Ahead of hearing, we see WisGOP flat tax scheme isn't just regressive. It may not be legal

It's a boring, gray Monday. I'm sure nothing worthwhile in news or sports has broken today.... :P

Well, there's one guy who won't benefit from the Wisconsin GOP's flat tax scheme, which is going to get a hearing before a State Senate committee tomorrow. Here's a reminder of the scheme would work, and the timetable.

You can see how this gives a major giveaway to the rich while lower-income Wisconsinites get very little (and may lose out if this scheme removes certain tax credits or makes them unnecessary). And it involves changing the withholding tables on every October 1 to have the tax cut show up on paychecks right before November elections. Nice deal, eh?

The Wisconsin Department of Revenue took a look at those reduced rates, and gave their estimates on how much this would reduce incomes taxes in the state.

The bill also requires that the department of revenue adjust income tax withholding tables by October 1 each year from 2023 to 2025. Based on a simulation of the proposed tax rates, DOR expects the bill to reduce individual income tax collections by $2.11 billion in fiscal year 2024, $2.85 billion in fiscal year 2025, $4.31 billion in fiscal year 2026, and approximately $5.06 billion annually thereafter.

So that would take out nearly $5 billion in this current budget, and more than $9 billion in the next one. As you will see, that blows away most funds available in this budget, and leads to a deficit in the next one.

This is before we even account for one dollar of added spending needs to account for everyday inflation, the end of COVID-related program expansions, and population increases. So we would likely lose all of our fiscal cushion and leave a lot of people in the lurch in the process. With a major budget hole showing up in 2025-27. That’s bad enough, and it doesn’t even account for the absurd levels of regressivity that come from this flat-tax scheme.

But even more remarkable is that Governor Evers’ Department of Administration says the flat tax scheme likely not legal , at least if the state doesn’t want to pay back billions in stimulus from the Federal Government, as part of the State and Local Fiscal Recovery Fund (SLFRF) that was included in the Biden stimulus of 2021.

If a state reports actual revenues that are below the reported baseline tax revenues for a fiscal year, two tests are conducted to determine whether a state must repay SLFRF distributions to the federal government due to a breach of the tax offset provision. The first test is whether there are “covered changes” [reductions in net taxes of more than 1% of collections] due to new laws done after the COVID aids came in]. Since Wisconsin has already enacted more than $1 billion annually in covered tax changes in tax reductions since March 3, 2021, this condition would be satisfied, and this bill would also constitute a covered change under the Treasury rule. If there are covered changes, the second test is whether the state has (1) sufficient organic revenue growth above the baseline or (2) offsetting revenue increases and spending reductions to fund the covered tax changes….

The organic revenue growth in excess of the inflation-adjusted baseline tax revenues for the current fiscal year and the following two fiscal years are as follows under current estimates of tax revenues and fees subject to the Census Bureau definition of taxes as well as current economic assumptions:

Fiscal Year 2022-23 $981.6 million
Fiscal Year 2023-24: $542.7 million
Fiscal Year 2024-25: $918.0 million

The Department of Revenue estimates that the bill’s provisions would reduce tax collections by $2.11 billion in Fiscal Year 2023-24 and $2.85 billion in Fiscal Year 2024-25. These reductions exceed the estimated remaining organic revenue growth and would place the state below current estimates of baseline tax revenue. In the absence of offsetting covered tax revenue increases or expenditure reductions, the bill would therefore cause the state to breach the statutory provision against utilizing SLFRF to fund tax reductions, requiring repayment of the entirety of the approximately $2.5 billion allocation.

So we’d have to pay back $2.5 billion if we wanted to give a tax cut (mostly to the rich) that totals $5 billion over those 2 years? Seems pretty dumb to me.

Assembly Speaker Robbin' Vos has already said this flat tax scheme isn't going to become law, and I don't get why the Senate GOPs want to give more exposure to this regressive plan as state budget talks start to get serious. Especially when you contrast it with Governor Evers' targeted plans for tax relief to the lower and working classes. But hey, please proceed, WisGOPs!