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State budget committee advances $540 million plan to cut taxes
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LEGISLATURE | BUDGET COMMITTEE

State budget committee advances $540 million plan to cut taxes

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Capitol building

The entrance to the Wisconsin Supreme Court chambers in the state Capitol.

The Legislature’s Republican-controlled budget committee on Wednesday advanced a bill that, if passed, would reduce taxes by $540 million, mainly by allowing people who received Paycheck Protection Program loans from the federal government to deduct related purchases on their 2020 state taxes.

The Paycheck Protection Program (PPP), formed under the CARES Act last year, awarded forgivable tax-free loans to businesses facing financial losses during the COVID-19 pandemic. Because that money was not taxed as income, the Internal Revenue Service determined expenditures paid with those funds are not tax deductible under current federal and state laws.

Congress last month passed a law on the federal level overriding the IRS’ decision and allowing businesses to deduct payments made with PPP funds, but Wisconsin has not yet made that change at the state level. Because that legislation has not been passed in the state, the Department of Revenue is following the IRS determination that expenditures paid with PPP cannot be deducted.

That could change if the state adopts the changes attached to Assembly Bill 2 that the Joint Finance Committee approved Wednesday. The changes would bring state tax law in line with the federal tax code in a number of areas, most significantly by allowing people who received PPP loans to deduct related purchases.

Taken by itself, that portion of the bill would reduce taxes by $419 million in total through the 2022-23 fiscal year. The Joint Finance Committee approved the bill by an 11-4 vote, with three Democrats and one Republican opposed: Reps. Evan Goyke, D-Milwaukee; Greta Neubauer, D-Racine; and Sens. LaTonya Johnson, D-Milwaukee; and Duey Stroebel, R-Saukville.

If passed by the full Assembly and Senate, the bill could face an uncertain future if it reaches Gov. Tony Evers’ desk. In a statement, Evers said he wants relief for a broader subset of businesses, including those that received state assistance during the pandemic — not just those which received federal aid.

“We should be helping all small businesses, regardless of whether they received assistance from the state or the federal government,” Evers said. “But as has been the case all along, I will keep doing everything I can to help and support our small businesses and families as they recover and bounce back from this pandemic.”

Budget committee Democrats who were opposed to the bill criticized the PPP tax deduction for benefiting only a small subset of relief recipients. Goyke specifically criticized the plan because it could benefit payday lenders and debt collectors who received federal relief.

Department of Revenue Secretary Peter Barca previously said about 75% of the tax reductions under the PPP deduction would benefit just 14% of the businesses that received PPP.

Joint Finance Committee co-chairman Sen. Howard Marklein, R-Spring Green, praised the bill for simplifying Wisconsin’s tax code.

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Federal aid for schools

Also on Wednesday, the budget committee approved a spending plan for a portion of federal COVID-19 relief aid that will financially penalize some school districts for offering online instruction during the pandemic.

The plan, which the committee approved on a party line vote of 11-4, takes immediate effect. It also scraps a plan for the federal COVID-19 relief funds submitted by the Department of Public Instruction that would have rewarded aid on a per-pupil basis.

Under the federal Coronavirus Response and Relief Supplemental Appropriations Act signed into law in December, Wisconsin public schools are set to receive a total of $686 million in additional relief.

Ninety percent of that funding will be distributed to schools directly based on the number of low-income students in a district, without needing legislative approval. The state budget committee must determine how to distribute the other 10% — about $69 million.

The plan the Republican-controlled budget committee approved will distribute about $66 million of the funding to 172 of the state’s 446 school districts and two independent charter schools based on a formula that rewards school districts for offering a greater number of hours of in-person instruction during the 2020-21 school year.

The Madison School District would be unaffected by the plan to incentivize online instruction because it’s not one of the 172 school districts eligible for the additional aid. The district is already set to receive about $19 million directly from the federal government based on its number of low-income students.

Budget committee Republicans praised the plan for rewarding school districts that have “done the right thing.”

Democrats, however, blasted the plan for punishing school districts that attempted to prevent the spread of COVID-19.

DOJ settlements

The budget committee also approved four settlement agreements reached by the Department of Justice in three environmental protection lawsuits, as well as the dismissal of a civil case Wisconsin joined against the former Postmaster General for operational changes that resulted in slower mail prior to the November 2020 election.

The dismissal was agreed upon because the election is over and the Postal Service is subject to legal action in other lawsuits.

The state’s budget committee was granted the authority to review and approve DOJ settlement agreements in a 2018 Republican-authored law that sought to curtail the powers of incoming Democratic Gov. Tony Evers and Attorney General Josh Kaul.

The budget committee and DOJ have yet to reach a blanket agreement on confidentiality in order to review the cases, so the DOJ typically seeks the permission of involved parties to share necessary information about the cases as they come up.

See the whole series: The Great Divide: 10 years since Act 10

A decade later, the Wisconsin State Journal looks back at the historic debate and protests over the controversial anti-union law known as Act 10.

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