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Don’t Be Kansas: Impact of Massive Tax Cuts on Kansas Offers a Warning to Wisconsin

12:04 pm in Uncategorized by WI Budget Project

For more, go to www.wisconsinbudgetproject.org.

Kansas State Capitol

Deep tax cuts have devastated Kansas’ schools and social services.

Wisconsin lawmakers advocating for more tax cuts should consider the example of Kansas, a state that has pushed through enormous tax cuts and that has been held up by tax-cut proponents as a model worth replicating.

The massive tax cuts in Kansas have deepened the damage done to schools, colleges and universities, and other key services by the recession and have failed to improve Kansas’s economic performance, according to a new report from the nonpartisan Center on Budget and Policy Priorities. Kansas should serve as a cautionary tale for Wisconsin, not a model.

The tax cuts passed in Kansas are larger than the ones that have been passed in Wisconsin starting in 2011, but otherwise they share many characteristics. In both states, tax cuts helped the rich much more than most state residents, making income inequality worse. And both states have recently raised taxes on low-income families working to climb into the middle class.

We already know that a series of tax cuts in Wisconsin have done little to improve the state’s economy. Despite claims that cutting taxes would spur job creation, Wisconsin continues to lag the national and regional averages in job growth. Personal income has grown more slowly than the national average, according to new figures released this week. The loss of revenue caused by the tax cuts contributed to deep cuts in state support for schools, ranking Wisconsin among the states that have made the steepest cuts to education. This loss of investment in Wisconsin’s future workforce will have long-term damaging effects on the economy.

Like Wisconsin, Kansas has failed to receive an economic boost from tax cuts. Job growth in Kansas has been slower than the national average since the tax cuts took effect and its labor force has actually shrunk during that period. The number of new businesses in Kansas grew more slowly last year than in the year before the tax cuts took effect.

The huge tax cuts in Kansas have left the state’s schools stuck in the recession and continuing to decline. School districts across the state have had to layoff teachers and counselors, and cut programs for students since the recession hit.

Instead of following the example of Kansas, policymakers in Wisconsin should acknowledge that high-quality schools and universities as well as other key services are a crucial building block of economic growth and help make communities healthier, safer and more livable – all important factors in attracting businesses and boosting long-term growth. By focusing on tax cuts and shortchanging other priorities, Wisconsin, Kansas, and other states that follow in the same footsteps are setting themselves up for trouble down the road.

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Top 10 Reasons to Increase Tax Credits for Low-Income Wisconsin Households

12:56 pm in Uncategorized by WI Budget Project

1. The top 5% of taxpayers in Wisconsin will get more than 18% of the benefit from the Governor’s tax plan, whereas the bottom 40% of taxpayers will get just 15% of the benefit.1

A broken piggy bank, inside some change and an IOU note

Increased income tax breaks would help low income families.

2. The largest source of increased tax revenue contributing to the projected surplus is faster-than-expected growth in sales tax collections, which are now expected to be $350 million above the previous estimate for the 2013-15 budget. The sales tax falls most heavily on lower income taxpayers.

3. The 2011-13 budget increased taxes for low-income families by making a significant cut in the Earned Income Tax Credit (EITC) and whittling away at the Homestead tax credit by ending the practice of adjusting it annually for inflation. (Read more here.)

4. Because other factors have also reduced those credits, underspending in the EITC added $15 million to the General Fund balance at the end of fiscal year 2012-13.

5. According to the latest Legislative Fiscal Bureau (LFB) paper regarding estimated state revenue and spending, an additional $31.5 million of the projected surplus is from lower-than-expected spending for the refundable credits in 2013-15 ($8.2 million less for the EITC and $23.3 million less for the Homestead credit).

6. The state has also been building up the General Fund balance by substantially increasing the amount of federal welfare reform block grant funding being used to finance the EITC over the last few years, even as the state has decreased total EITC spending.2

7. The Homestead tax credit provides very well targeted tax relief for low-income homeowners and renters, except for one problem – unlike most of the rest of the tax code it isn’t indexed for inflation. We could easily remedy that and make it a very efficient mechanism for delivering property tax relief.

8. From 1993 to 2013, the inflation-adjusted value of the maximum Homestead credit fell 38% and the value of the average credit fell 26%.

9. From 2003 to 2013, the inflation adjusted cost of the state EITC has declined by 11% (in state and federal funding combined).

