Evers embraces income tax cut, delays its impact on paychecks

By: - July 9, 2021 7:00 am
Side view of the top of the Wisconsin Capitol dome

Photo by Mark Danielson via Flickr CC BY-NC 2.0

By using the diminished but still extensive partial veto power that Wisconsin governors wield, Gov. Tony Evers managed to tinker with the margins of the new 2021-2023 state budget — temporarily capturing a $700 million windfall, but also clawing back for the executive branch powers that Republican lawmakers had tried to assume for the Legislature.

Evers also vetoed a transfer of $550 million to the state’s so-called rainy-day fund. The result, added to $459 million already in the general fund, brings the general fund balance to $1 billion in unappropriated funds — funds that are likely to be the subject of ongoing debate over how they should be spent in the coming months.

In exercising his veto pen while signing the budget, Evers sought to temper some of the provisions written into the spending plan by the Republican majority that controls the Legislature and the powerful Joint Finance Committee (JFC).

The budget committee threw out many of the governor’s original proposals, adopted a few of them and rewrote others, many in more limited form, to produce the budget, which passed the Legislature in June with the support of all Republicans and a handful of Democrats.

Tax cut stays intact

Evers left in place a $2 billion cut in the state income tax, achieved by trimming the third of Wisconsin’s four tax brackets. The bracket covers single filers with incomes of just under $24,000 to a little more than $260,000, and lowers their income tax rate to 5.3% from 6.27%

Evers described the tax cut as a boon for middle-income families, reducing taxes by $550 a year for “the median family of four.” When coupled with previous rate reductions in lower brackets in the state’s 2019-2021 budget, the savings rises to $800 a year, he stated.

Still, the tax cut remains tilted heavily toward the upper end of the income spectrum, according to calculations from the Institute on Taxation and Economic Policy (ITEP).

The Washington, D.C., research organization’s analysis separates the state’s population into five groups of equal size based on income. The 20% of state residents in the lowest income group aren’t in the tax bracket covered by the new tax cut. For the second-lowest-income 20% of the population, the average tax cut will be about $12 a year, and for the middle 20%, about $126 a year.

The biggest savings will go to the top two-fifths of the population, according to ITEP, with average tax cuts of more than $375 a year at the lower end of that group, up to $2,912 average annual savings to the state’s top 1% of earners.

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State cash flow boost

While Evers signed the tax cut, he delayed its effect with one of his 50 partial vetoes, eliminating a budget provision in which the Legislature had ordered the state Department of Revenue (DOR) to update the tables that the state uses to calculate how much is withheld from people’s paychecks starting in 2022.

The veto doesn’t change the tax cut, Evers pointed out. The rate will still be reduced for the third bracket, “and taxpayers will receive approximately $2 billion in individual income tax relief from that reduction in this biennium,” he stated in his veto message.

For now, however, the state will continue to withhold the funds based on the higher rate.

“I object to requiring the Department of Revenue to make these withholding table adjustments at a cost of approximately $700 million while other critical priorities have not been sufficiently funded by the Legislature,” Evers stated.

The effect of the veto is to boost the state’s cash flow by putting off the tax withholding change. But the impact is temporary. People whose state taxes are withheld at the old, higher rate are likely to be entitled to a refund at tax time when their taxes are calculated using the new, lower rate.

By using the current tax withholding tables, the state “will close the fiscal year with more cash because of it,” says Jason Stein of the Wisconsin Policy Forum. “But in the end, it’s going to return the money to people.”

Of course, he notes, that’s not guaranteed for any individual taxpayer, due to the ways people’s circumstances can vary.

With his veto, Evers asserted that changing the tables was within the power and the prerogative of the administration acting on its own, stating: “The secretary of the Department Revenue has the ability under current law to make these adjustments as appropriate and will assess whether and when these updates should be made within the full context of revenue collection trends and other state priorities.”

Power struggle

That observation reflected a common theme linking many of his budget vetoes: preventing lawmakers from shifting power and control away from his office and the agencies that make up the executive branch, held by Democrats, and vesting it in the Legislature, where Republicans hold the majority.

In that vein, Evers vetoed several mandates from the Legislature for reports and studies of agencies and programs, calling the requirements “burdensome and unnecessary.”

The governor also vetoed a provision directing a study on whether the state should convert its unemployment insurance program to pay laid-off workers less, and for fewer weeks, when the unemployment rate is low, and another provision requiring the program to implement drug testing for applicants. “The Department of Workforce Development’s efforts should be focused on assisting those who are unemployed or underemployed to obtain family-sustaining jobs rather than burdensome rule-making,” Evers wrote.

Throughout the entire budget, Evers vetoed provisions that would cause existing funding to lapse for various specific items. For example, with one veto, the governor blocked the Legislature from eliminating a $425,000 provision to provide discounts for FoodShare households on healthy food choices.

Other vetoes removed JFC stipulations on certain funding sources. In the Department of Natural Resources budget, for example, Evers deleted language directing a series of projects to be funded through the agency’s environmental fund appropriation.

With those vetoes, funding defaulted to the DNR’s conservation fund. The result, Evers said, “will preserve funds in the environmental fund to be used for much-needed environmental initiatives.”

Where the Legislature’s budget had sought to expand the state’s summer youth jobs program beyond Milwaukee, without increasing its funding, Evers vetoed the language, leaving the existing program in Milwaukee in place.

“It is unfortunate that the Legislature did not provide additional funding for this program to ensure that it could be expanded statewide without negatively impacting the youth who are served by the existing program,” his veto message stated. “If the Legislature is interested in partnering on a statewide expansion, I would welcome legislation that provides additional funding and authorization to expand the program statewide.”

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Erik Gunn
Erik Gunn

Senior Reporter Erik Gunn reports and writes on work and the economy, along with related subjects, for the Wisconsin Examiner. He spent 24 years as a freelance writer for Milwaukee Magazine, Isthmus, The Progressive, BNA Inc., and other publications, winning awards for investigative reporting, feature writing, beat coverage, business writing, and commentary. An East Coast native, he previously covered labor for The Milwaukee Journal after reporting for newspapers in upstate New York and northern Illinois. He's a graduate of Beloit College (English Comp.) and the Columbia School of Journalism. Off hours he is the Examiner's resident Springsteen and Jackson Browne fanboy and model railroad nerd.

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