A few taxing budgetary thoughts

Been busy with Badger hoops and real life, but yes I am aware that our Governor just put out a new 2-year budget for Wisconsin. Lots to look at, and even more than a typical budget, with over 1900 pages in the actual bill.

Yeah, I'm not going to read all that, so give me the 167-page Budget in Brief instead. And I'm going to concentrate on the tax side of the bill for this segment - don't worry there will be plenty of spending choices to discuss soon enough.

The Evers Administration cites a recent Wisconsin Policy Forum report that says Wisconsin had its state taxes at their lowest % of income since at least 1970, cited another Policy Forum report that says Wisconsin ranked 35th in state and local tax burden as % of income in 2022 (the most recent year measured). This leads the Evers Admin to proclaim in the Budget in Brief: "The days of Wisconsin being a high-tax state are over."

Much of the tax relief in this budget would come in the form of lower property taxes. This includes something I've wanted to see for a while - sending more state money to public schools and local governments and cutting property taxes in the process.

That K-12 aid is how much more is going to schools beyond the higher per-student revenue limits, and the county and municipal property tax aid is an incentive where places that freeze or reduce their property tax levies get a bonus payment equal to 3% of that levy. Unfortunately, I do not see a similar incentive to encourage communities to get rid of their local wheel taxes (although that wouldn't be a bad thing to run on in 2026. Just saying...).

The Homestead Credit expansion and indexing the income levels for inflation is something Evers has called for in the past, and Republicans have refused to go along every time. And a result, less than half the number of Wisconsinites get the Homestead Credit compared to how many got it when Scott Walker and the Wisconsin GOP took power in 2011. The Evers Administration reiterated this with a telling chart that shows how many fewer Homesteaders there have been as inflation-indexed Social Security payments have increased.

As I’ve mentioned before, I’m not a big fan of using the School Levy Tax Credit in general, because it gives bigger benefits to people who own higher-value properties, and because that money doesn’t go into the classroom. It’s a credit that has gone up exponentially in the last 15 years, which makes it seem like we’re putting more money into K-12 schools, but it doesn’t do anything to improve education. And its growth is in sharp contrast to the nearly-universal First Dollar Credit, which isn't really any larger than it was in the early 2010s.

On the income tax side, there are two main tax cuts from Governor Evers that would give most of their benefits to Wisconsin's lower-class and middle-class taxpayers.

The largest of these proposals is an expansion of the personal exemption from $700 to $1,200 for each exemption claimed by a filer. For a median income family of four, this means that an additional $2,000 of their income will no longer be subject to the Wisconsin individual income tax, providing a savings of just over $100 annually for that family. Overall tax relief for all filers will total $112.4 million in fiscal year 2025-26 and $113.5 million in fiscal year 2026-27.

To provide additional tax relief to Wisconsin working class families with children, the Governor recommends greatly increasing Wisconsin's supplement to the federal Earned Income Tax Credit (EITC) for working families with one or two children. Targeted tax relief through EITC has been shown to be effective in reducing child poverty, yet Wisconsin's credit for those with one or two children lags most other states and should be increased. Beginning with tax year 2025, the Governor's budget will increase the percentage of the federal credit that filers with one dependent child may claim from 4 percent to 16 percent. For filers with two children, the rate will increase from 11 percent to 25 percent. These increases in the proven EITC program will encourage work while providing needed relief to low- and moderate-income families with children. Under the Governor's budget, over 140,000 filers with children will receive $58.4 million in fiscal year 2025-26 and $58.5 million in fiscal year 2026-27. Average tax relief for these taxpayers will be over $400 annually.

There's also an tax exemption for income on tips that is estimated to be around $7 million a year, which is defined as tips received "by an employee from the customers of the employee's employer." And just like with Trump's call to do so at the federal level, I think that's such an expansive definition of "tips" that it could get abused to hell, and I don't like it.

While there over $4 billion in the state's bank to start this biennium, most of the property tax decreases will show up as higher expenditures at the state level. So to help pay for those property tax reductions and a sizable increase in spending on state services and other needs, Evers wants to raise taxes on the richest Wisconsinites. This includes a new millionaires’ tax bracket that goes above the current top rate of 7.65%.

The new top bracket rate of 9.80 percent, will only apply to those with taxable income of $1 million or greater. This change will help pay for the Governor's property tax relief proposals as well as additional relief for working families. Wisconsin's top bracket will remain just below our neighbor Minnesota's top tax rate of 9.85 percent, but the high earnings threshold is unlike Minnesota, which imposes its highest bracket on $330,410 in taxable income for a married couple and $198,630 for a single filer. The new Wisconsin tax bracket would affect only approximately 0.3 percent of Wisconsin filers and raise additional tax revenue of $719.3 million in fiscal year 2025-26 and $578.4 million in fiscal year 2026-27.

While there will be those who claim that increasing Wisconsin's top marginal rate will put the state at a competitive disadvantage, the example of Minnesota is instructive in disproving this notion. Despite its supposedly uncompetitive top marginal rate, Minnesota continues to enjoy a large per capita income premium over its lower tax peer states, such as Michigan, Indiana, and Wisconsin.

Interesting that the Evers Admin brings up our neighbors to the west, as the recently released Quarterly Census of Employment and Wages says Minnesota had the fastest job and wage growth in the Midwest between Sept 2023 and Sept 2024, and had average weekly wages that were more than $200 above both Wisconsin and Indiana. But Robbin’ Vos says we don’t want to go in the direction of them, noooo.

Evers also is repeating his request to limit the increasingly costly Manufacturing and Agriculture tax credit to the first $300,000 in activity, and in limiting a currently-existing cut in capital gains taxes to single Wisconsinites that make $400,000 or less and married couples that make less than $533,000. Those 2 moves alone would bring in another $660 million in the next fiscal year.

Put it together, and it means that there is a sizable increase in both tax revenues and spending in this budget. Compared to where the Evers Admin's estimates and budget requests from November had us, the state is now slated to tax and spend there is $2 billion more in both categories next year under the new Evers budget, and while the expenditure gap is mostly closed in FY 2027, the Evers Admin estimates that they'd collect another $1.5 billion in taxes under the new budget to close the gap between taxing and spending.

Is it a realistic budget? Not especially, although it gives a good insight on the ability to do a lot of things that Republicans would claim we are incapable of affording these days. And Evers' budget would be a clear shift in tax burden, as Wisconsin homeowners would be likely to pay less in property taxes, lower and middle-income people would have a decent income tax cut, while the richest Wisconsinites would pay more in income taxes.

And as JR Ross of WisPolitics noted in this week's episode of "Rewind" on Wisconsin Eye, it is interesting that we saw Governor Evers' tax plans before the GOPs in the Legislature came out with their plans to give away the billions that we have in the state's bank account. That was NOT what Robbin' Vos and company were saying last month, and it tells me that the narrower margins from fair maps are keeping the WisGOPs from being able to have enough members to sign on to any stupid idea that is out there.

I'm sure they aren't going to give Evers what he wants, but let's see if the GOPs realize that some kind of property tax relief and school funding increases are going to have to happen, or else their reign over the Capitol has a sizable chance of ending with the next election.