10. People across the political spectrum have lauded the effectiveness of the EITC. President Reagan called it “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”

Wisconsin Budget Compounds the Economic Challenges for Low-Wage Workers

11:46 am in Uncategorized by WI Budget Project

The underside of the Wisconsin Capitol Dome

How Wisconsin’s budget cuts hurt workers.

Workers in Wisconsin and across the U.S. must still cope with a relatively weak labor market.  That is especially challenging for low-wage workers who are struggling with the declining value of the minimum wage, reductions in employer benefits like health care, and growing inequality. Those challenges are exacerbated in Wisconsin by budget decisions made by state lawmakers.

A new Wisconsin Budget Project issue brief examines how the how state budget choices are affecting low-wage workers in Wisconsin.  It focuses primarily on the effects of the new budget bill, but also examines a few instances of how that bill continues or compounds the challenges for low-wage workers caused by the 2011-13 budget.

Some of the major effects include the following policy choices relating to health insurance, child care, taxes and unemployment insurance:

Making health insurance and care much more expensive for many parents now in BadgerCare

The 2013-15 budget bill cuts in half the income eligibility ceiling for adults participating in BadgerCare – reducing that cap from 200% of the federal poverty level to just 100%.  That change is expected to cause nearly 90,000 low-income parents and about 5,000 childless adults to lose their BadgerCare coverage, beginning in 2014.  The good news is that Wisconsin is extending coverage to about 80,000 childless adults below the poverty level, but the decision to cap eligibility at that level and turn down enhanced federal funding from the health care reform law means that a single individual with a minimum wage job is ineligible for BadgerCare if he or she is working 30 or more hours per week.

The issue brief analyzes the effect of the budget for a single mother who has two children and an income of $11 per hour (and currently has now BadgerCare premiums and minimal copays).  Beginning in January, when she loses her BadgerCare coverage, she will have to buy insurance through the new Marketplace and will have to pay premiums of about $460 per year and will have significant co-pays and deductibles, which could be as much as $2,250 per year.

Charging premiums for parents in Transitional Medicaid

The state is now seeking a federal waiver that would not only restrict eligibility for BadgerCare, as described above, but would also change another form of Medicaid, known as Transitional Medical Assistance (TMA) by initiating premiums for parents between 100% and 133% of the federal poverty level. If that waiver is approved, parents who climb above the poverty level would struggle to be able to regularly pay the premiums and many are likely to lose their insurance coverage.

Additional cuts in child care subsidies – adversely affecting accessibility and affordability of care

The budget cuts an additional $31 million over the next two years from the Wisconsin Shares child care subsidy program for low-income working families (on top of large cuts in prior years).  Although that cut reflects the estimated cost of maintaining the status quo, it is likely to adversely affect many low-wage workers by causing more child care providers to drop out of the subsidy program and by indirectly increasing co-pays for parents participating in Wisconsin Shares.

Continuing last session’s tax increases for low-income households                                                         

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Working Family Tax Credits Help Wisconsin’s Military Families

8:43 am in Uncategorized by WI Budget Project

For  more information, go to www.wisconsinbudgetproject.org.

 

Middle Class to Working Poor

Middle Class to Working Poor

About 22,000 military families in Wisconsin receive the federal Earned Income Tax Credit (EITC) or the low-income component of the Child Tax Credit (CTC), according to a new report from the Washington, DC-based Center on Budget and Policy Priorities.

Nationally, roughly 1.5 million military families, which include about 3 million children under age 18, received one or both of the credits. The credits make a major difference to their economic security:

  • The EITC and CTC together keep more than 140,000 military families — with nearly 300,000 children and 600,000 total family members — from falling below the poverty line, based on the federal government’s Supplemental Poverty Measure, which counts income from tax credits.
  • These credits reduce the severity of poverty for about another 800,000 members of military families.
  • The credits also help working families with incomes modestly above the poverty line who still struggle with basic expenses like housing, school clothes, car repairs, and groceries.
  • The tax credits can also increase opportunity for children in military families. Recent academic research demonstrates that EITC receipt is linked to improved performance (including better test scores) by children in school — and to increased employment and earnings when the children reach adulthood.

Only people who are working can claim the credits, which were modestly expanded in recent years so they provide more help to more families. On average the credit amounts to $1,000 per household from the low-income portion of the Child Tax Credit in 2011 and $2,650 from the EITC.

