Biden and Evers offer new, progressive direction on taxes

If you start stacking the changes from the American Rescue Plan from DC along with tax recommendations in Governor Evers’ 2021-23 budget, there is a significant progressive tilt in which Wisconsinites are getting stimulus checks and tax breaks at the state level. Some of these have already hit, but the Evers budget would increase the rebalancing of a tax/benefit code that has gone far too much for the rich and corporate in recent years.

The Legislative Fiscal Bureau has broken down both the stimulus rebate and the Evers budget tax changes for how it will affect Wisconsinites, and I’ll start with the stimulus breakdown, which includes both the $1,400 checks for individuals and the child tax credits.

This analysis combines single and married-joint filers, and the LFB says that more than 4/5 of Wisconsin tax filers should get a check in some form.

Also note that only 4.2% of Wisconsin tax returns are from filers with incomes of $200,000 or more. Keep that in mind if you hear GOPs complain about possible tax increases to pay for infrastructure in the coming months.

The LFB also looked at some of the tax provisions in Evers’ budget proposal, and there is an obvious slant to what is changed.

Not surprisingly, lower-income Wisconsinites would be more likely to get a tax break this year (particularly those with children due to the EITC increase), but richer Wisconsinites would pay more. Almost no tax filer making less than $125,000 would get a tax increase, and 16 times as many Wisconsinites would get a tax break vs a tax increase, But it becomes a net increase because nearly 3/4 of millionaires would pay quite a bit more.

Given that the mega-rich and corporate got most of the benefits of the 2017 GOP Tax Scam, and would continue to clean up if it was extended beyond 2026, I really don’t have a lot of sympathy for them having to pay for more under Evers’ budget. But I also am doubtful that a WisGOP that is owned by rich and corporate interests will go for those tax hikes, particularly given that there is already plenty of money available in this budget after the passage of the Rescue Act.

There’s another state tax question outside of the budget proposal that is now in play with the Rescue Act coming into law 2 weeks ago. The stimulus bill allowed for the first $10,200 of unemployment benefits to be tax-free, avoiding a possible tax bill for lower-income individuals (especially if no money was ever taken out of those benefit checks), but the LFB notes that the state has yet to adopt this tax break.

Wisconsin does allow for some write-off of unemployment benefits, but it’s not as much as the new Fed provision, so the LFB says it would be a tax cut if the state Legislature and Evers agreed to also make the first $10,200 of unemployment tax-free in Wisconsin.

Under separate provisions of state law, if the taxpayer's federal AGI is less than or equal to a base amount, then the entire unemployment benefit amount is excluded from income. The base amount is $12,000 for single taxpayers, $18,000 for married couples filing joint returns, and zero for married couples filing separate returns when the couple lived together at some point during the year. The base amount for single taxpayers applies in the case of married-separate filers who lived separately for the entire year. If federal AGI exceeds the base amount, then the amount of unemployment compensation benefits includible in gross income is the lesser of: (a) one-half of the excess of the taxpayer's AGI, including benefits, over the base amount; or (b) the amount of the unemployment compensation benefits.

If the state were to adopt the federal unemployment compensation exclusion under section 9042 of P.L. 117-2 for tax year 2020, affected taxpayers could calculate the excludable amount under the current state exclusion and the Act exclusion separately, and could claim the higher of the two amounts. If such a provision were adopted in state law, individual income tax revenues would be estimated to decline by $121 million in 2020-21. However, some of this fiscal effect could be realized in 2021-22, to the extent affected taxpayers have already filed state and federal income tax returns for tax year 2020 and choose not to file amended returns until after June 30, 2021 (such individuals would need to file amended returns to receive the exclusion). Alternatively, the overall fiscal effect could be lower, to the extent affected taxpayers who have already filed do not opt to amend their tax year 2020 returns.

There’s also a simplicity argument for taking on the federal rules for how unemployment is taxed, but tax season is already in full swing, and it may already be too late in the game to try to push such a thing through.

It's subtle, but a tax code that has often given huge advantages to those who already have plenty may well be leveling some in 2021, both at the state and federal levels. And while it is not likely that either Biden or Evers will be able to make things as significantly more progressive as they ask for, it still looks like we’re taking a step in a long overdue reverse of direction.