By Kirsten Adshead | Wisconsin Reporter
MADISON — Wisconsin might struggle to afford all of the income-tax relief Gov. Scott Walker and legislative leaders are hyping – in part because Wisconsin officials were betting that Congress would let the country fall over the “fiscal cliff.”
Instead, Congress did, indeed, pass this week a deal to avert major tax increases for most Americans and spending cuts economists said would threaten the economic recovery.
In doing so, Congress kept about $219 million from coming to Wisconsin in the form of estate taxes, money the Department of Administration was counting on in projecting that tax revenues would grow by $1.5 billion over the coming biennium.
Already, however, the DOA said state agencies’ requests for funding exceed expected revenue for the biennium by $171.4 million, with the $219 million factored into the equation.
“There’s probably not room for big amounts of (tax breaks) unless they really limit the amount of aid that goes to schools or continue along that path,” said Dale Knapp, senior researcher for the nonpartisan Wisconsin Taxpayers Alliance.
The fallout from the fiscal cliff is only one of two large, looming uncertainties that have the potential to significantly impact the state’s finances. The other is the Patient Protection and Affordable Care Act, the widespread health care changes critics have dubbed “Obamacare.”
“This kind of uncertainty presents a risk to the state’s revenue and, as the largest funder of health care in Wisconsin, its expenditures,” DOA Secretary Mike Huebsch warned in a Nov. 20 letter to the governor and legislators.
Income-tax breaks aren’t the only potentially costly proposal lawmakers are considering. Others include a possible $200 million venture-capital plan.
How much money will lawmakers need to afford significant income-tax relief for Wisconsin taxpayers?
That depends on the details of the deal — and those aren’t forthcoming.
For fiscal 2012, the state collected $7 billion in individual income taxes.
Assembly Speaker-elect Robin Vos “would like to see income tax relief for everyone who pays taxes with a focus on the middle class who has the highest burden comparatively (those making between $20,000-$200,000),” his spokeswoman, Kit Beyer, said in an email Thursday. “This is one of the top priorities for the session.”
The newly elected Legislature first convenes next week, and Walker is expected to announce his biennial budget proposal in February.
With taxes for many Wisconsinites already headed up – largely due to the end of a federal payroll tax holiday – Walker suggested this week that state lawmakers might have to do even more to counteract that increase.
“We may have to be more aggressive in our tax cuts to offset for some of the money our federal government is taking out of the pockets of our taxpayers,” the governor said to reporters at Phoenix Products in Milwaukee on Wednesday.
Knapp said he’s in the dark about what may be coming.
“If they’ve developed proposals, they’ve kept them pretty close to the vest,” he said. “We’re not really sure which direction they’re going. The best indication we have is from Robin Vos, who’s been saying, ‘We really want to do some sort of income tax relief for the middle (income tax-brackets).’”
Knapp said middle-class taxpayers in Wisconsin pay a disproportionate amount of income taxes because the state offers a lot of tax credits for low-wage earners but also doesn’t substantially charge a higher rate on high-wage earners.
The income tax rate for Wisconsinites making $20,000 is 6.5 percent. The highest tax rate, assessed on individuals making $147,770 and more, is 7.75 percent.
That puts the squeeze on everyone else in the middle, he said.
The Taxpayers Alliance would like to see Wisconsin lawmakers take a comprehensive look at tax collections in the state, including property, sales and income taxes.
“I think that the legislators tend to focus on where we are high nationally, and that’s the income tax and the property tax,” Knapp said, adding, “They don’t look at the fact that we’re (comparatively) low on the sales tax. There’s not as much thought about the mix. They tend to focus on one or two taxes.”
That’ll probably be true again this year.
Beyer said Vos is interested in reforming the tax code that critics call too complex and convoluted.
But pressed on whether that includes property and sales taxes, she said, “The main focus was income tax.”
Contact Adshead at [email protected]