State Rep. Dale Kooyenga, R-Brookfield, is out with a sweeping plan to cut income taxes in Wisconsin by nearly $800 million over the next two years. It would lower rates across the board and change Wisconsin’s progressive income tax structure by adjusting the brackets to where someone making $14,510 pays the same rate as someone making $319,460.

The proposal, which is being cheered by anti-government groups like Americans for Prosperity, aims to simplify what many agree is a complex system.

But critics are already warning the plan is fraught with fiscal risk, deep social unfairness and comes at a time when the state economy is still struggling.

Here are six reasons some say the proposed GOP income tax cut is exactly the wrong medicine at the wrong time:

1. It is using a one-time surplus based on future projections for a permanent income tax rate reduction.

The Kooyenga plan is based on May estimates from the Legislative Fiscal Bureau, showing that revenues by 2015 will be $575 million higher than were forecast in January.

But as the Wisconsin Taxpayers Alliances notes, a lot of that new-found money is primarily due to taxes on non-wage business and investment earnings, in part from a recovering stock market. In fact, income tax withholding from wages paid to workers has been relatively weak, the LFB reports.

WisTax goes on to warn that the LFB projections are just that: projections. Should the economy slow or not perform as well as expected, these dollars may never materialize.

Rather than using a projected surplus as justification for another tax cut, WisTax suggests keeping more of a cushion — in part because Walker’s 2013-2015 budget proposal leaves an ending balance of only $23 million, or less that 0.2 percent of spending.

“Unfortunately, politicians on both sides of the aisle have a long and rich history of taking extra money and running with it,” says WisTax president Todd Berry.

2. It changes what had been a fairly progressive state income tax system and makes it much more regressive.

The GOP plan takes what had been five income tax brackets in Wisconsin and reduces that to three, creating a very broad middle bracket that lumps together low-wage earners and CEOs.

As a result, someone working for $8 an hour at a fast-food restaurant would pay the same effective income rate as a corporate executive making $250,000 — even before the deductions kick in that help the wealthy.

Robert Kraig of Wisconsin Citizen Action notes that the plan redistributes income upward by giving 60 percent of the benefit to those who make $100,000 or more. It also gives the lowest-income earners the smallest tax rate decrease.

“This is a stunningly unfair proposal,” he says. “It makes a tax system that is already rigged against the middle class and working Wisconsinites even worse.”

3. The credits being eliminated don’t come anywhere close to making up the projected $787 million in reduced tax collections over the two-year budget.

An accountant by trade, Kooyenga deserves kudos for trying to simplify the tax code. His plan eliminates more than a dozen narrowly-designed tax credits worth about $5 million.

But closing those loopholes won’t begin to cover the reduced tax collections from upper-income earners.

If middle-income tax relief is truly the goal — Gov. Scott Walker claims that was the reason for including $343 million in tax cuts in his new budget — that could be better accomplished by eliminating deductions that primarily benefit upper-income earners. Instead, Republicans have been cutting things aimed at helping lower-income taxpayers such as the Earned Income Tax Credit or the Homestead Tax Credit.

In fact, the last budget cut $56.2 million from EITC, which Ronald Reagan once called “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”

4. Factory and farm owners in Wisconsin are already virtually exempt from state income taxes.

An item tucked into Walker’s first budget already provides a tax credit for manufacturing and agriculture business owners in the state, which when fully implemented by 2017 will effectively eliminate income taxes for those specific groups.

The “domestic production tax credit” 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.

Kooyenga's plan does remove a provision that would have allowed those receiving the producers tax credit to use any excess against other income, such as capital gains.

Still, critics have called it one of the largest income tax windfalls in state history — and one that few people know much about.

5. Slashing income taxes on the wealthy sets up the state for future revenue shortfalls, which could provide the justification for future cuts in spending on things like education or public employee salaries and benefits.

