While Gov. Scott Walker has touted his income tax cuts as helping the middle class, upper-income filers in Wisconsin will enjoy far bigger savings.
The budget proposal released Wednesday calls for reducing the rates in the lower four of six tax brackets. The top two brackets for married couples filing jointly with incomes over $211,900 would remain unchanged.
But because of how the state’s tax system is structured, all taxpayers would benefit from the lower rates. And that skews the numbers toward the wealthy, according to figures compiled by the Wisconsin Budget Project.
For example, a family of four with taxable income of $25,000 would see their state income tax bill go down by $6. At $50,000, the savings is $54; at $100,000 it’s $138; and at $200,000 the savings is $270.
"At first blush, the proposed tax cuts sound like they will help moderate-income families but the primary effect is to help the wealthy,” says Jon Peacock of the Wisconsin Budget Project.
Peacock notes that more than half of the projected $172 million in income tax cuts annually would go to the upper 20 percent of state residents.
“This just exacerbates the problem that the rich pay a much lower percent of their income for state and local taxes than lower-income Wisconsin families,” he says, noting a recent national report on that issue.
But trying to target tax relief to just middle-income earners is difficult. Because Wisconsin has a progressive income tax structure like the federal government's, lower rates impact everyone and obviously provide more savings to those who pay more to begin with.
“Cutting rates in the lower brackets is really as close as you can get unless you offered specific credits,” says Dale Knapp, research director for the Wisconsin Taxpayers Alliance.
Actually, Walker’s 2011-2013 budget did use tax credits to target a specific group: factory owners and their investors. A domestic production tax credit that kicks in this year will deliver an estimated $360 million in tax savings to manufacturers over the next four years and some $130 million each year thereafter, according to the non-partisan Legislative Fiscal Bureau.
This time, the governor has made a broad income tax cut a centerpiece of his 2013-2015 budget. Combined with continued limits on property taxes, Walker says the cuts will spark the economy and lead to more jobs.
“Our middle-class tax cut is a downpayment on my goal of reducing the tax burden in our state every year I'm in office,” said Walker in his budget speech Wednesday. “I want to cut taxes over and over and over again until we are leading the country in economic recovery."
But the combined property and income tax cuts — estimated at about $315 million annually — are likely too small to make that much difference in the state’s $220 billion economy, says Knapp.
“In terms of the overall size of the economy, the tax cut is really not that big,” he says.
The bigger concern, Knapp says, is that the state might fall back into a budget hole.
“Looking at the big picture after a lot of hard work and pain to get the budget balanced, now we’re moving back in the other direction,” he says. “In some sense that is a little disappointing but it does show the governor’s priorities.”
And some Republicans are hinting at even larger tax cuts when the Legislature starts to look at the budget in detail. The state is running a budget surplus of some $484 million, according to the latest estimates.
"I want the largest, most robust tax cut we can possibly afford, because it's not about accounting of future years," says Assembly Speaker Robin Vos, R-Rochester. "It should be about the accounting today, which shows our budget is balanced and more money in the hands of every single taxpayer is good for our economy."
But advocacy groups say the budget proposal does little to create jobs and won’t improve the lives of low-income and middle-class residents.
United Wisconsin notes that Walker's budget talk did not mention his pledge to create 250,000 new jobs during his first four-year term. The state has seen fewer than 50,000 new jobs since January 2011, according to the Bureau of Labor Statistics.
”After two years of failing to meet his campaign promises, Walker’s budget proposal offers nothing new to promote job creation — just more of the same tax giveaways to big businesses and the wealthy in the guise of economic development,” says Lisa Subeck of United Wisconsin.