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'Large tax decrease for very high income Wisconsinites': Analyzing the Senate GOP income tax cut plan

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Wisconsin Senate, September 2021.jpg

MADISON (WKOW) -- Senate Republicans released a plan to cut income taxes by $5 billion Friday. It's the latest volley in the back-and-forth between GOP lawmakers and Democratic Gov. Tony Evers over how to use the state's unprecedented projected surplus of $6.6 billion.

The Republican proposal gradually collapses Wisconsin's four income tax brackets over the next four years. By 2026, the state would tax all income at 3.25% regardless of how much money someone makes.

GOP leaders had made no secret they wanted to put the vast majority of the surplus toward tax cuts, although two weeks ago, Assembly Speaker Robin Vos said on Capital City Sunday a flat tax, specifically, is not necessarily a must-have for the upcoming two-year budget.

Senate Republicans have maintained a flat tax would spur businesses to expand while also attracting more residents to Wisconsin.

"This proposal will fundamentally transform Wisconsin’s individual income tax and keep more money in the pockets of hardworking Wisconsinites," Senate Majority Leader Devin LeMahieu said in a release Friday.

LeMahieu noted border states, Illinois and Michigan, both have flat income tax rates. Both states have flat taxes higher than 4%, and among states with a flat income tax, the vast majority have higher rates than the 3.25% Senate Republicans are proposing.

The nonpartisan Legislative Fiscal Bureau, which crunches numbers for lawmakers, projected a 3.25% flat income tax would cause the state to lose $5 billion in tax revenue it would take in under the current structure.

"We're sort of in the position of a family here that has some savings built up," Jason Stein, research director for the nonpartisan Wisconsin Policy Forum, said. "And now they're thinking, 'Well, should we have one of the two parents cut some of their hours at their job?'"

Stein noted many of the state's most vital services are largely funded by the income tax. Among those services are education, health care, higher education and prisons.

"One question I have is how do we continue to provide an adequate level of those services," Stein said. "And still phase in this $5 billion tax cut?"

This particular proposal is all but certain to be vetoed by Gov. Tony Evers, who's said repeatedly he wants to pursue a 10% tax cut for single filers making less than $100,000 and married couples making less than $150,000.

"When we deliver tax relief, it should be targeted to the middle class to give working families a little breathing room," Evers said on Twitter Friday. "Not to give big breaks to millionaires and billionaires who don't need the extra help to afford rising costs."

Evers' tweet mirrored comments he made last week during his inauguration speech.

Republican state lawmakers are unveiling their plan to overhaul Wisconsin's income tax structure. It amounts to a $5 billion tax cut. Capitol Bureau Chief A.J. Bayatpour is here to explain how senate GOP leaders plan to get there.

The fiscal bureau memo estimates 67.3% of the tax savings under the GOP plan would go to earners making more than $150,000 per year. Those making more than $300,000 per year would capture 42.4% of the tax savings.

"What that's going to be is a very large tax decrease for very high income Wisconsinites, and not a very big change for lower income Wisconsinites," Ross Milton, an economics professor at the UW-Madison LaFollette School of Public Affairs, said. "So, when we're thinking about what the arguments for and against it are, that's fundamentally the policy we're talking about."

In his memo sharing the proposal with lawmakers, LeMahieu noted the savings at the highest income levels wouldn't be limited to individuals making a lot of money. He noted pass-through businesses, which pay taxes through the owners' income taxes would also capture those benefits.

Milton said, while that's true, the biggest savings there would be realized by the businesses already having the most success.

"You have to have a lot of income to get those large tax cuts," Milton said.

Milton said the ultimate question for the public is whether massive tax cuts would spur enough economic development, while also attracting and maintaining enough residents, to offset the lost tax revenue.

Milton added his biggest concern was what could happen in an economic downturn.

"We need to realize that making long-term policy based off of what is likely to be short-term surpluses is fraught," he said. "And that would be true, whether we were talking about permanent tax cuts or permanent new spending plans."

Capitol Bureau Chief