Two years ago, the state was facing an estimated $3.3 billion budget deficit, which Walker said was the reason Wisconsin needed to implement Act 10, which essentially eliminated collective bargaining for almost all public workers and forced them to pay more for their pensions and health benefits. The last budget also included deep cuts to the UW System and aid to local governments.

By permanently reducing income tax collections by lowering rates, Wisconsin is potentially heading toward another fiscal cliff if the economy slows.

To Winnebago County Executive Mark Harris, another large budget hole could provide cover for additional — and painful — cuts to government spending down the road.

“You cut taxes, then starve the beast and when the bank breaks in a down year, you can say ‘look we’re broke,’ and suddenly the public will tolerate cuts they would not have otherwise,” he says.

6. The tax proposal is simply another example of trickle-down economics that have done little to create jobs or boost wages for the vast majority of Wisconsin citizens.

Despite a series of policies designed to spur job creation and slogans that Wisconsin is “open for business,” the state continues to lag the rest of the nation and its neighbors in job creation.

Rep. Gordon Hintz, D-Oshkosh, one of four Democrats on the 12-member legislative budget committee to which Kooyenga introduced his tax plan, says more tax cuts are not the answer.

“The song remains the same in Wisconsin,” Hintz says. “By any economic measurement, Wisconsin’s economy is lagging, ranking 44th in the nation in job growth, and faces immediate and long-term challenges. Instead of creating a state budget that invests in our future, Republican leaders remain committed to spending one-time money on permanent tax cuts at the expense of Wisconsin’s economy.”

Rather than more cuts, Hintz is urging the Legislature to use any surplus to invest in workforce development or higher education, restore cuts to public schools or simply deposit one-time revenue in the rainy day fund.

“Just like the tax policies of the past two years, this proposal does nothing to improve our economy,” he says. “If we are going to overhaul our tax code, let’s do it in a way that maximizes the benefit to Wisconsin’s economy and not just for the sake of reducing revenue.”

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(37) comments

DriveThru
DriveThru

This is going to be a huge tax increase on hundreds of thousands of Wisconsin families. Hopefully the working and lower middle class people who voted for Walker, after they see the huge increase in their taxes, will finally acknowledge what a disaster the republicans are for the state, and NEVER vote for republicans again. You think the republicans will only attack state workers, but you're about to find out that your family is next on the chopping block. Walker and the GOP are wealth redistributors: They take from productive workers and give to their millionaire campaign cronies and corporate masters! Look at your tax returns people, and you'll see that you're going to be paying hundreds or thousands more dollars in taxes for this year because of the GOP attacks on earned income and marriage!

koala

For 30 years, Wisconsin voters have heeded the siren song of paying teachers and professors less. Keep it up, guys. We're only intermittently at the bottom of job creation nationally; constantly underfunding education is THE road to perdition in the long term. Tax cuts are not going to solve the big problem Wisconsin faces: constant drops in median income compared with other parts of the country. Newsflash: Minnesota has increased its standing in terms of median income, not by shirking its responsibilities to education to fund selfish tax cuts, but by investing more in education.

This move by the GOP is stupid, enormously destructive, and transparently self-serving. It says that we don't care about the fact that elementary and high schools across the state are starved for money. It says that we don't care that UW-Madison profs are about to leave en masse because they're being paid about 20% less than their peers at competing universities (many of them public as well). It's better to give every taxpayer a few tens of dollars than to acknowledge we're underpaying the teachers and profs by thousands of dollars each.

Of course, given that the GOP depends on utter ignorance in order to get its candidates elected – anyone wanting to contest that, check out the disinformation spread by FOX and the very high degree of factual ignorance that has been documented in FOX viewers – maybe this is the Republicans' preferred low road to political hegemony.

paulwesterberg

Next year they will say the state is broke again and the only way to fix the budget is to layoff teachers and increase class size to 80 students per teacher.

Ten years later they will wonder why the crime rate and prison population are exploding as a whole generation of kids is incapable of earning a living in modern society.

pete
pete

you wouldn't happen to be a teacher are ya paul? good to have a positive self-esteem

PapaLorax

well we have been dumping money into schools for decades at an increasing rate...that doesn't seem to be the solution.

