The net impact of Gov. Tony Evers’ budget tax proposals would be a $1 billion increase over the biennium, according to his office.
The biggest chunk of that would come from matching state tax laws to the provisions of a tax bill former President Trump signed in December 2017. The combined impact of the numerous changes would be an increase of $540.1 million.
UW-Madison economics Professor Noah Williams said in general, “federalizing” the state tax code makes sense as it simplifies the combined tax code.
“I also can’t help but point out that the state standard deduction is a great candidate for federalizing,” said Williams, founding director of the conservative Center for Research On the Wisconsin Economy. “As it is now, the phase-out of the deduction means that families a bit below the median income have the highest state marginal income tax rates.
But Wisconsin Manufacturers & Commerce said Evers is selectively choosing to conform only to those provisions in the Tax Cuts and Jobs Act of 2017 that would raise revenue.
“Cherry-picking conformity provisions that increase revenue, without conforming to any of the TCJA provisions that cut taxes is not a serious discussion; it is simply trying to score political points on the backs of Main Street Wisconsin businesses,” said Cory Fish, WMC’s director of legal affairs. “During the middle of an economic crisis, any conformity should result in a net tax cut to help Wisconsin job creators continue to resuscitate Wisconsin’s economy.”
Two years ago, Republicans rejected Evers’ attempt to place new limits on the manufacturing and ag credit. But he has brought back the proposal. Like last time, it would restrict the credit for manufacturers to $300,000 per tax year. The change would raise an additional $487.4 million over the biennium.
Williams said Evers’ move goes in the wrong direction by raising taxes on narrower groups.
“For example, while in previous research I have found that the (manufacturing and agriculture credit) has contributed to employment growth in the state, a reasonable argument would be to reform the MAC in favor of lowering overall business taxes,” he said. “Instead, Evers simply proposes eliminating the MAC for larger businesses, which would likely eliminate most of its benefit with nothing gained in return.”
Fish added that hiking taxes on the largest part of Wisconsin’s private sector in the middle of a pandemic is “terrible public policy.”
“The Manufacturing and Agriculture Tax Credit has helped attract new businesses to, and keep legacy businesses in, Wisconsin,” he said. “The legislature should not give in to Gov. Evers and let him turn Wisconsin into the next Illinois.”
Evers also wants to change the capital gains exclusion. The proposal would maintain the current deduction for 30 percent of net gains from stocks, precious metals and real estate held for more than one year for single filers with an income below $400,000 and married joint filers making less than $533,000. The exclusion would be eliminated for filers making more than those limits. The proposal would raise taxes $350.5 million over the biennium.
But Williams said it’s unlikely that the capital gains tax would raise the projected amount of revenue.
“Past episodes of capital gains increases have found that people either realize the gains before the tax takes hold or delay realization,” he explained. Williams also noted that the proposed sharp rise in the cost of capital is at a time when Wisconsin should encourage saving and investment in the state.
Fish pointed out that the proposal would disproportionately affect retirees and those preparing for retirement — the most mobile workers in Wisconsin. This budget item would force them to leave the state, he said, resulting in Wisconsin getting none of the tax revenue.