With more money around and budget release imminent, it's time to talk tax cuts!

We got our first indication of what kind of tax changes Gov Evers may put in his 2021-23 budget with this release of information today.

Gov. Tony Evers wants to create a new $500 tax credit to help cover family caregiver expenses, a $200 million proposal announced Tuesday that will be a part of the governor's state budget plan submitted to the Legislature next week.

"This pandemic has laid bare lack of access and affordability in the systems we use to support the people we care about," Evers said in a statement. "We have to do more to make sure families have quality, affordable childcare, that we're strengthening our caregiving workforce, and investing in long-term care. These areas will be critical to our state's economic comeback."

The new tax credit would be part of more than $600 million Evers is proposing in new funding directed at long-term care and family caregivers. The Democratic governor also wants to raise nursing homes reimbursement rates by more than 11% each of the next two years, an increase of more than $240 million over the next two years.

A caregiver tax credit has been proposed in the past by legislators, but never got through to the Governor's desk. We will see where it goes as the budget is debated.

Speaking of the Legislature, there are a couple of minor tax items that the Joint Finance Committee is going to discuss on Wednesday. One deals with adopting a number of minor federal tax items and expanding how much can be written off with the state’s medical insurance deduction for self-employed individuals. The other would put in uniformity over how certain types of businesses can account for capital gains.

On their own, the fiscal effect of these measures is small (total of around $25 million for the 2021-23 budget cycle), and it is dwarfed by a couple of other tax cuts that Republicans are pushing. One is an old GOP standby – CUT INCOME TAXES, whether that’s needed or not.

The income tax proposal has alreadypassed one State Senate Committee, and here's how it would work.

This bill reduces the number of individual income tax brackets from four to three. Under current law, there are four income tax brackets for single individuals, certain fiduciaries, heads of households, and married persons. The brackets are indexed for inflation.

The positive is that this income tax cut proposal is targeted towards lower incomes, with the overwhelming majority of taxpayers benefitting, and the tax cut is cut off past a relatively small amount of income. (Income levels are based on married couples filing jointly)

That may seem like a small tax cut, but because millions of Wisconsin would get it, the price tag becomes quite large.

Also interesting is that this bill would also require the Wisconsin Department of Revenue to adjust the withholding tables, which hasn’t been done for several years, and would take place within 90 days of the tax cut being signed into law. So Wisconsinites would see the tax cut in their paychecks, along with when they file their taxes next year.

The other proposed tax cut that Republicans (and their donors) are supporting is one that would adopt a federal change which allows recipients of PPP and similar assistance from the Feds aid to write off expenses twice. This is not a small tax cut, as the Legislative Fiscal Bureau has estimated the business tax break to cost nearly $241 million in the current Fiscal Year, and more than $228 million in the next 2-year budget.

I can't say I'm down with this, and I'd ask why the state would want to copy bad federal policy in the name of making it easier for businesses to file taxes. Remember that these businesses already got to pay off their expenses due to the PPP loans and similar assistance. Why should they be able to write them off again vs their “regular” income?

Describing the lack of a second tax break as imposing "unexpected taxes” is nakedly cynical (but what would you expect from WMC?). And if that PPP tax break were combined with the proposed income tax cut, it would make it t harder for Gov Evers to invest in items over the next two years, because you’re now talking about $1.1 billion in reduced revenues.

Then again, using tax cuts to avoid reinvestment is a nice side benefit to tax cuts in GOP Land, especially ahead of a re-election campaign for a Dem governor. Speaking of Dems, some of them have suggested a tax cut that got promoted by Tamarine Cornelius of the Wisconsin Budget Project in a recent column. It involves Wisconsin matching new Federal law, and allow more people to get the state’s Earned Income Tax Credit.

The federal COVID-19 package allows parents to choose between using their 2019 and their 2020 incomes when calculating their 2020 federal EITC amount. Parents can use whichever years’ income results in a larger tax credit. Without this change, low-income working parents who earned less in 2020 because of the pandemic might get smaller tax refunds than they otherwise would. (As a way of helping make work pay, the EITC amount increases as income increases, up to a point.)

Wisconsin tax filers can claim a state version of the EITC. In other years, working parents in Wisconsin simply calculated their state EITC as a share of the federal credit. Unlike the federal approach, Wisconsin legislators have not changed the tax code to allow families the possibility of using either their 2019 income or their 2020 income to calculate the state credit amount. Instead, the state is requiring families to use their 2020 income when calculating their state EITC amount.

Changing Wisconsin’s state EITC to be consistent with the federal approach of allowing either 2019 or 2020 income to be used requires the legislature to act. Governor Evers’ administration has advocated for bringing the state EITC in line with the federal credit, and helping low-income families make ends meet. But it is up to the Wisconsin legislature to amend the tax code in a way that would allow this to happen. If the Wisconsin legislature does not take action, working families will miss out on $31 million in tax refunds, according to the Wisconsin Department of Revenue.

Lots of tax choices and options are out there, in addition to Governor Evers’ budget proposal to give a write-off to caregivers. With money to play with (for now), it’ll be intriguing to see what gets through in the next 4-6 months, and what does not.