Divided budget committee passes Republican tax cut

On a party-line vote, the Wisconsin Legislature’s Joint Finance committee on Monday advanced a $250 million tax cut proposal that Republicans introduced Friday after learning in January that state revenue projections were $452 million ahead of budget.

The committee unanimously recommended two other tax-cutting measures that were part of a Republican-authored package introduced Feb. 10 in response to the state’s dairy farm crisis and Gov. Tony Evers’ call for a special session to help agriculture.

The main tax-cut bill, AB-910, was voted on after the committee held a public hearing earlier Monday at which Democratic lawmakers and some citizens called on the Republican majority to instead use some of the state surplus to shore up the state’s share of public school funding.

The GOP bill has three components:

• It exempts all machinery, tools and patterns from the local business personal property tax and commits the state to reimbursing local governments for the forgone revenue.
• It increases the maximum individual income tax standard deduction by 13.2%, and increases the income levels when the deduction starts to phase out by 11.4 percent, starting with the 2020 tax year.
• It pays off $100 million in state debt.

A Legislative Fiscal Bureau memo estimates the state would pay $44.7 million next year to local governments to cover the lost personal property tax revenue.

The memo estimates that the standard deduction increase would reduce income tax revenues by $214.5 million a year: $106 on average for single and head-of-household taxpayers with incomes up to $120,360, and $145 on average for married couples filing jointly with incomes up to $144,669.

Testifying in favor of the bill at the committee public hearing, State Rep. Dan Knodl (R-Germantown) said about 60% of state taxpayers would benefit from the standard deduction increase, starting in 2021.

He predicted the bill would serve as an economic stimulus, particularly the personal property tax reduction for business owners. “Likely 100% of the dollars they save on this tax, they will pour back into the business,” Knodl declared.

Democrats on the committee, however, criticized the Republican lawmakers for pursuing tax cuts rather than taking up Gov. Tony Evers’ proposals to increase general aid to local school districts by $130 million and aid for special education by $79.1 million.

“What this bill shows us is that your priority is tax cuts over public education,” said Rep. Chris Taylor (D-Madison). Taylor protested that the state was still short of paying two-thirds of public school costs — a commitment begun under Republican Gov. Tommy Thompson more than two decades ago.

Milwaukee Public Schools parent and school board member Megan O’Halloran urged the committee to put money into public school funding rather than tax cuts, noting that around the state referendums increasing school property taxes have been passing to cover school district budget shortfalls.

“Voters are raising their own taxes because they want to see adequately funded schools,” O’Halloran said.

The bill passed 10-4, with all Republicans voting in favor and all Democrats voting against it. It’s scheduled for a vote Thursday in the Assembly.

The two other tax-reduction bills passed 14-0 each. AB-873 creates a tax credit, worth up to $7,500, for about two-thirds of the tax levied on farm buildings and other improvements. AB-875 allows self-employed business owners to include all forms of income, not just what they earn from their business, in calculating how much they can cut their income tax bill to offset their medical insurance premiums. 

The committee also unanimously passed three other farm-relief measures: 

• AB-627, adding $1 million annually for University of Wisconsin-Madison Extension services to farmers; agriculture school to provide extension services in applied agricultural research.
• Special Session AB-6, creating a $5 million agriculture products promotion initiative starting next year to be jointly developed by the Department of Agriculture, Trade and Consumer Protection (DATCP) and the Wisconsin Economic Development Corporation (WEDC). The bill — proposed by Evers — was rewritten with a substitute amendment; after the substitute amendment was passed without any Democratic votes, the bill passed unanimously.
• Special Session AB-7, another Evers’ bill, requiring DATCP, when making promotional grants to dairy processing plants, to give preference to small plants.