WisGOP moves mean they're raising K-12 property taxes to pay for income tax cut

Thursday night, the GOP_led Joint Finance Committee held their most important budget meeting yet. It included a 10-figure income tax cut, and I wanted to discuss the two main parts of that reduction.

1. Expand 2nd Individual Income Tax Bracket (Paper #325). Beginning in tax year 2025, increase the amount of taxable income subject to tax at the second marginal rate (4.40%) by: (a) $28,150 for married-joint filers (to $67,300); (b) $21,110 for single/head-of-household filers (to $50,480); and (c) $14,070 for married-separate filers (to $33,650). Estimate reduced individual income tax collections of $323,000,000 in 2025-26 and $320,000,000 in 2026-27.

2. Retirement Income Exclusion. Beginning in tax year 2025, create an individual income tax exclusion for the first $24,000 of retirement income currently subject to state tax received by each individual who is at least 67 years of age before the close of the taxable year. For married-joint filers where both spouses have attained age 67, specify that the maximum exclusion equals $48,000. Prohibit a taxpayer who claims this exclusion from claiming any state income tax credits provided under current law in the same tax year. Prohibit nonresidents from claiming the exclusion, and specify that part-year residents may claim the exclusion only for the portion of their income which is sourced to Wisconsin. Define retirement income to include payments or distributions received each year by an individual from a qualified retirement plan under the Internal Revenue Code or from an individual retirement account established under 26 USC 408. Specify that the exclusion does not apply to any retirement income which is already exempt under current law. Estimate reduced individual income tax collections of $395,000,000 in 2025-26 and $300,000,000 in 2026-27.

The income tax cut is pretty straightforward – everyone with a taxable income above that level would get a similar-sized tax cut, since the lower tax rate cuts off for every dollar of income above the levels shown.

But I want to give a reminder about the retirement income tax cut, because a lot of income that retirees get is already tax-exempt in Wisconsin, as we saw in the LFB’s analysis of the GOP’s 2024 attempts to have this type of exclusion put in place.

Under current law, the following retirement income categories are excluded from Wisconsin AGI: (a) Social Security benefits; (b) payments from the U.S. military employee retirement system and U.S. government retirement payments received by members of the U.S. Coast Guard, the Commissioned Corps of the National Oceanic and Atmospheric Administration, and the Commissioned Corps of the Public Health Service; (c) income from certain public retirement systems if the individual was a member of, or retired from, that system prior to 1964; and (d) up to $5,000 of retirement income for taxpayers aged 65 or over with federal AGI of less than $15,000 per filer, or less than $30,000 for married-joint filers. Together, these provisions [were] estimated to reduce individual income tax revenues by nearly $950 million in tax year 2024 under current law (the exclusion for Social Security benefits accounts for an estimated $900 million [95%] of this total).

So this “retirement income” tax cut is really a lot of investment and pension income from non-military jobs, something that a lot of seniors don’t have a lot to draw from. Back in 2024, the GOP’s tax cut for seniors would have written off up to $75,000 per person in addition to Social Security , and that would have cost $1.13 billion in the first 2 years alone.

It was too rich for Governor Evers’ blood as a separate bill, and in addition to being nearly $450 million cheaper for the first 2 years, the new retirement tax cut is now included in the 2025-27 State Budget. So maybe that combination makes it more likely to go through this time?

Because of the lowered price tag of these tax cuts, there won’t be as big of a hole blown in future budgets vs what we saw the GOPs ask for in 2021-23 and 2023-25. But it still would erode all fiscal cushion we would have if we fully funded what Governor Evers wanted in this budget.

With that in mind, JFC also used Thursday night's meeting to take up the biggest expense of state tax dollars in the budget - K-12 education. I'll likely speak a bit more on where K-12 expenses are going in a later time, but there is also a key part that affects property taxes for Wisconsinites. That relates to general school aids and the total revenue limits, which combine the total amount of general aids and property taxes that can go into a public school district.

The GOPs on Finance added $229 million for regular special education aids and another $54.6 million for high-cost special education aids. That'll help public districts a bit, but the state funding still would only cover an estimated 37.5% of special ed costs for school districts, instead of the 60% that Governor Evers wanted.

And my State Rep Lisa Subeck got to what should be the bigger headline of the Republicans' K-12 motion. This is quoted from Rep. Subeck's email newsletter.

...They provided no general school aids, including no per pupil aid. This is the first time general school aids have not been included since the first Walker budget....

That's right, ZERO in added General School Aids. And in fact, this motion ends up losing General Aids for communtiy schools because $24 million more in this is being taken from public school districts in the next 2 years to fund vouchers for kids in private schools, to match up with the higher special ed reimbursments.

Put it all together with the earlier moves on sum-sufficients to uphold current laws (which gave automatic per-student increases to vouchers), and my crude estimation is that WisGOP has cut $2.88 billion out of the proposed $3.4 billion increase to K-12 schools for 2025-27. Which will pay for the $1.3 billion tax cut and then some.

However, there are a lot of other big-expense things to deal with in this budget, including prisons, the UW System, and Medicaid. Especially given the erraticness and idiocy coming out of DC, we may need all of that $1.4 billion that is in the bank to pay for everything else in the state, and maybe more than that.

Back to K-12. When you add in the $325-per-student increases in resources to K-12 schools that Evers locked in with his creative veto in the last budget, and Wispolitics notes that the GOP has essentially voted for higher property taxes for Wisconsin homeowners.

According to the Legislative Fiscal Bureau, the GOP motion would mean a higher property tax bill on a mythical median-valued home compared to the plan that Dem committee members had proposed. That plan largely followed what Evers put into his budget. According to LFB, the bill would be $160 higher on the bills that go out in December and $276 on the ones that will be sent to homeowners in December 2026 compared to the Dem motion [which would have restored Evers' K-12 plans to the budget]

The Wispolitics article quotes JFC Co-Chair Mark Born as saying the GOPs will still do something to lower the looming property tax increase they're currently allowing in this budget, and perhaps that'll be through a higher School Levy Credit or related thing. But make no mistake about it, WisGOP said on Thursday that they are trading relatively small income tax cuts for higher property taxes, and I don't think a lot of Wisconsinites would be happy with that decision.