Low- and medium-wage earners chief targets in Gov. Tony Evers' proposed tax cuts

Gov. Tony Evers has called for tax cuts primarily benefiting low- and middle-income residents to help individuals struggling with inflation and other costs, while supporters of a flat income tax say overhauling the state’s income tax would put Wisconsin on a par with other states and help make the Badger State more attractive to out-of-state business owners and individuals.

Low- and middle-income residents in Wisconsin would receive roughly $1.2 billion in tax cuts under the two-year spending plan Democratic Gov. Tony Evers plans to propose on Wednesday.

The governor’s proposal — which is all but certain to receive pushback from Republicans who control the state Senate and Assembly and have championed a flat income tax — primarily focuses on tax cuts and credits for working-class families, parents, veterans, caregivers and seniors, according to details provided to the Wisconsin State Journal on condition they not be revealed before Sunday.

“I’ve said all along that we’d deliver real, responsible tax relief targeted to the middle class and working families — not spending big on breaks for the wealthiest 20 percent of earners in our state who don’t need the extra help affording rising costs,” Evers said in a statement.

The Democratic governor’s tax proposal, the broad outlines of which were first announced in August, clashes with the 3.25% flat income tax cut proposed earlier this year by Senate Majority Leader Devin LeMahieu, R-Oostburg, who has described the state’s more than 110-year-old progressive income tax as “uncompetitive and mediocre.”

Evers has said he will veto a flat income tax proposal if it reaches his desk.

The dueling proposals come as the state enters the 2023-25 biennial budget process with a projected surplus of more than $7 billion.

Evers will unveil his overall spending plan on Wednesday. From there, Republicans, who control the powerful budget committee, will rewrite the document before sending it to the governor.

The governor’s tax cut proposal follows the more than $1 billion in income tax cuts included in the current state budget, which was drafted by Republicans and signed by Evers in 2021.

“With this budget proposal, we’re going to build on that work so we can keep taxes low now and into the future responsibly and without driving our state into debt or causing devastating cuts to priorities like public schools or public safety,” Evers said.

Gov. Tony Evers calls for increased aid for veterans related to housing, employment, mental health services

Evers’ proposal would create a nonrefundable Family and Individual Reinvestment Credit to cut taxes by 10% for individuals earning $100,000 or less a year and married filers making $150,000 or less. The credit would gradually phase out for single filers making between $100,000 and $120,000 annually and for married filers earning between $150,000 and $175,000 a year.

The governor’s office estimates the credit will provide more than $418 million in tax relief in the 2023-24 fiscal year and more than $420 million in fiscal 2024-25. More than 1.9 million Wisconsin residents would see an average tax cut of more than $200 per year under the plan.

Children, caregivers

The governor’s proposal would also increase the state’s supplement to the federal Earned Income Tax Credit for working families with children. Under the plan, the percentage of the federal credit that filers can claim would increase from 4% to 16% for filers with one dependent and from 11% to 25% for filers with two dependents. The average tax relief for those eligible to receive the credit would be more than $300 annually, according to the governor’s office.

The state’s Child and Dependent Care Tax Credit would also expand under Evers’ proposal, from 50% of the federal credit to 100% starting in tax year 2023. Most individuals eligible for the credit would receive up to $600 for one qualifying individual’s expenses or up to $1,200 for two or more qualifying individuals’ expenses.

Evers’ plan would also spend $195 million over the biennium to create a caregiver tax credit for those caring for a family member; increase the maximum eligible household income threshold for the Homestead Credit, which provides tax cuts to lower-income residents; and expand the Veterans and Surviving Spouses Property Tax Credit.

Wisconsinites will likely see a tax cut this year. Whose will go down the most?

Student loans

Another component to the plan includes the adoption of federal tax changes to ensure that any Wisconsin residents who receive federal student loan debt relief would not be subject to state taxes. Wisconsin is one of a handful of states where forgiven student loans would be subject to state income taxes unless legislators change laws to conform with a federal tax exemption for student loans.

President Joe Biden’s administration last year extended a pause on federal student loan payments while the White House fights a legal battle to save his plan to cancel portions of the debt.

Evers’ also proposes spending about $200 million to eliminate the state’s personal property tax, which businesses pay on furnishings and equipment. Both Evers and legislative Republicans have called for removing the tax but have so far failed to reach an agreement on the matter.

Evers will also reintroduce a request from his previous budget proposals to cap the manufacturing and agriculture tax credit, which was adopted by the Legislature in 2011 and allows agricultural or manufacturing businesses to claim a tax credit that amounts to 7.5% of income from eligible production activities. With the state’s corporate tax rate at 7.9%, that means manufacturers pay virtually nothing in taxes.

By capping the tax credit to only apply to the first $300,000 of qualified income, the state would see a roughly $655 million boost in tax revenue over the biennium, according to Evers’ office. Evers proposed a similar measure in his 2019-21 budget proposal, but it was ultimately removed by Republicans.

Another direction

While Evers eyes adjustments to the existing income tax structure, legislative Republicans have proposed doing away with the progressive income tax entirely.

Under LeMahieu’s proposal, all four of Wisconsin’s income tax brackets would begin phasing down this year until the state reaches a flat 3.25% income tax for all earners in 2026. Proponents of a flat tax say such a shift would make Wisconsin more competitive with neighboring states and predicted tax revenue lost under the change would likely be made up through increased economic development.

Gov. Tony Evers prioritizes mental health funding, education in State of the State address

Individuals earning up to $100,000 represent almost 70% of state taxpayers but would see about 18% of the overall tax decrease under a 3.25% flat tax in 2026, according to the fiscal bureau. Those earning $500,000 or more, who represent about 1.4% of taxpayers, would receive more than 32% of the tax decrease.

And while those in the lowest bracket would see their tax rate drop by about a quarter of a percentage point, the tax rate for the state’s wealthiest residents would be cut roughly in half, with a 3.25% flat tax.

In dollar terms, that means that a person earning between $40,000 and $50,000 annually would see an average tax cut of $290 in 2026 under the flat tax proposal, while those earning $1 million or more would see more than $112,000 in average tax cuts.

A nonpartisan review by the fiscal bureau of a 3.25% flat income tax found such a measure would reduce state general fund tax revenues by about $2.1 billion in the first year. That reduction would increase over the three-year period to about $5 billion in 2026, a reduction that would apply to all following years, according to an estimate by the fiscal bureau.