For most taxpayers, tax-cut benefit will fall below the average savings cited by GOP

Republican leaders of the Joint Finance Committee are calling the tax proposal they passed Thursday evening a “middle class tax cut” that will provide an average savings of $573 a year to Wisconsin taxpayers.

Fewer than 20% of state tax filers will see that high a tax break, however, according to calculations from the Wisconsin Department of Revenue (DOR). For anyone making less than $100,000 a year, the average likely overstates what they will save. 

More than 1 million Wisconsinites who fit a standard definition of middle class will, as a group, reap about $480 million in tax savings, according to calculations from the DOR. But a much smaller group of wealthier state residents will share in savings that total almost twice that amount. 

About 80% of tax returns filed in Wisconsin reported incomes of $100,000 a year or less, according to data from the DOR. For those in the top tier of that group, with incomes of $90,000 to $100,000, the average tax savings from the plan will be just under $515 a year — almost $60 less than the average that the plan’s authors have highlighted. That comes to about $10 a week.

Returns reporting incomes of $70,000 or less account for 70% of the total number of returns, according to the DOR. Taxpayers at the top of that range will get an average of $249 a year from the tax cut — less than half of the stated average.

(In response to a question at Thursday night’s finance committee meeting, Legislative Fiscal Bureau director Bob Lang said about 73% of Wisconsin residents have incomes of $100,000 or less.)  

The tax cut combines two of the state’s current tax brackets and reduces the rate for both, creating a single, broad middle category.

“”This is a middle class tax cut because the largest bracket, which entails most people, on a married tax return is from $18,000 to $405,000 and that’s the bracket that’s going to go down to 4.4%,” said Rep. Terry Katsma (R-Oostberg) at a news conference Thursday when the Republicans unveiled their plan’s details.

One common definition for “middle class” comes from the Pew Research Center: a household income in the range between two-thirds of the median income to twice the median income. 

Wisconsin’s median income in 2021 was $67,080 according to the U.S. Census Bureau. Two-thirds of that is $44,273. Twice the median is $134,160. By the Pew Research Center standards, middle class refers to a household with income from $44,000 to $135,000, and the upper limit for middle class Wisconsin is nearly $200,000 less than the top of the proposed new middle bracket.

The cut-off points in the DOR’s analysis of the tax proposal don’t line up neatly with that range. The analysis divides the incomes reported on Wisconsin tax returns by $10,000 increments below $100,000 and by larger increments above that number. The closest estimate of what is middle class that can be derived from the department’s data encompasses incomes of $40,000 to $150,000 — slightly lower than middle class at the bottom and slightly higher at the top.

The DOR analysis counts just over 1.3 million tax returns in that range. Those taxpayers would share in a total of $480 million in savings from the tax changes. That comes to about $88 a year at the bottom of the range and $930 a year at the top. 

For incomes of $150,000 on up, there are about 436,000 tax returns, according to DOR. That income level is solidly above the middle-class dividing line that Pew uses, and the number of returns is about one-third the size of the middle class group. 

Collectively, however, they account for almost twice the tax savings — $811 million, according to the DOR calculations. 

The very top income group consists of 11 tax returns reporting incomes of $75 million or more. They’ll average more than $1.8 million each in tax savings and more than $20 million as a group.