Wisconsin also has a state version of the EITC, which only benefits working families with children. The Legislature made a substantial cut to the state EITC in the 2011-13 budget, resulting in higher taxes for working families with children.

You can read the full report on military families and working family tax credits here.
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State Lawmakers Should Match Their Rhetoric by Making the Tax Cuts Help More People

11:53 am in Uncategorized by WI Budget Project

Gov Scott Walker

Does Scott Walker really want to help low income families?

I was surprised to read the following statement in a message that Governor Walker recently distributed via e-mail and tweet:   “Including a tax cut in the 2013-15 budget will help those hit hardest by economic difficulties get back on their feet.

It’s a great sentiment and I’d like to applaud the Governor for expressing it, but unless he’s working on a new tax cut plan that he hasn’t unveiled yet, it’s far off the mark.  I think that if you took the Governor’s statement and changed “will” to “should,” there would probably be broad agreement in the goal of helping those hit hardest by the recession.  And if lawmakers can agree on that goal, they should start working on passing a budget that will achieve it.

As it stands now, the Governor’s tax plan does little or nothing to help Wisconsin workers who are unemployed, working in minimum wage jobs, or working sharply reduced hours because of the deep recession and Wisconsin’s anemic recovery.  According to statistics from the Department of Revenue, more than three-quarters of a million tax filers in our state would not benefit at all from the $343 million tax cut recommended by the Governor.   And keep in mind that low-income Wisconsinites generally pay a higher percentage of their income in state and local taxes than the highest income state residents.

Whenever progressives draw attention to the fact the proposed tax cuts don’t help low-income households, someone inevitably accuses us of being too dense to understand that income tax cuts shouldn’t be expected to help people who pay little or no income taxes.  Of course, they are right in arguing that high income Wisconsinites pay a significantly larger percentage of income taxes than the low and middle income residents of our state, so the wealthy will benefit much more by cutting income tax rates.  But why do the people who make that point so often argue erroneously that the proposed income tax cut will help “all taxpayers” and that there aren’t alternatives that could help more people?

In short, a major part of the debate over the shape of the proposed tax cuts comes down to a basic question of whether the goal should be to lower taxes just for those who have an income tax liability (and especially those who pay the most income taxes) or to help all taxpayers, including those “hit hardest by economic difficulties.”  Here are the major reasons why I think it would be unfair and unwise to adopt a tax plan that leaves out so many Wisconsinites (including 27% of those who file tax returns with the Department of Revenue):

  • Lower-income households who don’t owe income taxes nevertheless pay other taxes; in fact, they typically pay a higher percentage of their earnings in state and local taxes than the richest 5% of Wisconsinites. (See Table 6 on p.7 of Fiscal Bureau paper # 280.)
  • Reducing taxes for low-income people generally stimulates the economy more, because they are much more likely to spend their savings locally and keep that money circulating in the Wisconsin economy, whereas much of the tax cuts enjoyed by wealthy people is saved and has less of a multiplier effect.
  • There is already a growing gap between the rich and the poor, and the proposed income tax cuts would widen that gap.
  • The last biennial budget raised taxes on low-income working parents and the elderly by cutting the Earned Income Tax Credit (EITC) and ending the annual adjustments to the Homestead tax credit.
  • Part of the funding that is being used for tax cuts comes from cutting or lapsing funds for programs intended to help low-income and disadvantaged families – including the funds siphoned off from the Temporary Assistance to Needy Families block grant, the foreclosure settlement funds, and the federal bonus funds earned by Wisconsin for the success of BadgerCare.
  • Because the tax cuts are partially funded with one-time savings, they are likely to create a hole (“structural deficit”) in the 2015-17 biennial budget, and the spending cuts or tax increases needed to close that hole could adversely affect all Wisconsinites.

For more information, go to www.wisconsinbudgetproject.org

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New Wisconsin Tax Proposal Favors Highest Earners

8:44 am in Uncategorized by WI Budget Project

A new tax package proposed this week would largely benefit the very highest earners. More than one-third of the proposed income tax cuts would go to the top five percent of earners, a group with an average income of $392,000.

Rep Kooyenga at inauguration

Wisconsin legislator Dale Kooyenga proposes more tax breaks for the wealthy.