DriveThru
DriveThru

"dumping money into schools"? 80% of the kids in my son's High School go on to college. That's called a real good investment.

midwestguy

Reward the rich for...being rich? I am shocked that a Republican would think this way.

dhannes
dhannes

It would be a lot quicker and easier to just:
1. Reduce the state income tax withholding rates by 10% across the board...this would put extra money in our pockets right away and could easily be reversed if the situation arises.
2. Do a sales tax holiday in August like many other states do...mimic Minnesota's no sales tax on clothing under $100 for the month...this would save parents money when buying back to school clothes...and stop people in Superior, Hudson, and LaCrosse from crossing the border to buy their clothes...plus could help local retailers like Kohl's, ShopKo, and Lands' End.

PapaLorax

you realize an "across the board 10% cut" would be viewed as something that grossly favors the rich...right?

DriveThru
DriveThru

Because it does grossly favor the rich. Try to deal with the real world where nearly half of WI workers pay no income tax because their wages have been decimated by 40 years of Tinckle Down Economics. Get real for at least 1 second.

MtHtroll1

Kooyenga's proposal is not a tax cut. For many married people, it is a tax increase. In the hardcopy edition of the WSJ in paragraph 18 and paragraph 19 you will find out why.

In paragraph 18 his proposal, as reported by the WSJ, says the married working couples credit will be eliminated. Earlier in the article Kooyenga says he wants to simplify the tax form by eliminating pages 3 and 4. The bottom half of page 4 is a tax credit for working couples. The credit is 3% up to $16,000. If both spouses make at least $16,000 in taxable income, the credit is $480.

The microscopic tax cut of 1/10th of 1% for the first $14500 in taxable income amounts to $14.57 for the first $14,500 in taxable income. For that tax cut working married couples will give up $480 in tax credits. Thus, a tax increase.

For those of you who are married and both spouses work, you will have to make at least $105,000 per year before the tax cut overtakes the loss in the credit.

And about paragraph 19? Paragraph 19 says that certain high income folks will have the alternative minimum tax (AMT) eliminated. The AMT is a tax of 6.5%. The WSJ story says about 6,000 high income taxpapers will be affected. For those high income earners the tax cut will be 6.5% which is 65 times as big as the tax cut for the taxpayers in the lowest
bracket.

On the federal level the AMT was created because certain high income earners had so many deductions they paid little or no taxes on hundreds of thousands of dollars of income. Likely that is the same reason for the Wisconsin AMT.

Kooyenga's proposal should properly be read as tax cuts for the wealthy and tax increases for working families.

DriveThru
DriveThru

Its always the same lies with republicans...tax increases are "tax cuts" and on and on. Everything from the GOP is smoke and mirrors designed to enrich the already rich and attack working families.

DriveThru
DriveThru

Its very misleading calling this an "income tax cut." Almost half of workers in WI pay little or no income tax already because their wages have been destroyed by 40 years of Tinckle Down, Voodoo economics. Now Walker and his GOP are going to eliminate the earned income credit, effectively raising taxes on a huge portion of the population to give another huge tax cut to millionaires and billionaires. This is a tax increase for hundreds of thousands of Wisconsinites! More welfare for the rich and austerity for hard working families. This latest welfare for the rich scheme will further under mine purchasing power and demand in WI, destroying even more jobs!

PapaLorax

"As a result, someone working for $8 an hour at a fast-food restaurant would pay the same effective income rate as a corporate executive making $250,000 — even before the deductions kick in."

Mike Ivey - what could you possible be saying here? This is just completely and utterly false. The effective rate they pay is based on taxable income. The person making $20k will pay 4.5% on the first $14,510 of income and 5.94% and the rest. With deductions and other credits, I would assume the average person making $20k pays little to no income tax.

Before writing completely false statement, please learn how the income tax system actually works. What tax brackets actually mean. What the average person is paying in taxes based on their gross is far far different then what they actually are paying.

