"No tax on tips/OT" goes farther in Wisconsin, but maybe there's a better way to help working people

One thing Tom Tiffany keeps promising is that if Wisconsinites are dumb enough to vote him in as Governor, he will ask for the same tax exemption for tips and OT premium pay at the state level that he voted for as part of Tax Scam 2.0 in Congress.

Possibly with that in mind, Forward Analytics (FA) examined how a Wisconsin-based exemption for tips and OT income would look in a report they issued earlier this month. FA says that one important difference is when that tips and OT subtraction would be calculated at the state level, which would reduce a Wisconsinite’s Adjusted Gross Income (AGI), while the Federal exemption comes after AGI is totaled. Forward Analytics says this means a Wisconsin deduction would get extra bang for the buck.

Because the Wisconsin proposal would have created its subtraction inside the calculation of state AGI — rather than after it, as the federal deduction does — claiming the tips or overtime subtraction removes that income from a filer’s tax base and also lowers the state AGI that determines how large a standard deduction the filer is entitled to.

A lower state AGI produces a larger standard deduction. A filer who claims the tips or overtime subtraction therefore receives two benefits from a single dollar of exempted income: the direct exclusion of that dollar from taxable income and an indirect increase in the standard deduction available on the rest of their income. Federally, no equivalent second effect exists — the standard deduction is a fixed amount and is not impacted by the “no tax on tips or overtime” deduction.

To give you a visual on that, here’s how Wisconsin’s standard deduction works, based on the 2025 state income tax tables, and how it eventually phases out.

See how Wisconsin's standard deduction starts falling after a certain amount of income? That also means that if you move left along that line, the decline in taxable income from other deductions is larger than dollar-for-dollar. It would lead to a significant tax benefit if you are one of those tipped employees in that range of income, you are in essence getting a double deduction .

It also means certain professions would pay more taxes than others, even at the same incomes, as FA illustrates in the following chart.

So you'd have unintended consequences of making it more lucrative to wait tables or be in unionized manufacturing vs taking office jobs, and pay should have to be adjusted higher for the jobs that don't have those double deductions. While I'm down with encouraging more people to unionize and demand OT pay, I bet Tom Tiffany and his donors sure don't want that.

And yes, Tom Tiffany voted for "right-to-be-screwed" in the Legislature in 2015.

Forward Analytics also mentions the price tag of those exemptions, which isn't as much as the several hundred million a year that the 10% cut in taxes that Tiffany is also asking for (see this post for more on that), but it still is well into 9 figures a year.

In May of 2026, the Wisconsin Legislative Fiscal Bureau (LFB) released estimated effects of the “no tax on tips and overtime” proposal for the next two fiscal years. In 2026-27, LFB projected a reduction in individual income tax collections of $232.8 million ($179.9 million in overtime and $52.9 million in tipped income). For 2027- 28, they projected a reduction of $197 million ($148.1 million in overtime and $48.9 in tipped income).

It was higher in 2026-27 because year 1 would account for larger tax refunds in Spring 2027, since it would be a year-long deduction that hadn't been adjusted for in the first part of 2026, and also be in effect through the end of FY 2027 on June 30, 2027.

With that in mind, we'd likely see something at or above the $232.8 million figure for 2027-28 if it was passed in the next budget. The FA looks ahead from that, and shows how the amount of the writeoffs would expand as years and wages (hopefully) go up.

Using historical data, we estimated annual wage growth for the next decade and combined these estimates with an attrition rate (which accounts for a subset of workers who would meet the maximum allowed deduction). We also calculated employment growth in each sector (starting from a base of nearly 600,000 tipped workers and 1.2 million overtime eligible workers) using a similar process.

By 2037, the loss in annual tax revenue is projected to rise to $118 million from the tipped income deduction and $234 million from overtime income. A full breakdown of the yearly revenue amounts can be seen in Figure 2. In total, Wisconsin could expect to lose $2.7 billion in tax revenue between 2028 and 2037.

The price tag doesn't mean we shouldn't necessarily give some help to those in tipped-wage professions and give financial benefits to jobs that have OT. But it also isn't free, and with increasingly tighter budgets coming due to higher costs with inflation and less assistance coming down from DC, we need to keep it in mind.

But I got a better idea on how to help these workers and others. Why not raise Wisconsin's tipped wage from the absurd $2.33 an hour it is today and instead make it something like $7.50 while raising our non-tipped wage to $15 an hour or more. Heck, I'd prefer if we just paid a high base wage for those jobs and only have tips as a bonus, but I know that won't happen, so this is a good compromise.

And maybe going back to something Presidents Obama and Biden did and increasing the number of jobs that get overtime. Having more OT pay reflected on regular paychecks would be a better option than a costly gimmick where the "half" of time-and-a-half only gets refunded with someone's tax returns several months later.

In addition, all those tax cuts don't mean a thing if everyday life becomes more costly. Maybe we should be expanding BadgerCare and allowing people of all income levels to buy into it for their coverage if they so choose (as David Crowley has asked for). And maybe we need to restore funding to Child Care Counts that WisGOPs in the Legislature allowed to expire, to allow for more options for working parents and to make it easier for them to get by.

Just file these ideas and number away ahead of this week's debate, and know just what "no tax on tips" will or won't do. And maybe we should be using some of our state surplus to cut taxes in a different way, by paying down property taxes and wheel taxes that are taking an increasing bite out of Wisconsinites' available funds, while also maintaining services to allow for a strong quality of life in our communities.