The new tax plan was proposed by Rep. Dale Kooyenga, a member of the Legislature’s powerful Joint Finance Committee. Here is a short summary of his proposal from our blog post on May 28th; you can read the whole post here for more information:

His proposal would reduce state tax revenue by $752 million over the two-year budget period compared to current law, mostly by reducing income tax rates and making other changes to income taxes. It would make the income tax much flatter by reducing the number of tax brackets from five down to three, which would apply the same income tax rate for all married couples with taxable income between $14,500 and $319,500.

An analysis of the latest plan by the Institute of Taxation and Economic Policy reveals that a very large share of the tax cuts proposed by Rep. Kooyenga would wind up in the pockets of the best off. Here is how the tax cut would be distributed among income groups:

  • The top 5% of earners alone, a group with an average income of $392,000, would receive more than 1/3 of the benefit of the income tax cuts.
  • The top 20% of earners, a group with an average income of $183,000, would receive more than 2/3 of the benefit.
  • The bottom 60% of earners – those making $60,000 a year or less – would only receive 11% of the benefit of the income tax cuts.
  • The 20% of the Wisconsinites with the lowest incomes would receive just two cents out of every $100 in individual income tax cuts under this proposal.

Under the tax proposal, the top 1% of Wisconsin earners would receive a tax cut of $2,491. Earners in the top 1% have an average income of $1.1 million. Earners with incomes of $60,000 or less would, on average, receive a tax cut of $34. More than three-quarter of a million people, nearly all with incomes of $30,000 or less, would not receive any benefit from the proposed income tax cuts.

When Governor Walker released his tax cut proposal earlier this year, we pointed out that his plan was tilted toward high-income Wisconsinites and undermined the state’s ability to invest in things like K-12 education that are critical for Wisconsin’s economic success. But we also pointed out that the Governor’s plan could have been worse, in that it did not reduce the rates for the upper income tax brackets.

Unlike the Governor’s plan, the new tax plan advanced by Rep. Kooyenga does reduce the rates for the upper income tax brackets. In fact, the biggest rate reduction in Kooyenga’s proposal is for income between $217,600 and $319,500. Here are the reductions in rates by bracket:

  • Taxable income less than $14,500: -2%
  • $15,400 to $29,000: -3%
  • $29,000 to $217,600: -9%
  • $217,600 to $319,500: -12%
  • $319,500 and over: -2%

Although the rate reduction is smaller for income over $319,500, people in that bracket do extremely well because they also benefit from all of the cuts in the lower brackets.

That so much of the benefit of the income tax cut goes to the highest earners is a significant drawback to the new tax proposal. But it is not the only drawback. The tax package comes with an alarmingly high price tag, one that would create a very large hole in in the next budget and make it more difficult for Wisconsin to invest in education, health care, and jobs.

For more, go to www.wisconsinbudgetproject.org

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Five Ways the Proposed Income Tax Cut Could Hurt Wisconsin

8:12 am in Uncategorized by WI Budget Project

#1: The tax cut leaves out low-income taxpayers.

More than three-quarters of a million Wisconsin tax filers would not receive any benefit from the tax cut proposed by the Governor, including most people earning $30,000 a year or less.

Low-income Wisconsinites typically pay a higher share of their income in state and local taxes than do those with the highest incomes. Yet low-income taxpayers would receive little or no benefit from the income tax cut.

#2: Rolling back recent tax increases should be a higher priority.

The last state budget included two tax increases for low-income people:

  • A cut in the state’s Earned Income Tax Credit, which resulted in higher taxes for modest-income working families with children; and
  • A cut to the Homestead Credit, which helps make sure that seniors on fixed incomes and other people of modest means aren’t taxed out of their homes.

Before approving new tax cuts, the first priority of state policymakers should be to revisit recent tax increases, especially because those tax increases hit working families and seniors the hardest.

#3: The so-called “middle class” tax cut winds up mostly in the pockets of the most well-off.

Some policymakers have described this tax cut as being aimed at the middle class, but most of the benefit of the proposed cut goes to the highest earners. Half the benefit of the tax cut would go to the top 14% of tax filers.

#4: The tax cut would be likely to hurt, rather than help, the state economy.

Proponents of the tax cut say that it will boost the Wisconsin economy, but recent history in other states shows the opposite is more likely to be true. States that cut personal income taxes in the 1990s and 2000s lagged the rest of the country in economic growth. Cutting taxes is no substitute for public investments in high-quality schools, roads, and communities that attract business.