Fur94

The marginal rate would be the same on all income between $14.5k and $320k. The effective tax rate would be different. I don't really know what a "effective income rate" is, and it looks like an error to me too.

That said, the difference between marginal and effective tax rates are often confused, or misused. I've read many comments along the lines of "at 35%, the US has the highest corporate tax rate," again missing that the effective rate is one of the lowest.

Plus as the article points out, if the eliminated deductions are the ones that help "the average person making $20k pays little to no income tax," their effective rate could increase while the wealthier person's effective rate could drop. The drop in the rate would save more then the loss of the deduction.

PapaLorax

effective rate is the rate you actually paid - you make 50k and pay 2k in state taxes...your effective rate is 4%

however if you make $1k more...you will pay the marginal rate of 6% on that extra 1k.

this is why removing deductions and lowering the marginal rate is good. First off it enables the LFB to better estimate collections, secondly those rich enough to defer income or take income in alternate forms are more likely to take take real income and pay the lower rate on that income.

Fur94

I'm not sure what you are arguing here. What I think Ivey was saying about the marginal rate means that if the person making 20k makes an extra $1000, they'll pay the same tax on it as someone making 250k earning an extra $1000. However, even if that seems fair, it also comes at the same time they each loose a $500 credit. In practical terms, things will be much harder for the lower income person.

As to the simplicity helping the estimates, that's very similar to the first point in the article about why not to do a tax cut. If the estimates aren't reliable, the money should be set aside until the simpler system can reliably generate the predicted surplus.

PapaLorax

Ivey said very clearly they pay the same "effective rate"...which is completely false.

Not sure what $500 credit you are referring to. It is little things like that screwing up the tax code...it needs to be simplified and it looks like this will get it moving in that direction.

The mashing of teeth and extreme examples only throw fuel on the fire. When those examples are false and misleading it is terrible journalism. Then again, we are still dealing with a population that thinks if they get a rebate they "didn't pay taxes" and doesn't know the difference between a credit and a deduction.

Fur94

Ivey said "effective income rate" which isn't anything., and was most likely wrong by typing it.

If he meant effective tax rate then his point is wrong. The effective tax rate on $14k income is very likely different then the effective rate on a $300k income.

Looking at the whole section, which is regarding changing a progressive tax rate to a regressive one, makes me think he was talking about the marginal tax rate.

The $500 credit is simply a hypothetical example, but MtHtroll1 suggested a $480 one above that I'll look into. The point is to a person with $20k income, a $500 credit means more then a 1% tax cut ($500 vs $200), and in some cases would result in a tax increase. At the same time a 1% tax cut on $300,000 would be $3,000 in savings. In this hypothetical case, the lower income person would pay $300 more in taxes, and the wealthier person would pay $2,500 less ($3,000-$500). That is why it's called regressive.

Wis_taxpayer
Wis_taxpayer

It's so nice to hear from our conservative friends their view that paying taxes is somehow stealing our money. Some of these people are the same ones that like to throw around bible verses when it suits their political ideology. However they have convenient memory loss when it comes to the bible verses that tell them to take care of the poor, and treat other people like they would want to be treated.

I hear that phrase more and more these days... "The Government is stealing our money and giving it to lazy people" Ironically, it's the ones who complain the loudest that use more of "our" tax dollars than "the lazy people"

Think about it, isn't it the people with the most money who complain about the Government stealing their money? yet these are the same people that take advantage of every loophole in the tax law to avoid paying taxes. How many poor people can afford lawyers and tax accountants to find loopholes for them?

Don't the people with more money have more and bigger things? Don't they usually live in big Cities? So they consume more electricity (provided by Government) more water (provided by Government) use resources like trash pick up (provided by Government) Police protection (provided by Government) Fire protection (provided by Government) Snow removal and salting (provided by Government) Parks and recreation areas (provided by Government) Use public transportation (provided by Government)

Someone said that "Today's Republican party is not only abandoning its past, but damaging the country’s future". Oh yeah, that someone is Bob Dole, you know, that far left wing extremist liberal progressive.

