Five Tax Brackets Reduced to Three; Many Credits Eliminated
MacIver News Service | May 27, 2013
Updated Tuesday May 28, 2013 at 12:32pm[Madison, Wisc…] Representative Dale Kooyenga (R-Brookfield) will announce his plan to reform Wisconsin’s tax code on Tuesday that will include a $752 million income tax cut and will reduce the state’s tax brackets from five to four in tax year 2014 and three in tax year 2015, according to a memo from the Legislative Fiscal Bureau.
Governor Scott Walker proposed a $343 million income tax cut as a part of his budget that would reduce tax rates for the bottom three brackets and leave the top two static. After new revenue projections showed the state would have an additional $575 million in surplus, Kooyenga took the Governor’s plan another step forward.
The new plan would reduce rates at every level and combine the middle three brackets over the next two years. Taxpayers that are married and file jointly with income up to $14,510 would see a rate reduction from 4.60 percent to 4.50 percent. The second bracket ($14,510 to $29,020) would be reduced from 6.15 percent to 5.94 percent.
The third and fourth brackets would be combined and reduced to 6.27 percent, while the top bracket, married-joint filers with income greater than $319,460, would see a rate reduction from 7.75 percent to 7.60 percent.
In 2015, the tax brackets would be reduced to three. So, married-joint filers with taxable income of $14,510 to $319,460 would all pay a tax rate of 5.94 percent.
At the reduced rates, the proposal is estimated to provide $914 million in income tax relief in the 2015-17 budget. Kooyenga would also eliminate the Alternative Minimum Tax and the Estate Tax.
In addition to reducing income tax rates and the number of brackets, Kooyenga aims to simplify the tax code by eliminating 18 refundable and non-refundable business tax credits. The elimination of certain refundable tax credits in 2014 is estimated to reduce General Purpose Revenue (GPR) expenditures by $5.2 million in 2014-15.
In a previous interview with the MacIver News Service, Kooyenga said little used tax credits should be removed from the tax code. The refundable credits that Kooyenga eliminates in his plan include the Dairy Manufacturing Tax Credit, the Meat Processing Investment Tax Credit, the Film Production Tax Credit, and others.
The Representative deletes the Jobs Credit from the tax code as well, which some say was a way that government would pick winners and losers. The Jobs Credit provides a wage subsidy to employers of up to 10 percent and a subsidy for certain employee training expenses for new hires. By deleting the credit, expenditures are projected to decrease by $1.75 million in 2014-15 and is expected to reduce annual expenditures by $7 million in 2015-16 and up to $17 million in 2021-22.
Kooyenga told the MacIver News Service that the Jobs Credit actually hurts businesses that made tough decisions and retained employees during the recession. He said businesses that fired employees and are now hiring them back would see a tax credit, which shows the unfairness in the Badger State’s tax code.
The non-refundable credits that would be deleted from the tax code include the Dairy and Livestock Investment Credit, the Post-Secondary Education Credit, the Ethanol and Biodiesel Fuel Pump Credit, the Water Consumption Credit, the Relocated Business Credit, the Community Development Finance Credit, and others.
Some of the credits that are repealed in Kooyenga’s plan have not been claimed for many years or have had very few claimants.
Fees are also reduced in Kooyenga’s tax reform proposal. His plan would eliminate the business tax registration fee, which would reduce revenue by $3.8 million over the biennium, but would also eliminate the business tax registration system. That line item would delete about 18 state employee positions and reduce appropriations by $1.5 million annually.
The LFB memo also outlines the elimination of a three percent fee on corporations’ tax liability for the Wisconsin Economic Development Corporation (WEDC) surcharge, the repeal of the Great Lakes Water Usage Fee, and eliminates the Grain Storage Tax.
In an effort to add parity between Wisconsin’s Tax Code and the federal code, Kooyenga’s new plan would modify the following items to mirror the federal tax policy: the Farm Investment and Losses Deduction, Farmland Preservation Tax Credits, the Capital Losses Deduction, the Capital Gains Exclusion for Small Businesses, Reporting of Assets and Partnership Interests and Payments for ATV Corridors.
The plan also eliminates the Working Families Credit, adds limits to the Manufacturing and Agriculture Tax Credits, and adds legislative oversight to WEDC on their grants and loans.
Kooyenga’s goal is also to simplify and shorten the state’s tax filing forms. Currently, Wisconsin includes income tax check-off procedures on the form that allow taxpayers to make donations to specified purposes. Under this proposal, the check-offs would be limited to ten per year, and only those that received at least $100,000 in donations the previous year would be included. If there were more than ten, the least used would be temporarily rotated off the form.
Kooyenga is expected to introduce his plan on Tuesday and debate it during an executive session of the Joint Committee on Finance in the coming weeks.
The plan was unveiled at a press conference on Tuesday at 11am. The full memo from LFB can be seen here.