Saturday, June 24, 2023

That WisGOP tax cut package is more regressive than you think, and Evers should veto the worst of it

Wanted to give some follow-up thoughts on the WisGOP tax cut plan that was approved by the Joint Finance Committee late Thursday night. First, let's review the big cut in income tax rates.

I'll remind you that this is taxable income, which comes after the sliding scale deduction for the state. In this chart, hopefully you can see how the amount of the sliding scale deduction rises and falls, and gets replaced by taxable income (listed for married, filing jointly, but you can see how it works for single).

Also subtract the $700-per-person exemption from regular income, and only then do income tax rates start to kick in. It's a pretty progressive part of our tax code, which allows for the lowest incomes to have $0 state tax liability.

That said, I'll note that the WisGOPs on finance did nothing to change the amount of these writeoffs, beyond annual inflation adjustments (for the sliding scale deduction) and the personal exemptions (which haven't changed since 2001). Then realize that the lowest tax bracket would only be reduced from 3.54% to 3.5%, and it's no surprise that low-income Wisconsinites will see nearly NOTHING from this GOP tax cut.

The Legislative Fiscal Bureau's analysis shows that people making under $30,000 will save an average of between $10 and $22 a year (game-changer!) and taxpayers between $40K and $50K will save a whopping $88 (or $1.70 a week). Erik Gunn broke down these numbers and the tax break for other income ranges for the Wisconsin Examiner, and notes that the amount of the income tax cut takes off from there, making the argument of "$573 average tax cut" quite hollow to many of us.

Wisconsin’s median income in 2021 was $67,080 according to the U.S. Census Bureau. Two-thirds of that is $44,273. Twice the median is $134,160. By the Pew Research Center standards, middle class refers to a household with income from $44,000 to $135,000, and the upper limit for middle class Wisconsin is nearly $200,000 less than the top of the proposed new middle bracket.

The cut-off points in the DOR’s analysis of the tax proposal don’t line up neatly with that range. The analysis divides the incomes reported on Wisconsin tax returns by $10,000 increments below $100,000 and by larger increments above that number. The closest estimate of what is middle class that can be derived from the department’s data encompasses incomes of $40,000 to $150,000 — slightly lower than middle class at the bottom and slightly higher at the top.

The DOR analysis counts just over 1.3 million tax returns in that range. Those taxpayers would share in a total of $480 million in savings from the tax changes. That comes to about $88 a year at the bottom of the range and $930 a year at the top.
So people making 3 times as much as $50K in taxable income would get an average tax break more than 10 times larger. Nice for upper-middle-income types like me, but it's a pretty big ramp-up.

And what my wife and I would get is chicken feed compared to the windfall that rich GOP donors even higher incomes will get from the WisGOP Tax Scheme.

Oh, but $340 million for Child Care Counts? Definitely can't afford it.

That isn't the only measure that WisGOP has that will help richer Wisconsinites over lower-income ones. They're planning to increase the School Levy Tax Credit again, this time by another $590 million over the next 2 years, which continues a trend where the school levy credit (based on the amount of property taxes paid to K-12 schools) keeps going up, but the First Dollar Credit (which is given to virtually all land parcel owners, regardless of value) has not changed.

Milwaukee writer Michael Bradley points out just how regressive a move this is, and how the parts of Wisconsin with the highest property values (and generally richer people) are going to get the biggest benefits from the GOP's move.

Instead of dumping more of these funds into the School Levy Credit, where only so many people see a significant benefit, why didn't the WisGOPs on finance JUST PUT THAT MONEY INTO THE STATE AID TO K-12 SCHOOLS THEMSELVES, and reduced property taxes in the process? Well, that would simply help too many of the richer folks that WisGOPs care more about, now wouldn't it?

Know what tax credit didn't go up? The $300 maximum writeoff for renters, or for property tax payments, for that matter. Raising those long-outdated maximums would have helped lower-income Wisconsinites over higher-income ones, but that didn't happen either.

There are still a lot of tax moves that should have been made, and replace the long-failed, regressive garbage that the WisGOPs did. Which means I would encourage Governor Evers to veto the tax cut to the highest brackets outright, and maybe "write down" where the 4.4% bracket cuts off (like at $150K single/$225K married-joint income) instead of collapsing the entire tax bracket. Everyone ets a tax cut, and it's not as absurdly uneven.

These vetoes would also lessen the $603 million cost that would come with adjusting the income tax tables at the start of 2024, which is almost 5 times the increase that the LFB estimated before the GOP's State Tax Scheme was passed. Those moves alone would likely free up several hundreds of millions of dollars a year.

I also would write down the increase in the School Levy Credit, perhaps giving an extra $100 million for each year, but also banking the other $390 million. This turns the budget toward a structural balance for future years, and buys time for the next revenue estimates in January.

If the revenue estimates hold up next Winter, and there is still $3-$5 billion in the bank for the rest of the biennium, then Evers should come with a special session to raise school aids, cut property taxes, have a targeted low-income tax break (with exemptions and higher Homestead Credits). He even could use a small cut in the top tax rate (like to 7.4% or 7.5%) as an olive branch. It either makes the tax code fairer, and makes the WisGOPs in the Legislature be seen as turning down a tax cut themselves, and doing it a lot closer to an election where new maps could make the average WisGOP legislator a lot more vulnerable.

Take the small wins, save up for later, and then turn the tables on the regressive fools fronting for the "big fish, small pond" rich a-hole puppetmasters.

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