For more, see the Wisconsin Budget Project blog.

The underside of the Wisconsin Capitol Dome

The Wisconsin Capitol Dome. Fiscal cliff budget cuts could have a dire effect on Wisconsin families.

One of the biggest components of the fiscal cliff is the year-end expiration of the Bush income tax cuts. In theory, an agreement to extend the Bush income tax cuts for middle-class families should be the easiest part of the fiscal cliff negotiations, since both President Obama and Republican members of the House of Representatives say they want to avoid an income tax hike on middle class families. But GOP members of the House are refusing to agree to extend the tax cuts for middle class families unless the tax cuts are also extended for the very biggest earners.

How would the competing income tax proposals affect Wisconsin residents? Under President Obama’s approach to extending the expiring tax cuts, which preserves tax cuts on income under $250,000, the top 1% of earners in Wisconsin would still get very sizable tax cuts in 2013 – 11% of the total benefit, according to the Institute on Taxation and Economic Policy.

Republican members of the House are pushing to extend the Bush tax cuts for all income levels, not just income under $250,000. Under the GOP plan, the top 1% of Wisconsinites would receive 28% of the total benefit, meaning that more than a quarter of the overall benefit would accrue to just one out of every 100 people. (These dollar amounts also include the effects of proposed changes to tax credits for working families, and to the estate tax, which we’ll be talking about in a few days.)

Under the Obama plan, the top 1% of Wisconsin earners would receive an average tax cut in 2013 of more than $18,000, compared to letting the tax cuts expire. In contrast, the GOP plan would hand the richest 1% of Wisconsinites a tax cut of nearly $57,000 – more than most Wisconsin households earn in a year.

If we look at the impact for families, rather than individual income tax filers, the dollar amounts go up. According to a White House factsheet for Wisconsin, the expiration of the tax cuts would increase income taxes by $2,200 per year for a Wisconsin family of four with an income of between $50,000 and $85,000. The Council on Economic Advisors estimate that the expiration of the middle class tax cuts would reduce consumer spending by $200 billion next year, including $3.8 billion in Wisconsin alone.

In contrast, extending tax breaks for the biggest earners would have minimal impact on the economy and comes with a hefty price tag: $824 billion over the next ten years, according to the Congressional Budget Office. Given that President Obama’s proposal would keep taxes the same on 98.7% of Wisconsinites, we shouldn’t hold middle class tax cuts hostage in order to obtain favorable tax rates for the best off.

See more: www.wisconsinbudgetproject.org.

Photo by Cimexus released under a Creative Commons No Derivatives license.