By Jason Culotta
Director of Tax & Transportation Policy
Wisconsin Manufacturers & Commerce
Over the past year, Governor Scott Walker and the Republican majorities in the Legislature have cut taxes three separate times. This demonstrates a change of policy in Wisconsin to a new focus on reducing the tax burden when state government has a budget surplus.
It’s a new direction for our state that is fostering job creation, a better business climate and letting our citizens keep more of what they earn.
The 2013-15 state budget, signed into law as 2013 Act 20, set the stage for the legislative session by cutting taxes nearly $1 billion during the current two-year budget period. This round of tax cuts amounted to a net tax reduction of more than 1 percent in 2013-14, making Wisconsin one of only seven states to do so.
The cornerstone of the Act 20 tax cuts was the large income tax reduction, totaling over $320 million of relief across all tax brackets each year and eliminating one of the state’s five income tax brackets. While it is down 0.1 percent, our top tax bracket is 7.65 percent – still too high for businesses organized as pass-through entities. But the trend of reducing individual income tax is headed in the right direction.
Act 20 also continued the implementation of the Manufacturing and Agriculture Credit, a powerful incentive that will reduce most state income tax liability for manufacturing and agricultural production in Wisconsin in 2016 and beyond. As the credit phases in, it is expected to generate $32 million of savings to Wisconsin producers in 2013-14 and $71 million in savings the following year. That’s more money companies have available to reinvest in their business.
Act 20 also made a number of other significant, pro-growth reforms including:
- Allowing a full deduction for health insurance premiums to take effect;
- Extending the R&D tax credit to pass-through entities;
- Adopting federal depreciation and depletion rules (beginning January 1, 2014) and phasing out similar state rules over five years;
- Allowing net operating losses for individual income to be carried forward up to 20 years and carried back two years, and;
- Eliminating the state economic development surcharge on pass-through entities.
Following enactment of the state budget on July 1, 2013, state revenue officials projected a further surplus in state tax revenues. So in October, Governor Walker proposed another tax-cutting measure. This time the focus was to reduce K-12 school property taxes by $40 million on the December 2013 (payable in January 2014) property tax bills and by $60 million for 2014/2015 and subsequent years. This legislation was quickly signed into law as 2013 Act 46.
In mid-January, the non-partisan Legislative Fiscal Bureau projected $911 million in additional tax revenue growth as a result of the improving economy. Shortly thereafter, Governor Walker offered yet another tax-cutting proposal, trimming both property and income taxes, signed into law as 2013 Act 145.
First, the property tax levy for technical colleges will be cut in half, as the state will provide $406 million annually of relief starting with the 2014/2015 bills. Second, Governor Walker lowered the amount of state income tax withholding by $322 million through executive action, which took effect April 1, 2014. Third, the lowest bracket of the income tax will be reduced by an additional $96 million per year, effective for 2014.
Prior to Governor Walker taking office in 2011, Wisconsin ranked high among states in both income and property tax burden. Since that time, nearly $2 billion in tax cuts have been passed at the state level. The typical elected official cites the need to reduce the tax burden and then spends most surplus revenue on new government programs. To the Governor’s credit, he has repeatedly worked with the Legislature to actually lower the tax burden for all Wisconsinites.
Follow Jason on Twitter @JGCulotta
This article is available in the April edition of WMC’s Wisconsin Business Voice magazine.
Click here to view the full issue.