Republicans in the Wisconsin Legislature made their case for their latest round of tax plans before the Joint Finance Committee Thursday. Democrats seemed unconvinced. | Photo by Getty Images
Republican lawmakers made the case for their tax cut plan — which includes an income tax cut, a retiree tax cut, an increased child care tax credit and a cut for married filers — to the budget committee on Thursday. Democrats on the committee appeared critical of the full package.
The package of bills is Republicans’ latest stab at getting significant tax cuts approved. Gov. Tony Evers has vetoed several of Republicans tax proposals over the course of the legislative session, including income tax cuts that would have given breaks to the top earners in the state.
The first proposal — AB 1020/SB977 — seeks to cut taxes for some middle class earners by expanding the state’s second income tax bracket.
The second bracket — which has a 4.4% tax rate — currently includes single earners making between $14,320 and $28,640 and joint earners making between $19,090 and $38,190. Under the Republican proposal, the bracket would be expanded to include single earners making up to $112,500 and joint earners making up to $150,000.
The authors of the bill — Rep. Terry Katsma (R-Oostburg) and Sen. Howard Marklein (R-Spring Green) — said that they were listening to Evers by targeting the increases towards earners not making more than $150,000.
“I strongly believe that the citizens of Wisconsin know best how to spend their money, and Wisconsin has over-collected on taxes,” Katsma said. “It’s time that we return some of that surplus.”
The state currently has a $3.25 billion projected budget surplus.
According to a Legislative Fiscal Bureau memo on the bill, the first bill would result in a decrease in tax collection by $1.2 billion in 2024-25 and $751.9 million in 2024-25 and $751.9 million in each following year.
The full tax cut plan, including all four proposals, would result in a $2.06 billion reduction in taxes collected by the state in 2024-25 and a $1.4 billion reduction in 2025-26 and in the following years.
Democrats expressed concerns about the potential for the tax cuts together to blow a hole in the state’s budget and leave the state with a deficit some time in the future.
Rep. Tip McGuire (D-Kenosha) asked a representative of the Legislative Fiscal Bureau (LFB) how much growth the state would need to cover the loss of revenue each year.
The LFB representative said that would be about 4.3% each year.
“And what was our growth last year?” McGuire asked.
The LFB representative said it was 2.1%, adding though that the average of the last 10 years was 4.6%.
Exempting retirees from income tax
Republicans’ second tax cut proposal would exempt retirees from having to pay state income taxes on the first $75,000 of their retirement income for single taxpayers and the first $150,000 for joint filers.
Co-authors Rep. David Steffen (R-Green Bay) and Sen. Eric Wimberger (R-Green Bay) said the proposal would help encourage retirees to stay in the state.
Steffen told lawmakers that the proposal would prevent what is currently happening in the state.
“Wisconsin is a net exporter of it’s wealth and wisdom to at least 13 other states. And those 13 other states either don’t tax income tax at all or, like two of our neighbors Iowa and Illinois, have a tax-free retirement status,” Steffen said.
According to an LFB memo, it is estimated that 294,780 tax filers would receive an average tax decrease of $1,582 under the bill. It would reduce state income tax collections by $658.2 million in 2024-25 and $472.4 in each year after.
McGuire pointed out that the bill wouldn’t benefit the retirees that are most in need.
Certain retiree income is already not taxed under current state law including Social Security, payments from the U.S. military employee retirement system, income from certain public retirement systems if the individual was a member of, or retired from, that system prior to 1964; and up to $5,000 of retirement income for taxpayers aged 65 or over with federal adjusted gross income of less than $15,000 per filer, or less than $30,000 for married joint filers.
McGuire also pointed out that the retirees making the maximum amount covered under the bill would be those with a substantial amount of money set aside for their retirements. He referred to the “4%” principle, which says in your first year of retirement you can pull out 4% of your total balance.
“You would from your retirement accounts only be spending 4% in any given year. For you to receive $150,000 exemption — [the] full exemption under this bill — by my calculation, that would mean that your overall worth in your retirement account was north of $3 million,” McGuire said. “So the people who would be receiving the largest bulk of this exemption would be Wisconsinites who are well beyond the wealth of most Wisconsinites.”
