Gov. Scott Walker plans to lay out a “significant” tax cut plan that will reduce property taxes and boost worker paychecks. The details will be unveiled in his annual State of the State address next week.
Walker spokeswoman Jocelyn Webster said Wednesday that the tax cuts are possible because state tax collections are “significantly higher than anticipated” — as much as hundreds of millions of dollars more.
The cuts would be the third time in a year that Walker has proposed a tax cut. The 2013-15 budget included a $650 million income tax cut, and last fall the Legislature reduced property taxes statewide by $100 million through the school aid formula.
The news comes as Walker’s administration has been reviewing broader tax reforms, including possibly eliminating income taxes and raising the sales tax. Walker, who is up for re-election this fall, was unavailable for comment Wednesday afternoon because he was traveling.
Updated tax collection figures will be released any day, but Webster said the administration already knows revenue is significantly above estimates.
“It is really great news,” Webster said. “It’s something that we’re excited about.”
Walker, who is still finalizing the tax cut plan, wants to return the money to state taxpayers because they are the ones who generated it, she said.
Madison School Board member Mary Burke, the only Democrat so far running for governor, said she would need to see actual revenue numbers and Walker’s specific proposal before commenting in detail.
“I can tell you that everywhere I go people’s top concern is jobs and the economy,” said Burke, a former state Commerce secretary and Trek Bicycle executive. “Tax cuts geared toward those at the top don’t create jobs.”
Rep. Cory Mason, D-Racine, a member of the Legislature’s budget committee, said the surplus should be used to fund technical colleges to help train workers for job vacancies across the state.
Walker cut state funding to technical colleges by $36.3 million a year, or 25 percent, in his 2011-13 budget, bumping it back up 2.3 percent in the current budget.
If the surplus is used for tax relief, Mason urged the governor to boost the homestead and earned income tax credits that benefit the poor. Walker and Republican legislators previously reduced state funding for those credits.
“The big question for Republicans is with this new information, are they going to put the focus on job creation and putting people back to work, or is it going to be about tax breaks that benefit the rich?” Mason said.
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Assembly Speaker Robin Vos, R-Rochester, said in a statement that “any time there is a surplus in the state, we should return these dollars to the taxpayer.”
“I want all taxpayers to benefit from these surplus dollars,” Vos said. “While these decisions are still being finalized, I think Wisconsinites should feel confident that we will continue to stay true to our commitment to reduce taxes whenever possible.”
Senate Majority Leader Scott Fitzgerald, R-Juneau, said legislators would pay the state’s bills, return unused money to taxpayers “and continue to set money aside in our rainy day fund, which is already at a healthier balance than in any point in its history due to our reforms.”
By law, half of any unanticipated surplus in the state’s general fund must be kept in the rainy day fund, which as of June 30 stood at $278.5 million.
In addition to cutting rates, the 2013-15 budget reduced the number of income tax brackets from five to four. However, it did not adjust the amount withheld from workers’ paychecks, known as the withholding tables, so state residents typically won’t see any extra money — $158 on average — until they complete their tax returns this spring.
Walker wants to adjust the withholding tables, which means workers would get a small bump on paychecks in the future, though they would also see lower tax returns, Wisconsin Taxpayers Alliance president Todd Berry said.
It also would mean less short-term revenue for the state. The long-term benefit to the state is a reduction in the state’s deficit under generally accepted accounting principles, known as the GAAP deficit.
That would enable the state to undo past “budget accounting tricks” to make its books appear balanced, Berry said, such as shifting the timing of state aid to municipalities. “This won’t appeal to election-year partisans, but it would have some positive impact on future cash surpluses and current and future GAAP deficits.”
The deficit dropped to $1.7 billion last year, its lowest level since 2002 and down from $3 billion when Walker took office. Credit agencies use the deficit to come up with the state’s credit rating, which affects borrowing interest rates.
The property tax cut enacted last fall lowered tax bills on an average Wisconsin home by $13 last year. The cut next year will be about $20.
It was made possible by giving school districts $40 million more in aid this year and $60 million more next year, but not raising limits on overall revenue, forcing districts to reduce property taxes.
The additional aid also increased the state’s projected structural deficit — the amount that expenditures are expected to exceed revenues in a given budget — from $545 million to $725 million. Those amounts do not take into account new revenues expected due to the recovering economy and higher sales and income tax collections.