with exempt personal property under current law would be expanded to include amounts equal to the property taxes levied by each taxing jurisdiction on the newly-exempt property in 2019(20). The bills specify that payments made to tax incremental financing districts would be made to the overlying municipality after the district is terminated. The estimated cost of the increased aid payments to local taxing jurisdictions, including tax incremental financing districts, would be $44,700,000 annually, beginning in 2020-21 and would be paid from the existing GPR sum-sufficient appropriation. The payment would be included in the calculation of county and municipal levy limits, school revenue limits, and technical college district revenue limits.Not only is this property tax cut for businesses and corporations, but it is also retroactive to last year, which means a sizable tax refund for those business owners. And you can bet part of that refund is expected to be kicked back into the campaigns of Legislative GOPs for this Fall.
It’s not even a new tax cut, it just expands the type of equipment that was taken off of the property tax in 2017, and increases the amount of the shell game that’s used to pay off that property tax cut next year and in future years.
What also goes up is the amount homeowners would pay in property taxes, because residential homes become a larger share of the tax base. So instead of homeowners paying less under Evers’ plan, they’ll pay more under the GOP’s plans.
The third item is related to a provision in current law that says if the state’s rainy day fund is 5% of total expenses (a figure which would be around $910 million at the of June), then there is no more money put into the stabilization fund and it is carried over. The bill would make some of that extra money go for paying down debt, starting with $100 million next year.
The bills would specify that in a year in which actual general fund tax revenues exceed the estimated amount in the budget act, but the amount in the budget stabilization fund exceeds 5% of estimated general fund expenditures at the time the transfer would take place, the Secretary of the Department of Administration would be required to certify to the Building Commission an amount Page 5 equal to 50% of the excess tax revenues. In the following fiscal year, the Secretary, in coordination with the Building Commission, would be required to reduce by that certified amount unpaid indebtedness in which general obligation or variable rate debt is paid from general purpose revenue from the appropriate general purpose debt service appropriations.Good idea overall, if you think getting rid of debt is more important than using the money. But that brings up the question you need to ask - why aren’t we using the extra money?
Additionally, the bills would require that the Secretary of the Department of Administration, in coordination with the Building Commission and from the appropriate general purpose debt service appropriations, reduce unpaid indebtedness in which general obligation or variable rate debt is paid from general purpose revenue by $100 million in 2020-21.
After all, we’re a state that is still digging ourselves out from significant deficits in funding education, roads and other infrastructure, and local services. Given that this extra money is a one-time bump, why wouldn’t you try to clear that backlog instead of paying off debt (especially in a time of rock-bottom interest rates)?
That’s why I’m not seeing this GOP tax plan as doing much beyond pre-election posturing. It’s certainly not the best use of the money, and shifting property taxes even further toward homeowners and away from businesses is something that should be hung around their necks throughout the GOP Legislature’s upcoming 10 month paid vacation.
But let’s face it, the GOP has few answers for anything beyond “cut taxes, give kickbacks to donors, and make it easier to sell things off once the economy turns down.” So this last-minute package is right in line with that agenda.