Steffen said that those whose only retirement income is from Social Security are already benefiting from Wisconsin’s tax policy.
“Doesn’t mean they are losing anything by additional people getting a benefit,” Steffen said.
Another proposal would seek to help couples that may face the “marriage penalty,” — a term used by some to describe the increase in a couple’s overall tax bill when they file taxes jointly — by raising the tax credit for married couples. According to an LFB memo on the bill, the maximum married couple credit would amount to $870.
Increasing the child care tax credit
The final bill — AB 1023/SB976 — would increase the size of the state child and dependent care tax credit, which is currently set at 50% of the federal child care tax credit, to 100% of the federal credit.
The authors of the bill — Sen. Romaine Quinn (R-Cameron) and Rep. Amy Binsfeld (R-Sheboygan) argued that the bill would help families by giving money back to them.
“Every single family member or family who has a child and pays for child care expenses will see more money in their pockets after the passage of this,” Quinn, who is a father, said. “At the end of the day, if we’re looking to try to help families afford quality, child care for their children — which I think we all support — let us [parents] pay for it ourselves. Let us keep more of our own money in our own pockets to pay for those expenses.”
Democrats on the committee were skeptical that the bill would do much to address the ongoing problems facing the child care industry or to ease the burden of paying for child care on families.
“The primary challenge in the child care industry rests on the supply side — the inability, frankly, of child care facilities to accommodate as many people…” Rep. Tip McGuire said. “This bill would certainly provide money for families, but it also mainly impacts the demand side, which would be allowing more families to try and access these services of which… Is there anything in the bill that would assist with the supply side of the equation?”
Quinn said that the bill was targeted to help families and Binsfeld added that there are other bills that are circulating and that have passed the Assembly that Republicans say would help with some of those problems. Those bills, which were introduced as an alternative to Gov. Tony Evers’ bill that would have funded the Child Care Counts program, included a measure to allow younger employees in child care facilities and one to loosen restrictions on the number of small children who can be in the care of a single caregiver.
Rep. Deb Andraca (D-Whitefish Bay) asked a similar question, noting that one provider in her district said the problem is that they cannot create more slots because they can’t hire enough people.
Quinn said that child care centers, if they want to find more employees, should raise their rates for families.
“Let’s not be naive and think only child care facilities can’t find employees,” Quinn said. “What I would say to your quality child care center that does a great job, raise your rates and offer more compensation to attract more staff like every other business in our society has to do, and when they raise their rates, I want to help families be able to afford them and that’s what this does.”
The average cost for center-based child care for infants in Wisconsin in 2022 was $13,572, according to one report.
Sen. LaTonya Johnson (D-Milwaukee) asked LFB how much money a family making the median income of $50,000-$60,000 could expect to save under the proposal.
An LFB representative said that the average decrease for families at that income level would be around $441 per year.
“For a family of $50- to $60,000, $400 per year at a decrease, even with that additional advantage is not going to cover the cost of child care,” Johnson said.
Quinn responded that he would support a larger tax cut.
Sen. Kelda Roys (D-Madison) asked the authors if they would consider making the tax credit refundable, rather than nonrefundable.
“If you’re going to do a sort of indirect, you know, benefits to the family rather than child care providers, would you consider making this refundable, so that the lowest income families — those who are earning $20-, $30-, $40,000 a year, could also receive the benefit?” Roys asked.
A refundable tax credit would allow taxpayers to claim the full amount of the credit even if it exceeds the amount that a person owes in taxes. A nonrefundable credit, which is how the current bill is structured, limits the benefit to the amount a taxpayer owes in taxes.
Binsfeld said that she didn’t think it was necessary.
“The way it’s set up is the best way to have it set up,” Binsfeld said.
Roys then asked Quinn if he would support changing it to a refundable credit.
“This is a working family’s credit. The credit already exists. All we’re doing is saying, making it larger, but working families,” Quinn said. “It’s that simple, so if you want to write a different bill or we’re going to address shortages and more workers and all this other stuff we can but this takes an existing tax credit for working families and expands it.”
Roys said that they did write a different bill — one that would fund the Child Care Counts program, which she said was very successful in stemming the crisis in the child care industry.
“Well you should go ask the Feds to fund it because that’s where it came from,” Quinn responded.
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