Retoother
Retoother

"Think about it, isn't it the people with the most money who complain about the Government stealing their money? yet these are the same people that take advantage of every loophole in the tax law to avoid paying taxes. How many poor people can afford lawyers and tax accountants to find loopholes for them"

And the low income people get just about every dime back in a tax refund that they paid for the tax year..........does the higher income earner get all their taxed income back? nope.

I have to LMAO when you people come up with this " the higher income bracket uses more than the lower income bracket" Hog wash. Not sure where you live but the govt does not pay my utility bill........I see that bill every month......same with the rest of it...I see a bill every year come Dec to pay for all those services.

Nice try but wake up from that dream world you're living in.

PapaLorax

Your list of things that the rich get more of...is a joke. Electricty, water, trash those are paid for by use fees. Public transportation...yeah lots of rich people in Wisconsin use that. Police, Fire, and Snow removal? Uh - unless they are rich and have huge families not sure how that would matter.

hankdog

papa:

Many if not all POTW's are paid for, all or in part, by state and federal grants, or financed by low interest loans provided by or secured by the feds or the state. The Wisconsin Fund for years funded construction of sewage plants and pipes. Federal $ from the Clean Water Act paid for Billions of dollars of treatment works in the state since the early '70's. There even was a program for replacing privately owned systems.

Do some research, buddy.

196ski
196ski

"yet these are the same people that take advantage of every loophole in the tax law to avoid paying taxes. How many poor people can afford lawyers and tax accountants to find loopholes for them?"

Hiring a accountant who understands the 75,000 pages of our tax code is not taking advantage of a loophole. It is called paying what you owe. No more, no less. Poor people don't need a lawyer or tax accountant because they pay little if any in taxes. On the Federal level they get more back than they paid in.

I pay my utility bill, own my own water well, PAY for trash pickup, have a volunteer fire department that I actively support, and have NO police protection only a county sheriff.

On the Federal level:
"For 2013, families with incomes in the top 20 percent of the nation will pay an average of 27.2 percent of their income in federal taxes, according to projections by the Tax Policy Center, a research organization based in Washington. The top one percent of households, those with incomes averaging $1.4 million, will pay an average of 35.5 percent.

Those tax rates, which include income, payroll, corporate and estate taxes, are among the highest since 1979.

The average family in the bottom 20 percent of households won't pay any federal taxes. Instead, many families in this group will get payments from the federal government by claiming more in credits than they owe in taxes, including payroll taxes. That will give them a negative tax rate." http://www.cnbc.com/id/100518058

The upper 20% are paying their share, it is completely off base to label them as anything other than carrying their burden and a little more. This isn't a taxation problem it is a spending problem.

Fur94

I remember commenting on that article when it came out, and I never could find answers to my questions. It also notes that the "400 highest-paid filers ... made an average of $202 million in 2009, the latest year available. Their average federal income tax rate: 19.9 percent."

So my first question question was which rate was among the highest, the 35%, the 20% or both? My hunch is only the first one, and in respect to the comments on this article, it begs to question if it is the poor or the ultra rich that are making the rates high for most of the top 20%.

I also didn't like how the Tax Policy Center phrased their point: "among the highest since 1979." That's a pretty vague way of saying it, and the vagueness makes me think it's a little over-dramatic. If the highest 5 years since 1979 were 60%, 60%, 60%, 60% and 35%, the statement would be true (among the highest), but it wouldn't seem like things are as high as implied. Similarly, if most of the rates over the last 32 years ranged from 35.2% to 35.8%, then 35.5% could also be among the highest and among the lowest at the same time. I would have preferred to see the numbers instead of the talking point.

ktruth

hankdog
i was referring to government hand outs and services that the govt hands out.
The person that has 4000 sq. foot house, condo, and place on a lake in northern wi has paid for these as well as paying plenty of taxes on these properties. If this person could afford a place in Az i would say go for it. If he had a jet to fly to each of these properties- great. If this person has the money he should be able to spend as he wants. This person contributes to much in taxes to start out, puts plenty of money into the economy, and should be encourages to continue in his life style.
I would love to have some of these properties but everytime I turn around it seems like i am sending another check to the governement.

