Cut Income Tax or Property Tax?

There’s a Capitol fight over which of Wisconsin’s twin towers of taxation – the $9.2 billion property tax or the $6.6 billion income tax – should be cut again in the 2015-17 state budget.

Ironically, the dispute is raging despite this recent warning: There’s a $2.2 billion gap between what state agencies say they need to operate by mid-2017 and what general-fund tax collections will total over that same period.

The fight for another income tax cut is being led by the state’s most powerful business group, Wisconsin Manufacturers & Commerce, which spent heavily this year to re-elect Republican Gov. Scott Walker and Republican legislators who will control both Assembly and Senate.

In a letter laying out WMC’s top priorities for the legislative session starting Jan. 5, WMC President Kurt Bauer said this: “Despite more than $2 billion in tax relief since 2011, Wisconsin is still in the Top 10 of the highest-taxed states, according to the most recent ranking from the DC-based Tax Foundation… Eliminating the highest personal income tax bracket, which was created by [Democratic] Gov. Jim Doyle, would offer relief for many small businesses and should finally drop us out of the infamous Top 10.”

Many owners of small businesses pay taxes on their business profits when they file personal income taxes, so they would be helped by eliminating the top tax bracket of 7.65%, WMC lobbyist Scott Manley said in a WisconsinEye interview.The current state budget lowered that top tax rate from 7.75% to 7.65%.

But new state Department of Revenue figures on who paid income taxes in 2013 – and how much their tax bills fell in a year – may help those focusing on property tax cuts. According to the Revenue Department’s latest summary:

*Total income taxes paid fell by $309 million between 2012 and 2013 – and $232 million (or 75 percent) of that decrease went to taxpayers with adjusted incomes of more than $200,000.

*Specifically, those with taxable incomes of more than $200,000 saw their average income tax bill fall by 13.6 percent (from $34,568 in 2012 to $29,875 in 2012)

Every taxpayer’s situation is different, so there are several reasons why the wealthiest Wisconsin taxpayers paid less in 2013: They were helped by 2013 cuts in all tax rates. And, upper income individuals claimed one-time income like capital gains in 2012 to avoid higher tax rates in 2013. That helps explain why the average taxable income of Wisconsin taxpayers in the over-$200,000 category dropped from $547,124 in 2012 to $507,875 in 2013.

Wisconsin’s income tax is still progressive, since the effective net tax rate increases as taxable income rises. For example, the 2 percent of taxpayers with adjusted gross incomes of more than $200,000 paid 32 percent of all income taxes in 2013.

But did middle-income taxpayers get a 13.6 percent drop in their income tax bills in 2013? No.

Three examples:

*Those with taxable incomes of between $40,000 and $60,000 paid an average of $1,842 in income taxes in 2013. That was $89 – or 4.6 percent — less than they paid in 2012.

*Those with taxable incomes of between $60,000 and $80,000 paid an average of $2,957 in income taxes in 2013. That was $129 – or 4.1 percent – less than they paid in 2012.

*Those with taxable incomes of between $80,000 and $100,000 paid an average of $4,129 in income taxes in 2013. That was $166 – or 3.8 percent — less than they paid in 2012.

Walker and other Republicans are beating the cut-property-taxes drum. Flying around Wisconsin last week, Walker took credit for strict spending controls on local governments that have held down property taxes on homes.

And, in last week’s radio message, Walker promised to continue to do so: “Next month, I’ll introduce the next state budget and detail a plan to ensure your property tax bill is even lower in 2018 than it was in 2010.”

Two other top Republicans, Lt. Gov Rebecca Kleefisch and state Revenue Secretary Rick Chandler said business and civic leaders told them in 23 regional meetings that the property tax is the most painful. “Wisconsin property taxes are a barrier to competitiveness and … could negatively offset a good price on a home,” Kleefisch and Chandler reported.

While all the leaders and lobbyists fight, you must beat the next filing deadline. So, reach for your check book. Pay that property tax bill by Dec. 31.

Steven Walters is a senior producer for the non-profit public affairs channel WisconsinEye. Contact him at stevenscwalters@gmail.com