The budget-writing committee in the Wisconsin Legislature, controlled by Republicans, has passed a plan to reduce income taxes by $3.5 billion. However, Democrats have criticized the proposal, claiming it primarily benefits the wealthy.
Reverse Tax Cuts, Reducing Average By 15% And Consolidating Four Brackets
As per the plan, the income tax cuts will be retroactive to January 1, 2023, and result in an average reduction of 15% for all taxpayers, equaling approximately $573. The state’s current four tax brackets would be consolidated into three, with the lowest rate decreasing to 3.5% and the highest rate set at 6.5%.
Democratic Governor Tony Evers expressed his disapproval of the GOP plan, emphasizing his own proposal that focused on providing tax relief to low and middle-income earners. Evers’ spokesperson, Britt Cudaback, argued that the governor believes tax relief should be genuine, responsible, and specifically targeted at the middle class. Cudaback criticized Republicans for prioritizing tax breaks for the wealthy instead of concentrating on providing relief for working families.
The largest percentage reduction in taxes would be seen in the highest tax bracket, affecting married couples earning over $405,550 and single individuals with incomes exceeding $304,170. Their rate would decrease from 7.65% to 6.5%. The middle two brackets would be merged, resulting in a rate of 4.4% for married couples earning between $9,210 and $202,780. The lowest rate, applicable to the poorest taxpayers, would experience a slight drop from 3.54% to 3.5%.
State’s Surplus Funds Income Tax Cut, Property Tax Mitigation
To fund the income tax cut, the plan relies on utilizing the state’s projected $7 billion surplus. Additionally, Republicans have allocated $622 million to mitigate property tax increases.
Democrats’ proposed amendment to maintain the highest tax rate at 7.65% was swiftly rejected by Republicans. The amendment would not have made any other changes to the overall proposal.
Democratic Representative Tip McGuire expressed disappointment, accusing Republicans of favoring the rich over ordinary Wisconsinites. Some Republicans, including Senate Majority Leader Devin LeMahieu, initially pushed for deeper cuts, suggesting a flat income tax rate of 3.25% by 2026. However, this plan faced resistance from fellow Republicans due to its estimated cost of nearly $5 billion over two years.
According to a study conducted by the Wisconsin Policy Forum, Wisconsin’s total tax burden as a percentage of personal income reached its lowest point in over 50 years in 2022. However, the study also revealed that income tax rates in Wisconsin have declined more for higher earners than for those with lower incomes in recent years. In comparison to national averages, Wisconsin’s tax rates are higher for higher incomes and lower for lower incomes.
Republican Representative Terry Katsma defended the cuts by emphasizing the need to remain competitive with neighboring states like Illinois, which has a flat tax rate of 4.95%.
Democrats raised concerns that when combined with other GOP budget decisions, such as discontinuing funding for childcare programs and reducing spending for the University of Wisconsin, the tax plan would make the state less appealing and less accommodating for women and families.
The previous state budget, passed in 2021 by the Republican Legislature and signed by Governor Evers, included income tax cuts exceeding $1 billion.
The GOP’s tax cut plan, incorporated into the larger state budget, requires approval from both the Senate and the Assembly before reaching Governor Evers. Both chambers are expected to vote on the budget bill in the coming week. Governor Evers holds the power of line-item veto and can make changes before signing the two-year spending plan into law.