MacIver News Service | March 26, 2018
By M.D. Kittle
MADISON, Wis. – Call it the quiet tax cut.
While it didn’t get much press (and probably won’t), a “conformity” bill headed to Gov. Scott Walker’s desk is expected to quietly deliver tax relief in the millions of dollars.
Last week, the Senate approved a measure that lines up Wisconsin’s tax code with the myriad changes made in the federal Tax Cuts and Jobs Act. Doing so will create less confusion for filers and the government and, in many cases, relieve the tax burden, if ever so slightly. It also will cut compliance costs for tax filers.
Some of the most prominent changes in the act do not affect Wisconsin tax law, but many other provisions are “relevant to Wisconsin’s state income and franchise taxes,” a Legislative Fiscal Bureau memo states.While it didn’t get much press (and probably won’t), a “conformity” bill headed to Gov. Scott Walker’s desk is expected to quietly deliver tax relief in the millions of dollars. #wiright #wipolitics Click To Tweet
There are offsets to the savings, but adopting the federal itemized deduction changes, for instance, would save taxpayers a combined $10.9 million in the 2018-19 fiscal year, according to the memo.
While the conformity tax breaks may not be significant to most taxpayers, they are representative of a conservative agenda led by Republican Gov. Scott Walker that has delivered some $8 billion in tax relief over the past seven-plus years.
Rep. Dale Kooyenga (R-Brookfied) and Sen. Howard Marklein (R-Spring Green), both CPAs, put together the tax conformity package, in flux until recently. A tie-in to the original version included bringing back Gov. Scott Walker’s $200 million state income tax cut proposal, which was scrapped by the Legislature in last year’s budget-writing process.
Republican leadership balked at the tax cut again, but ultimately came to terms on a conformity package that mostly aligns Wisconsin’s tax code with the federal changes.
Kooyenga said the federal tax code is still a mess, but Republicans in Congress made it better – and more beneficial to a majority of taxpayers – in the first overhaul of the U.S. tax code in 30 years. Many of those changes, upon the governor’s signature, will be reflected in Wisconsin.
“We’re not trying to mirror the federal code because it’s some perfect Cato Institute tax policy. I wish it was,” he said. “This made it a lot less bad. At the state level we took as many provisions as we could afford at this time to save taxpayers money.”
Some federal provisions were simply too costly to adopt, however. The federal deduction formula for pass-through business owners, for instance, would have cost the state $242 million in annual revenue.
“There’s no way we could get support for $242 million in tax cuts,” Kooyenga said.
The federal tax reform package opened up a new deduction on income for limited liability, S corporations, partnerships and others in an attempt to balance a cornerstone of the law – trimming the top corporate rate from 35 percent to 21 percent.
Wisconsin’s top individual and corporate tax rates are very close, so the tax savings of alignment would not be that pronounced, so there was not the same urgency to adopt the provision, Kooyenga said.
The federal tax reform law allows taxpayers to use investments in Edvest College Savings plans for K-12 education, in parental choice programs, or with other education-related expenses. Wisconsin taxpayers will be able to do the same at the state level, thanks to conformity.
Aligning the codes also brings Wisconsin into a new federal provision that allows families who have saved money in 529 higher education savings accounts the ability to roll over up to $15,000 each year from the college education savings accounts to an Achieving a Better Life Experience (ABLE) account. Congress in 2014 created the savings plans, allowing people with disabilities and their families to save for disability-related expenses without cutting off eligibility for Medicaid and other public benefits programs.
“Let’s say you have an 18-year-old who just graduated and had a horrific accident. Instead of going off to college, they are homebound. The provision allows you to take that money you put into an EdVest account and roll it over into an ABLE account without penalty,” Kooyenga said.
The conformity measure also aligns Wisconsin’s tax code with a federal change that allows victims of federally declared natural disasters to use some of their retirement account savings without financial penalties.
Some of the changes will cost taxpayers.
Taxpayers will no longer be able to exclude employer reimbursement of moving expenses from gross income. That tax break will be gone on the state and federal tax returns, and the state’s coffers are expected to be $6.4 million richer, according to the Fiscal Bureau memo.
And bicycle commuters can’t exclude their $20 monthly employer reimbursements from their income for tax purposes.