Wednesday, April 19, 2023

Wacko Macco 2-bracket tax plan needs a lot more details

We got 2 1/2 months before the state's budget is due, and with the Supreme Court race over, it's now time for the GOP State Legislature and Governor Evers to have their showdown on what type of tax cut is going to happen. Another GOP plan was thrown out by Assembly Ways and Means Chair John (Wacko) Macco and newly-elected Rep. Jerry O’Connor.

Here is what the two reps described in their press release on the tax plan.
Under the Income Tax bill, over a five phase plan, Wisconsin’s income tax rate will drop to two brackets: 0% and 4.5%. 100% of Wisconsin’s taxpayers will see a tax decrease with the average decrease set at $1,292. Wisconsinites making under $50,000 will see their taxes decrease by 59.6%.

“With the record budget surplus, taxpayers are expecting tax relief from this session. This longer-term plan is fair, especially considering how Wisconsin stacks up against competing states, including those with no state income tax. This bill brings justified tax relief to all taxpayers,” said Representative Jerry O’Connor.

Under the Local Funding bill, municipalities receive a 38.9% increase in funding. With 20% of the state’s sales tax dedicated to a new “Local Government Aid Fund”. Included in that is $95.1 million specifically designated to enhance first responders and roads and keep our communities safe. As well as a $194 million “Per Capita Deficiency Aid” fund that is dedicated to communities that, since 2012, have not been adequately funded under the current Shared Revenue Formula.
Plan at least seems worthy of debate, and the state's local governments certainly need more funding (Macco conveniently does not mention that he voted for the "inadequate funding" of local governments for the last 12 years).

But I can't find the actual full bill at this point, and I'd like to know the cutoff points for where 0% ends and 4.5% begins, and what happens to the rest of the budget if local governments are getting all of this extra money.

Y'know, unless we are using the hundreds of millions of dollars in state tax dollars that we'd save every year by expanding Medicaid under the Affordable Care Act. But somehow, I'm guess Macco and the rest of the gerrymandered WisGOP Legislative aren't going to have that play into the equation. The Wisconsin State Journal had further discussion of this tax plan, which takes a few years to end up at the two (lower) tax brackets.
Under the bill, all four of Wisconsin’s income tax brackets would be reduced starting with the 2024 tax year. After the first tax cut, four subsequent reductions would only occur if state general fund collections exceed expenditures.

“Essentially what this would do is provide for a tax cut for all filers with a current tax liability,” said Jason Stein, research director with the Wisconsin Policy Forum, a nonpartisan organization that doesn’t endorse specific policies.
I’m OK with the idea of no further tax cuts until there is a structural surplus in a given year, where we’re adding to the money in the bank and not taking away from it.

But the quote from Stein about “current tax liability” is a red flag to me, because it likely means low-income Wisconsinites would lose some assistance they get (like EITC or Homestead Credit) because those items would stop being “refundable” (aka paid out even if you owe $0 state taxes). Evers wants to allow more Wisconsinites to be eligible for these credits, while I wonder if this Macco/O'Connor tax plan even allows those credits at all, let alone make them refundable.

And no surprise, but it’s the richest Wisconsinites that would get the biggest benefit from this scheme, while blowing a giant hole in the budget in future years.
“That said, there would still be a significant decrease at the upper end because you’d still be dropping more than 3 percentage points on the rate that applies to the income in the highest bracket,” Stein said.

The bill is estimated to reduce state income tax collections by more than $3.5 billion annually once fully phased in, according to a fiscal estimate from the nonpartisan Legislative Fiscal Bureau.
Oh, only $3.5 billion a year, every year? That’s a surefire way to lead to significant budget deficits and cuts in aids and services once things turn the wrong way. And you can bet that Wacko Macco and the other GOPs backing this won’t be reversing the tax cuts to the rich to make up for that.

It makes more sense than the even-larger and more regressive flat tax scheme that was floated by WisGOP earlier. But that doesn't mean this 0%/4.5% income tax plan is a good idea, at least until a lot more details get fleshed out.

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