Tuesday, May 3, 2016

The Koo-Koo tax cuts get revisited- and still suck

I’ve frequently derided the income tax cuts put in place by the WisGOP Legislature and Governor Walker in 2013 and 2014 as the “Koo-Koo” tax cuts, in honor of State Rep. Dale (“35 seconds?”) Kooyenga, who was one of the biggest promoters of them. Over the weekend, we received more information identifying jut who benefitted from these tax breaks, and despite WisGOP’s attempts to dress it up, rich people still got the biggest write-offs, and the costs of this dumb trickle-down policy continue to prove it to be a bad move that keeps on hurting the state.

The new data was displayed in a Sunday article where the Wisconsin State Journal’s Matt DeFour used information from the Department of Revenue, and crunched the numbers to find who got the biggest breaks from these tax cuts. DeFour compared the amount of income taxes paid by filers in a certain income bracket in tax year 2012, then compared it to tax year 2014, and he slices the results in a couple of different ways.
More than half of the total [$423.6 million] cut went to those in the top fifth of wage earners — those with an adjusted gross income of more than $90,000, a group that pays about two-thirds of the state’s income taxes.

Those making more than $300,000, the top 1.5 percent, saw an average cut of roughly $1,307, or about eight times more than an average tax filer making about $50,000 who saw an average cut of about $160.

However, the cut was greater for those in the middle class when considered as a percentage of the amount they pay in taxes.

According to DOR, the $227.6 million cut to the top fifth of earners represented 4.1 percent of what they pay in taxes. In the next fifth, those making $50,000 to $90,000, the cut was 6.4 percent of taxes paid. In the middle fifth, those making $30,000 to $50,000, the cut was 8.7 percent. And in the second-lowest earning fifth, those making $10,000 to $30,000, the cut was 12.9 percent of income taxes paid.

Nearly 800,000 filers didn’t see a tax cut, most likely because they didn’t have a tax liability after taking into consideration certain credits and deductions. The vast majority of those filers are in the bottom fifth, so that group received a relatively small $600,000 [total?] tax cut, or 6.5 percent of their total tax bill.
I’d add that another variable should be considered for the $10,000-$30,000 income-earning Wisconsinites that allegedly got the biggest benefits from the Koo-Koo tax cuts. In many cases, that tax break merely made up for the tax increase resulting from the reductions in the Homestead Credit that came with Gov Walker’s first budget in 2011. The Wisconsin Budget Project estimates that 25% of the Homestead Credit has been taken away in the last five years, after adjusting for inflation, and without that credit hitting, it means that there are more taxes that can be “reduced’ with later tax cuts. That makes the “benefits” of the Koo-Koo tax cuts of 2013 and 2014 more a correction of bad policy against the working poor than anything that made those people better off than they were 5 years ago.

Speaking of the Wisconsin Budget Project, I’ll also mention another recent post by them, because it brings a fuller picture onto these income tax cuts. The Budget Project notes that even with the 2013 and 2014 income tax reductions in place and allegedly giving a larger cut in percentage of taxes paid to the poor, the lower and middle classes in Wisconsin still pay a higher percentage than the richest Wisconsinites do.

This is because property and sales taxes tend to fall more heavily on poorer Wisconsinites than richer ones, and the rich get a higher-percentage deduction on those state and local taxes when they take that out of their federal income. So let’s not cry too many tears for rich Wisconsinites “only” getting a 4% decrease in income taxes- they’re still getting the better end of the bargain in more ways than one.

And let’s not forget the real costs of these Koo-Koo tax cuts, which relates to the depressed revenues in 2013, 2014 and 2015, despite the US economy still going strong at that time. This led to a large state budget deficit going into the 2015-17 budget that resulted in a $250 million cut to the UW System and more reductions to K-12 public schools. In addition, those cuts to public schools have had to be offset by numerous referenda around the state which will raise property taxes further. State Sen. Kathleen Vinehout pointed this out in a recent column, and noted that in addition to the record numbers of referenda, over half of them are for instructional costs to keep things as they are- they are not building projects.

Sen. Vinehout contrasts the proportion of state funding our surplus-having neighbors to the west are able to give, in comparison to the shrinking amount of state funds we are giving (and able to give) in Wisconsin.
Minnesota funds about two-thirds of school budgets with state aid. Only 30 percent comes from local sources like property taxes. Todd Langenfeld, a Prescott resident active in the referenda discussion, told me, “Wisconsin made a commitment to fund schools with two-thirds state funding. But we are well below that.”

The state of Wisconsin contributes about 45 percent (compared to Minnesota’s 64 percent) of the cost of schools, while locals contribute almost half.

Mr. Langenfeld continued, “To make up the difference, Prescott goes to referendum. If the state kicked in more, people would pay less in taxes.”

When the state pays less, people face awful choices; raise property taxes just to stay even with the cost of educating children or keep property taxes the same and cut children’s educational opportunities.
And that real damage from ALEC/GOP policies is why the small amount of Koo-Koo tax cuts one may have received in 2013 and 2014 was nowhere near worth what the short-term and long-term costs are to this state’s services and economic competitiveness. And don’t let the spin doctors from the GOP-perganda machine convince you otherwise over these next 6 months.

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