#5: It may create a large hole in the next budget.

The estimated cost of the tax cut is about $170 million a year. To put that amount in context, that is more than the state spends on the entire Wisconsin Technical College System per year.

In a March 28 paper, the Legislative Fiscal Bureau (LFB) pointed out the proposed budget bill would put the state in a substantial hole at the start of the 2015-17 biennium. The good news is that the LFB recently raised its revenue projections, and that increase could be used to avoid the budget hole in the following biennium. The bad news is that much of that revenue growth is one-time money, so great care needs to be taken that it isn’t used for ongoing, unsustainable tax cuts. Using a short-term surplus for permanent tax cuts is a recipe for big fiscal problems in future years.

A Step Torwards Closing the Internet Sales Tax Loophole

12:17 pm in Uncategorized by WI Budget Project

Senate Expected to Level Playing Field for Main Street Businesses

Legislation that would allow states to compel internet retailers to collect sales taxes is expected to pass the U.S. Senate in the next couple days. Passage of the Marketplace Fairness Act would be a first step towards leveling the playing field between internet retailers and bricks-and-mortar businesses.

Under current law, internet retailers are not required to charge customers sales tax unless the retailer has a physical presence in the state where the customer lives. Customers are still required to pay sales tax on on-line purchases, by declaring purchases on their income tax forms. Few customers do this, though. By not charging customers sales tax, online retailers can undercut bricks-and-mortar retailers on price.

Some states have undertaken their own efforts to compel internet retailers to collect the sales tax, with varying success. It seems clear that a federal approach to this challenge would ensure a more consistent approach among the states, but until now Congress has been slow to take action on this issue.

Opponents of the Marketplace Fairness Act point to the difficulty that small businesses will have complying with the thousands of different sales tax jurisdictions across the country. There are a number of provisions in the bill that address those concerns, including an exemption for businesses with less than $1 million in out of state revenue. (EBay has asked Congress to raise that exemption level to $10 million.)

It’s not clear how the bill will fare in the House of Representatives. Many House Republicans are fiercely anti-tax, which could lead them to oppose this bill. On the other hand, the bill does not actually levy any new taxes, but instead changes the collection method for the sales tax already due on online purchases. Approaching the issue from this direction may allow some anti-tax advocates to justify voting for the bill. President Obama has said he supports the bill.

Wisconsin loses upward of $150 million per year in state and local tax revenue from internet sales, according to a University of Tennessee study.

For more, go to www.wisconsinbudgetproject.org

Federal Tax Credits Keep Wisconsin Children Out of Poverty

8:25 am in Uncategorized by WI Budget Project

Two federal tax credits are responsible for lifting tens of thousands of Wisconsin children out of poverty. Together, the Earned Income Tax Credit and the Child Tax Credit lift 136,000 Wisconsinites out of poverty, including 71,000 children, according to a new report from the Center on Budget and Policy Priorities.

Children on swingset on Wisconsin playground

Two key tax credits keep Wisconsin children out of poverty.

The new CBPP report underscores how important the two credits are to low- and moderate-income families with children. The federal EITC benefits about 390,000 households a year in Wisconsin, and the CTC benefits 296,000 households.

The benefits of these credits go beyond just helping families make ends meet. We’ve long known that in addition to lifting families out of poverty, refundable credits like the EITC encourage work, improve the health of children, and help children do better in school. New, groundbreaking research shows that many of these benefits last into a child’s adulthood. In later life, children whose families receive the credits are likelier to attend college, work more hours, and earn more money.

The extensive list of long-lasting benefits would seem to make investing in these credits a no-brainer. But both the EITC and the CTC have been topics of budget battles recently, as the President and Congressional Republicans disagreed over whether to extend recent temporary enhancements to the credits that were expiring. In the fiscal cliff negotiations, Congress reached a compromise position that extended the enhancements for five years, rather than making them permanent. Those enhancements benefit 155,000 Wisconsin families, including 320,000 children.

At the state level, investment in the EITC has declined – and some policymakers are trying to reverse that. Assemblyman Daniel Reimer has proposed legislation that would restore the cuts in the EITC made in the last budget. Such a move would keep taxes low for working families, and would have long-term benefits for Wisconsin’s children.

For more, go to www.wisconsinbudgetproject.org

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