PennyWise

So your inability to see the people's view who actually have a great need of these, as you put it, 'handouts' stems from your fury at supporting social services in general? A check to the government that provides social security, health care, defense, disaster relief. All of that is the poor people's fault. I'm enlightened by you now. I see the light. Amazing that I never thought that way before. Of course, I'm thinking for myself and reading both sides of the facts, but hey, that's just me.

hankdog

ktruth:

But those same big spenders also burden the rest of society with over consumption, demand for more and more publicly supported infrastructure (highways, airports,police and fire, etc) and drain the raw materials at a greater rate than the folks in the 1000 sq ft apartment. You can't just pick and chose what you mean by resources.

pete
pete

nav said: "In a civil and modern world, whatever the Government does for its people has to be paid by someone. That someone is tax payers."

I'm not sure where in this article it mentioned abolishing taxes??? Your attitude of "whatever Govt does..", does that translate to "whatever Govt wants we should be happy to pay for"?

hankdog, your example is glaring. Someone living in a 1000 sf apt pays how much in property taxes? How many CEO's kids are in public schools? If a kid needs meal assistance, who is getting that? Where do the higher percentage of fire and police calls go to? The cabin is taxed, the 4000 sf home is taxed, etc.

The fear for the left on this is they don't want a certain percentage of the population to have skin in the game otherwise they may start demanding accountability as well, can't have that on election day.

Fur94

I think your points about some government assistance demonstrates the opportunity costs of economics. There is money saved by flattening wages, but it also creates other problems, which usually needs an increase in taxes for the government to correct. One way or another, money will have to be spent to fix the issues.

I know that anecdotal experience will show examples of people who abuse the system, or who don't work hard, or other reasons that would make one doubt that they need raises. But looking at the overall picture of the past few decades, I find it hard to believe that such a large percentage of the public is lazy, especially with productivity up 80-90% and the GDP increasing by about 10 trillion over that general time frame.

koala

Keep in mind that, despite the great increase in worker productivity, real wages of the middle class have been flat over the last three decades, while the top 5-10% have had their wages soar. The differences in wealth in this direction over time have been even greater.

Fartinthewind
Fartinthewind

Here, hear!

ktruth

In a perfect world, we would all be treated the same and taxed at the same rate and the government would not steal all of our money. Until then, whenever there is a talk of tax cut, take it (even if it benefits the top producers more- let them keep more of what is theirs).

Nav

No one is "stealing" any one's money. In a civil and modern world, whatever the Government does for its people has to be paid by someone. That someone is tax payers.

Tax cuts are not free, they too have to be paid for. This article is so right and people need to read it.

ktruth

yes, taxes are needed. There is to much waste and there are to many comsumers and some groups are penalized to much. Everyone should be required to contribute the same percentage because we are all created equally. Lower income people who may use more in resources should be required to contribute in other ways(donating time). The system needs to be fair.

hankdog

ktruth:

Would you please elaborate on your statement " Lower income people who may use more in resources..." Explain how a lower income family living in a 1000 sq. ft apartment would use more resources than a CEO with a 4000 sq. ft. home and a condo FL and a "cabin" in northern WI for example. Thanks.

DriveThru
DriveThru

2/3 of ALL wealth is inherited in the US, so "we are all created" extremely unequally. Upper income people "should be required to contribute in other ways" like paying a higher tax rate to prevent the system from becoming even obscenely more unfair than it already is. Lower income people should pay no taxes at all since their lower income is primarily a result of the rigged and unequal playing field created by the rigged laws. Rich people should be required to "donate time" as penance for thinking everyone owes them a free ride and that they're entitled to everything everyone else creates!

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