Tuesday, January 9, 2018

WisGOP might try to say DC-caused tax hike = more tax cuts. Don't buy it

Today in The Hill, there was a rundown of the new fiscal issues at the state level that will result from the recent tax bill passed in DC.
“Now we get to do tax reform in all 50 states,” said Nicole Kaeding, an economist at the nonpartisan Tax Foundation. (keep this quote in mind)

Most states conform parts of their tax codes — like definitions set by the IRS or deductions and tax credits for mortgages and children — to the federal code. But states set their own tax rates independently. The federal tax overhaul eliminates some deductions, broadening the tax base at both the state and federal levels.

“The tax revenue that we get in the state is dependent in some cases on the federal government,” said Joyce Peppin (R), the majority leader in the Minnesota House of Representatives.
That many means taxpayers could soon be on the hook for higher state tax bills.

The reform package “made the federal base of taxation broader, and it lowered the rates. The states couple to the base, but they set their rates independently,” Kaeding said. “Assuming their rates don’t change, which would be a proactive change, then states would have more revenue.”
It’s worth remembering that few of these adjustments to income tax revenues will likely hit until people file for tax year 2018, which means the biggest changes to revenue numbers wouldn’t be seen until the last half of Fiscal Year 2019 in most states.

In re-examining Wisconsin’s regular income tax form, it’s worth noting that we levy taxes based on income that happens BEFORE the itemized deductions and other exemptions, so I don’t see a lot more income that gets taxed as a base (like what’s mentioned in the story above).

But I see three areas that will likely cause Wisconsinites to pay higher state income taxes as a result of the Piece of Shit passed by Republicans in DC.

1. There are no more personal exemptions in the federal tax bill, which means that the write-off of $700 per exemption for state taxes likely won’t apply either.

2. Because the DC Piece of Shit makes it less likely for people to itemize their deductions, it also likely means that the 5% tax credit Wisconsinites get for the following 3 itemized deductions won’t happen any more.

Mortgage interest and other forms of “investment interest”
Unreimbursed medical and dental expenses
Donations to charity

3. Related to item 2, if you use the SALT (State and Local Tax) deduction, and you have a state income tax refund of $1,000, you have to include that $1,000 the next year on your federal return (because you pay less state tax, and so it shouldn’t count in SALT). But at the state level, it’s a refund of taxes you paid to Wisconsin, so that $1,000 doesn’t count as state “income” in future years, which means you get to write off $1,000 at the state level.

With fewer people using the SALT deduction for tax year 2018, that means fewer people get taxed on state refunds for tax year 2019. So that lack of write-off at the state level won’t likely kick in until those 2019 taxes are filed in early 2020, during the next 2-year state budget.

My guess/hope is that the Legislative Fiscal Bureau is calculating the effect of these back-door state tax hikes in Wisconsin, and will include these figures in their new revenue projections, which likely will come out next week. If that’s what they do, I don’t want to hear Scott Walker and other Republican hacks using this tax bump as an excuse to cut state taxes before the 2018 election.

The reason I have for that is threefold.

1. Dealing with these federal tax changes should take more than 1 month of secret meetings and then jamming through any tax bill, which I have fears is exactly what the GOPs would do in Madison (just like GOPs did in DC). There already is a new committee organized to look into Wisconsin “tax reform” that seems tailor-made to go over the changes to the state’s tax code and burdens as a result of the DC Piece of Shit. Have them look at this for the next 10 months, and then make recommendations ahead of the 2019-21 budget submittal.

2. If the Legislature targets any tax cuts as a correction for those who might face higher taxes, those cuts would overwhelmingly go to people in the upper half of the income spectrum (since those individuals are much more likely to itemize today and not have to in future years). And as we’ve seen time and again in Wisconsin, cutting taxes on richer people and corporations often ends up costing more than original projections, because richer people have the time and options to figure out how to game the system. Related to Number 1, it may well be worth it to figure out if there should be wider changes that go beyond just the reflexive patching of the higher taxes handed down from DC.

3. In a time of underfunded roads and serious needs in other state services, any extra money that comes in for the next 2 years might be a good way to stop the bleeding sooner than later, and reduced deferred needs in future years (when funds will be much tighter). Any added funding seems a logical source to get things started on closing Lincoln Hills, along with adding the millions in sparsity aid that Gov Walker called for in his pre-election panic move to fund rural schools.

We need to be ready to recognize that there may be a “surprise surplus” that pops up in Wisconsin in the next couple of weeks due to the ripple effects of the Piece of Shit tax bill, and that we need to point out that this increase will have nothing to do with actual economic growth. Instead, it’s a back-door tax hike that underscores how careless Republicans in DC were in crafting this giveaway to donors tax bill, and that we shouldn’t make the same mistake at the state level.

1 comment:

  1. Republicans Seem Oblivious To States Undercutting Their New Tax Law- see HP article- love it!