A sign on an empty podium in the Capitol Tuesday signaled the subject of a Republican press conference just before it started. (Screenshot | WisEye)
Republican lawmakers are taking another run at cutting Wisconsin’s second-highest tax bracket after Gov. Tony Evers vetoed their first attempt in July.
The proposed tax cut on incomes ranging from under $28,000 to more than $400,000 is one of three items in the $2.9 billion package that GOP legislative leaders rolled out Tuesday.
In addition, legislators are proposing eliminating the state income tax entirely for retirees with incomes up to $100,000 for single filers and $150,000 for joint filers. They are also starting the process to amend the state constitution to require a supermajority vote of two-thirds of the Legislature to raise taxes.
With the proposals, the Republicans effectively delivered their rebuttal to the call that Evers, a Democrat, made earlier this month for a special session to boost spending — and made clear they have no intention of following his lead.
Hearings on the GOP proposals are scheduled Wednesday morning before the Assembly Ways and Means Committee.
Republicans pitched the measures as a source of relief for Wisconsin buffeted by rising prices for gas, groceries and school supplies.
“We’re pleased to have this opportunity to return the money to the people,” said Rep. Mark Born (R-Beaver Dam) at a Capitol press conference, one of five staged across the state Tuesday morning. He said the state’s $4 billion surplus that remains after Evers signed the 2023-25 budget with 51 partial vetoes “means we collected too much money from the taxpayers.”
According to a projection by the Institute on Taxation and Economic Policy (ITEP) in Washington, D.C., nearly two-thirds of the income tax savings in the GOP proposals introduced Tuesday would go to the highest-paid 20% of Wisconsin taxpayers with average incomes of $304,000.
Battle of ‘second chances’
Evers said his special session agenda would give the Legislature a “second chance” to bolster the state’s child care and higher education systems. The Republicans used similar language for their proposals, which would reverse one of Evers’ budget vetoes that helped preserve the surplus.
“We are here today to take the funds from that veto and introduce legislation to return that money to the taxpayer,” said Born. “Basically, we’re giving the governor a second chance to do the right thing.”
Asked if the GOP would make room in its proposal to negotiate with Evers over elements of his special session agenda, especially $365 million to bolster Wisconsin child care providers, Born said that was not an option.
“We’ve invested a lot of money in a lot of key areas in this budget, including over $90 million in new funds into child care,” he said. “The Legislature is not interested in spending more money. I know the governor wants to spend more money. The money that’s left needs to be returned to the taxpayers.”
The proposed constitutional amendment is contained in an Assembly resolution, AJR-66.
If enacted, it would require a two-thirds majority of both the Senate and the Assembly to raise sales tax, income tax or franchise tax rates. To take effect, Wisconsin constitutional amendments must pass two successive sessions of the Legislature, then win approval of the voters in a statewide referendum.
“By doing this, we’re protecting our citizens from getting overtaxed,” said Rep. Amy Binsfeld (R-Sheboygan). With a supermajority requirement, “both parties should have a say,” she added. “We need to work together, we need to use our ideologies together and do what’s best for Wisconsin, not just do it by a simple majority.”
Both the income tax cut and the exemption for retirees are contained in a single bill, AB-386.
For retirees, AB-386 exempts the first $100,000 of income from the state income tax for a single filer and the first $150,000 for joint filers.
“This is a highly contested battle to attract families and workers, retirees to Wisconsin and I’m excited to say that I feel this proposal is moving in the right direction,” said Sen. Rachael Cabral-Guevera (R-Appleton). “How can we make Wisconsin look more attractive to seniors and to grandparents?”
Neither the bill nor the resolution has a companion Senate measure yet, although both have Senate cosponsors.
Middle-class tax cut?
When he signed the budget, Evers vetoed two tax cut provisions. One reduced the tax rate for the top bracket, on incomes over $304,170 for single filers and over $405,550 for joint filers. The other dropped the tax rate on incomes in the bracket immediately below.
When passing both tax cuts and then attacking Evers for vetoing them, GOP lawmakers repeatedly referred to them as “a middle-class tax cut.” Democrats scoffed at that description, and calculations based on Department of Revenue data showed that the bulk of the tax relief they provided went to upper income earners.
The new bill leaves the top bracket alone and recycles the tax cuts for the second bracket from the top. It reduces the rate to 4.4% from the current 5.3% on incomes ranging from $27,630 (for a single filer) to $405,550 (for joint filers).
That band of incomes “is a large bracket,” Born said Tuesday. “But it’s clearly where the middle class of Wisconsin is. It doesn’t matter how you spin it — If you want to look at the average taxpayer, the median taxpayer, you’re going to find them all there. You’re going to find middle class families, individuals, small businesses. This is a key place to cut taxes. And that’s what we’re going to offer in this plan.”
ITEP’s analysis, however, concludes that the weight of tax savings heavily favors the highest income taxpayers.
The nonprofit, nonpartisan tax policy organization uses a model based on IRS data and adjusted based on information about each state to project tax impacts of proposed changes in federal or state law across income groups. ITEP applied its model to the Wisconsin proposals Tuesday at the request of the Wisconsin Examiner.
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According to the analysis, the top 20% of Wisconsin earners, with incomes starting at $147,000, will share in 64% of the tax-cut savings, said Aidan Davis, ITEP state policy director. Wisconsin’s top 5% of earners, whose incomes start at $269,000, will share in 27% of the total tax cut.
“A Wisconsin household in the top 1 percent of earners, with an average income of $1.8 million, will see an average tax cut of $3,561. While a Wisconsin household making $45,000 will see an average tax cut of $45,” Davis said via email. “$3 billion in lost revenue (over the biennium) is a hefty price to pay for an untargeted tax cut that provides the largest average dollar tax cut to Wisconsin’s richest residents.”
While the new proposal applies tax cuts only to the second-highest bracket, its benefits wouldn’t be limited to those taxpayers. “Cuts to lower rates benefit everyone all the way up the income scale,” Davis said.
She said ITEP’s review of the GOP proposals turned up other concerns.
The proposal to eliminate taxes entirely on retiree income up to $100,000 or $150,000 “is particularly problematic,” Davis said. A hypothetical retired couple on a $140,000 pension could then “pay less income tax than a young, working family making $60,000 per year,” she added. “Your income tax bill should be based on what you can afford to pay, not your age.”
The proposed supermajority requirement could make Wisconsin “much more vulnerable to a potential economic downturn.” If lawmakers couldn’t clear the two-thirds vote requirement, that could produce “potentially catastrophic cuts to state services that could compound any hardship folks are already facing,” Davis said. “In the event of economic calamity, you really want to be able to keep all your options on the table.”
ARPA clawback called unlikely after court ruling
Ahead of a news conference Tuesday announcing a Republican tax cut package, the office of Gov. Tony Evers circulated a memo warning that tax cuts over $113 million this year and $319 million next year could lead the federal government to claw back money from the state’s $2.5 billion in pandemic relief aid received since 2021.
The memo cited a U.S. treasury rule implementing the American Rescue Plan Act (ARPA) restricting the use of ARPA funds to offset state tax cuts.
Aidan Davis of the Institute on Taxation and Economic Policy (ITEP) said Tuesday that rule isn’t being enforced after a federal appeals court ruling in January that found the provision unconstitutional and upheld a lower court’s permanent injunction against enforcing it.
“I don’t have any concerns about that,” Rep. Mark Born (R-Beaver Dam) said Tuesday of the Evers administration memo during the news conference outlining the GOP lawmakers’ $2.9 billion in tax cuts. “I think that these are things that they like to make threats on. But so far, that really hasn’t been happening.”
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