By Kirsten Adshead | Wisconsin Reporter
MADISON – Any financial benefit Wisconsinites realize as a result of Gov. Scott Walker’s $343 million proposed income tax cut may be largely offset by the cost of increased borrowing.
State budgeting is a matter of choice and priorities, and the governor made his clear during last week’s budget address, when he presented a plan to cut the bottom three income tax brackets – a move that, if approved, would give income tax relief to 73 percent of tax filers, according to the nonpartisan Legislative Fiscal Bureau.
Walker’s budget, however, also includes more transportation funding, including $200 million in borrowing, money that taxpayers will have to pay back, plus interest.
Walker spokesman Cullen Werwie did not respond to an email asking whether the governor considered paying for the road projects outright, instead of giving income tax relief.
But the governor explained his reasoning for the tax cut during the Feb. 20 address.
“We reversed the trend in Wisconsin in the last budget when we lowered the overall tax burden,” Walker said. “Now we are lowering taxes on middle class taxpayers, by specifically reducing the rates for the middle- and bottom-three tax brackets. This will ensure a tax cut for everyone with the focus on making Wisconsin more competitive for middle class taxpayers and small businesses. This will truly stimulate the economy.”
If state budgeting, however, is a question of choice and priorities, critics already are questioning the governor.
Among the biggest issues up for debate in the past week — Whether an income-tax break ostensibly aimed at helping middle-class taxpayers and stimulating the economy will, in actuality, do much of either.
The average decrease for tax filers receiving a deduction is $83, according to the LFB. Some lower-income filers would see a reduction of just $2 a year, while taxpayers making $100,000 or more a year would get 49.2 percent of the total value of the tax cut next year.
Tamarine Cornelius, an analyst with the Wisconsin Budget Project, noted that Walker could have chosen to cut the top two income tax brackets as well, giving an even larger break to high-income earners.
“It could have been worse,” she said.
But, she said, the last budget cut the homestead and Earned Income Tax credits, both of which are aimed at taxpayers with lower incomes.
“So I would think if they’re interested in cutting taxes, it would be more appropriate to roll back those tax increases in the most recent budget before implementing tax cuts that are going to go toward the larger income earners,” Cornelius said.
Dale Knapp, research director at the nonpartisan Wisconsin Taxpayers Alliance, is doubtful Walker’s proposed cut would have a significant effect on the state’s economy.
“One, relative to the size of the economy, it’s not very big,” Knapp said. “And secondly … there are some what economists would call leakages, so even when you get your refund next March, April, May whenever (in 2014) it is, and even if you get your extra 100 bucks, 200 bucks, there’s a good chance that all of that money is not going to be spent right here.”
Others argue, however, that any tax break is better than no tax break at all.
“It puts the government on a diet – and maybe it’s only a reduction of a few calories, but it will add up,” Norma Bruce wrote on Wisconsin Reporter’s Facebook page.
Elizabeth Malm, an economist with the conservative Tax Foundation, said there’s an inverse relationship between taxes and economic growth; as taxes fall, the economy rises.
“Our current economic doldrums are the result of many factors, but having the highest corporate rate in the industrialized world does not help. Nor does the prospect of higher taxes on shareholders and workers,” the Foundation concluded in December. “If we intend to spur investment, we should lower taxes on the earnings of capital. If we intend to increase employment, we should lower taxes on workers and the businesses that hire them.”
Time alone may tell the net effect of Walker’s budget proposals.
In the meantime, the Legislature will debate his plan and ultimately decide on a budget over the coming months.
State budgeting is a matter of choices and priorities.
Walker and the Legislature make decisions but must account for those decisions on Election Day.
So, Wisconsin, the choice and priorities are, ultimately, for you to decide.
Contact Adshead at [email protected]