Tax Cuts Divide Evers, Republicans

Wisconsin State Capitol. Photo by Mariiana Tzotcheva.

In February, Democratic Gov. Tony Evers opened the bidding by calling for a middle-class “reinvestment credit” that would equal a 10% income tax cut, depending on the taxpayer’s income. It would have cost $839 million by mid-2025.

Five months later, Republicans who control the Legislature put a budget on Evers’ desk with a $3.5-billion income tax cut. Taxpayers with incomes of more than $250,000 this year would get 48% of that first-year cut of $1.3 billion, according to the nonpartisan Legislative Fiscal Bureau (LFB).

In short, there is a vast difference between the governor and Legislature over how to use a chunk of the record $6.9-billion surplus to cut taxes. The details show just how big the difference is.

Under the governor’s February proposal, a couple with a taxable income of $70,000 would receive a $100 tax cut; a couple with a taxable income of $140,000, a $320 tax cut; and a couple with an income of $170,000, a $64 tax cut, according to LFB. The Democrat said his plan would “deliver real, responsible tax relief targeted to the middle class and working families—not spending big on breaks for the wealthiest 20% of earners.”

Evers also asked for:

-Limits on the manufacturing and agriculture tax credit, claimed by business owners, which would have raised taxes on them by $655 million over the next two years.

-Limits on capital-gains tax breaks, which would have raised taxes on investors by $339 million by mid-2025.

Evers proposed using the revenue from these higher taxes paid by businesses and investors to pay for a new, $190-million tax credit for “family caregivers” and other changes, including new help for parents struggling with child-care costs.

In April, Senate Majority Leader Devin LeMahieu — the Senate Republican leader — repeated his call for phasing in a flat tax rate of 3.25% by 2026. LaMahieu first argued for a flat tax in January, despite a prediction that it could cut income tax collections by $5 billion by mid-2025.

“Regardless of how much money you make, you pay the same percentage of your income to the state government,” LeMahieu told a Senate committee. “A lot of states have been moving towards either eliminating their income tax – such as Tennessee recently eliminated their income tax by increasing their sales tax a couple of percentage points. But a lot of states have gone to or are moving to a lower flat tax.”

But Republicans who control the Assembly balked at a flat income tax.

Instead, the Republican-controlled Joint Finance Committee (JFC) added a $3.5-billion income tax cut to the budget Evers must soon sign, veto or rewrite with vetoes. It would replace the current four tax brackets with three lower ones and set aside $622 million to control property taxes.

Republicans said it would be an average 15% income tax saving or $573 per taxpayer

The biggest changes: Two current middle brackets – now 4.65% and 5.3% – would be compressed into a 4.4% rate, which would apply to couples with incomes of between $18,420 and $405,550; and couples with incomes above $405,550 would see their tax rate lowered from 7.65% to 6.5%.

According to the LFB’s analysis of the Republicans’ first-year income tax cut of $1.3 billion:

-Couples with incomes up to $100,000 are 72.9% of filers who owe taxes and would get 19.6% of the cut.

-Couples with incomes of between $100,000 and $200,000 are 20% of tax filers with liability and would get 32.4% of the cut.

-Couples with incomes of more than $200,000 are 6.9% of tax filers with liability, but would get 48% of the cut.

A report by the nonpartisan, nonprofit Wisconsin Policy Forum found that, in recent years, state income tax rates have declined more for higher income earners than for those with lower incomes. Overall, however, when compared to national averages, rates in Wisconsin are higher for higher incomes and lower for lower incomes.

Republicans said current tax rates “punish” successful residents and are higher than those in neighboring states. “We’re very aware of the states around us,” said Republican Rep. Terry Katsma of Oostburg. “And we’re still at quite a high rate with that top [6.5%] rate.”

Democrats argued for a higher tax rate on the wealthiest residents, “You had a choice between regular Wisconsinites and rich people,” said Rep. Tip McGuire (D-Kenosha), “and you chose rich people.”

Steven Walters started covering the Capitol in 1988. Contact him at stevenscotwalters@gmail.com