Income tax rate cuts reduced taxes by $432.6 million in 2014

Revenue Secretary Rick Chandler (standing) leads a tax reform roundtable in 2014. Recently released data show a majority of tax cuts enacted in 2013-14 went to the top fifth of income earners, though middle-income earners saw a larger cut in their collective income tax.

Wisconsin wage earners and state coffers saw a $423.6 million reduction in income taxes as a result of rate cuts enacted in 2013 and 2014, according to new data from the state Department of Revenue.

That’s about $30 million more than the nonpartisan Legislative Fiscal Bureau estimated in July 2014 just after the second tax cut was enacted. The new figures are based on actual tax collections for 2014 compared with 2012.

The tax cuts are sure to be a talking point on the fall campaign trail among both Republicans who championed the cuts as a boon to the middle class and Democrats who said they were a giveaway to the wealthy.

Depending on how you slice the numbers, they could be viewed both ways.

More than half of the total cut went to those in the top fifth of wage earners — those with an adjusted gross income of more than $90,000, a group that pays about two-thirds of the state’s income taxes.

Those making more than $300,000, the top 1.5 percent, saw an average cut of roughly $1,307, or about eight times more than an average tax filer making about $50,000 who saw an average cut of about $160.

However, the cut was greater for those in the middle class when considered as a percentage of the amount they pay in taxes.

According to DOR, the $227.6 million cut to the top fifth of earners represented 4.1 percent of what they pay in taxes. In the next fifth, those making $50,000 to $90,000, the cut was 6.4 percent of taxes paid. In the middle fifth, those making $30,000 to $50,000, the cut was 8.7 percent. And in the second-lowest earning fifth, those making $10,000 to $30,000, the cut was 12.9 percent of income taxes paid.

Nearly 800,000 filers didn’t see a tax cut, most likely because they didn’t have a tax liability after taking into consideration certain credits and deductions. The vast majority of those filers are in the bottom fifth, so that group received a relatively small $600,000 tax cut, or 6.5 percent of their total tax bill.

On tax day, April 15, Gov. Scott Walker sent out a tweet in which he showed the distribution of tax cuts by different income brackets, stating “middle class taxpayers benefit most from our relief.” However, the graphic he shared didn’t include those making more than $290,000.

The full set of data provided by DOR in response to a request from the Wisconsin State Journal showed $51.4 million, 12 percent of the tax cut, went to those making more than $300,000. That group also pays 25 percent of the state’s income taxes. The cut represented 2.5 percent of their total tax bill.

The wealthiest taxpayers benefited from Walker and the Legislature cutting all five tax rates down to four, effectively giving them five tax cuts. A single filer with taxable income up to $10,900 would have only benefited from the lowest rate being cut.

But that lowest rate was cut more in percentage points than the top rates, helping increase the percentage cut for middle income earners.

The cuts reduced the top rate on income earned above $240,200 from 7.75 to 7.65 percent, combined the next two rates of 6.75 and 6.5 into a 6.27 percent rate for income between $21,800 and $163,700, cut the second-lowest rate on income between $10,900 and $21,800 from 6.15 to 5.84 percent and cut the lowest rate from 4.6 percent to 4 percent. The dollar thresholds are higher for married couples filing jointly and also increase each year based on inflation.

Rep. Dale Kooyenga, R-Brookfield, one of the chief architects of the tax cut package, said the tax code is now more progressive than when Democrats were last in control of state government, something he said Republicans weren’t initially intending to do.

“We set out to cut taxes in proportion to the taxes being paid,” Kooyenga said. “What happened is it was compromised in the process. We ended up cutting taxes more for people who pay less in taxes (in percentage terms).”

As an indicator of the tax code’s progressiveness, the gap between the top and bottom rates is the largest since the early 1980s, according to the Wisconsin Taxpayers Alliance. In the 1970s the gap peaked with a top rate of 11.4 percent and a bottom rate of 3.1 percent. By 1986 it shrank to its all-time low with the top rate at 6.93 percent and the bottom rate at 5 percent.

The top rate dipped to 6.77 in 1997 before then-Gov. Jim Doyle and a Democratic-controlled Legislature increased it to 7.75 in 2009. At that time the lowest rate was 4.6 percent before its recent reduction to 4 percent.

Todd Berry, president of the taxpayers alliance, said the DOR data show the tax cut was “pretty proportional.”

“It’s not a tax cut for the rich, it’s an across-the-board kind of cut,” Berry said. “The way that you can say it’s a tax cut for the rich is of course because the rich pay more in income taxes. Whenever you do any kind of income tax cut, they’re going to benefit more in raw dollar terms.”

Sen. Dave Hansen, D-Green Bay, said given the large gap between rich and poor and the decline in the state’s middle class, there is no reason to be giving a tax cut to people making more than $300,000 a year.

“If anything we should be doing more to make sure the rich pay their fair share of taxes so we can restore the $2 billion in cuts they’ve made to our public schools, universities and technical colleges,” Hansen said.

Tamarine Cornelius, a research analyst for the Wisconsin Council on Children and Families, said cutting income taxes proportional to income doesn’t help middle- and low-income families who pay a disproportionate share of their income in sales and property taxes compared to the wealthy.

“Tax cuts like this make it harder for Wisconsin to make investments in our schools and communities that help make Wisconsin an attractive place to live, work and do business,” she said.

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