Tax changes hit unemployed, manufacturers, benefit back-to-school parents with one child

Gov. Scott Walker's budget includes a net reduction in taxes and fees of $414.5 million, including about $85 million in tax and fee increases.

Newlywed parents with a single child in school, university students and low-income families would reap new tax and fee benefits under Gov. Scott Walker’s budget proposal.

Meanwhile, unemployed homeowners, state park enthusiasts, and manufacturers who pay taxes in other states would pay higher taxes and fees.

Walker’s budget proposal for the two years starting July 1 cuts taxes and fees by a net total of $414.5 million, according to the Legislative Fiscal Bureau, a figure that includes about $500 million in tax and fee cuts, but also increases of about $85 million.

Most people will benefit from income tax and property tax cuts, but some smaller groups of taxpayers might benefit from the cuts — or pay more because of the increases.

The net overall amount is a shift from the previous budget, which increased taxes and fees by a net $29.2 million. The 2013-15 budget netted $696 million in tax and fee cuts.

Todd Berry, president of the Wisconsin Taxpayer Alliance, said a projected surge of new revenue this year from anticipated economic growth is largely going to spending increases for K-12 education and the University of Wisconsin System, with less of the boost being used on the kinds of tax cuts Walker introduced with a similar surge in revenue four years ago.

“The action in this budget is on the spending side,” Berry said. “The tax changes are relatively small by comparison.”

The biggest tax cuts are a reduction in the two lowest income tax rates, which is expected to save about 70 percent of taxpayers $44 on average — costing the state $203.5 million in revenue — and an elimination of the state forestry property tax, which would cost $180.5 million. Walker is proposing to replace the lost property tax revenue, which funds the forestry account of the state conservation fund, with other tax revenues.

Homestead credit

One of the more controversial changes is a restructuring of the homestead tax credit, which historically has benefited homeowners whose incomes fall below a certain threshold. Walker is proposing limiting the credit to those over age 62, those with disabilities and those with low levels of earned income.

The change would hit the unemployed and students of all ages who own their own home and don’t make a lot of money, saving the state about $12.7 million in 2018 when the changes would kick in.

Berry said one of the concerns Republicans have had with the credit is that it was created decades ago as a way to help seniors on fixed incomes, but some college students are also benefiting. He said one way to address that without affecting the unemployed would be to raise the age limit to 25, not 62 as Walker is proposing.

“What is the goal?” Berry said. “If the goal is to make sure the people who need the assistance get the assistance, then the question is who is getting it who shouldn’t.”

Walker and Republican lawmakers ended indexing of the homestead credit in the 2011-13 budget, but Walker is proposing to reinstate indexing for seniors and the disabled, which is expected to cost $2.5 million in revenue in 2018.

Walker spokesman Tom Evenson said the changes to the homestead credit provide additional protection for the elderly and disabled on fixed incomes by indexing their credit for inflation.

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“It would also restructure the credit for able-bodied adults to encourage and reward work,” Evenson said.

Jon Peacock, research director for the Wisconsin Council on Children and Families, said the homestead credit is “pretty popular, but not that many people know about it.”

“It’s a very well-targeted credit,” Peacock said. “But there are conservatives who don’t like the fact that it isn’t limited to seniors.”

Earned income credit

Peacock said it is interesting Walker is also applying the homestead credit to low-income people similar to the earned income tax credit (EITC), which serves a different purpose of income maintenance for the working poor.

Walker is also proposing families with one child get a boost in the EITC, which is expected to cost the state $20.8 million in revenue beginning in 2018.

Another provision would allow someone who gets married in a year to claim the larger of the EITC for when they are married or from when they were single, a measure Walker has promoted as removing a disincentive for marriage. It would cost $1.5 million in 2018, but the cost would grow to $3.5 million in 2019 and $5.5 million in 2020.

Parents with children

Parents with school-age children also stand to benefit from a proposed sales tax holiday for certain back-to-school merchandise in August, which is expected to cost $11 million a year.

There’s also a proposed 5 percent reduction in UW tuition, which the fiscal bureau includes as a $35 million reduction in fees. Walker is proposing to backfill the cut with other tax revenue.

Walker is proposing to increase state park admission and camping fees by up to $10, which is expected to bring in $700,000 more per year in revenue. A new fee for businesses seeking expedited records from the Department of Financial Services would bring in an extra $1.64 million a year.

Change to manufacturing credit

Some businesses also would see an increase in taxes because of a change to the controversial manufacturing and agriculture credit, which Republicans passed in 2011, though it didn’t phase in fully until last year. Democrats have assailed the credit as a giveaway to corporations without any guarantee of job creation.

Walker is proposing to close a loophole that allowed companies to claim the credit for taxes paid to other states. The change would save the state about $9.7 million a year.

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