MissMadison Wisconsin: Gov. Tony Evers today announced provisions in his biennial budget for 2023-25 that will fulfill the governor’s promise made last August to fight for a 10% tax cut for the middle class.
The plan aims to build on income tax cuts signed by Gov. Evers since taking office, which have returned $1.4 billion to taxpayers annually, by providing more than $1.2 billion in targeted tax relief to working families, parents, veterans, caregivers, seniors, and student loan borrowers, among others, while limiting tax breaks for high-income earners.
In light of historic revenue projections, the governor reiterates calls to use the state’s estimated surplus to support working families and the state workforce.
“I pledged the people of this state I’d combat to deliver a 10% tax cut for middle-class and working families, and today, I’m proud to deliver on that promise. “I’ve always said that we’d deliver real, responsible tax relief targeted to the middle class and working families, rather than spending big on breaks for our state’s wealthiest 20% of earners who don’t need the extra help affording rising costs,” Gov. Evers said.
Gov. Evers more than fulfilled the promise he made before being elected governor in 2018 to provide a 10% tax cut for the middle class. The governor signed one of the largest tax cuts in Wisconsin state history in the 2021-23 biennial budget, providing $2 billion in individual income tax relief over the biennium and approximately $1 billion annually going forward. When combined with the tax cuts signed by Gov. Evers in the 2019-21 biennial budget, as well as 2019 Wisconsin Act 10, 86 percent of Wisconsin taxpayers have seen a 15 percent or greater income tax cut, with 2.4 million taxpayers benefiting.
Wisconsin Gov. Tony Evers delivers his biennial budget address to the Wisconsin Legislature on Feb. 15, 2023, in Madison. The state budget includes tax cuts for the middle class, a plan to keep the Milwaukee Brewers in their stadium until at least 2043, higher spending for public schools and a new way to fund local governments. (Credit: PBS Wisconsin) Wisconsin Gov. Tony Evers released his 2023-25 budget proposal , which includes middle class tax cuts, $2.6 billion for public education, $290 million for the Milwaukee Brewers stadium and a family leave program.
Furthermore, Gov. Evers directed the Wisconsin Department of Revenue last year to revise its withholding tax tables, which will change how much income employers withhold from an employee’s paycheck in taxes. Based on these directed changes and Gov. Evers’ prior tax cuts, a single filer earning $50,000 will have seen $551 more in their paychecks over the last year, while a married couple earning $50,000 combined will have seen over $1,200 more in their paychecks.
Gov. Evers’ tax plan, announced today, contrasts sharply with a Republican-backed flat tax proposal that would provide enormous tax breaks to wealthy millionaires and billionaires while prioritizing relief for working families.
Based on the information available, Republicans’ plan would provide more than $3.5 billion in tax breaks to the wealthiest 20% of Wisconsin tax filers, nearly four times what the remaining 80% of filers would receive combined. Overall, nearly 80% of the flat tax plan will benefit Wisconsin’s top 20% of earners who file taxes.
Since taking office, Gov. Evers has signed income tax cuts that have returned $1.4 billion to taxpayers, overwhelmingly to the middle class.
The governor’s biennial budget proposals for 2023-25 add approximately $1.2 billion in tax relief for low- and middle-income Wisconsinites, particularly those with children and those who care for family members, over the biennium. Among the governor’s proposals are:
Creating a nonrefundable Family and Individual Reinvestment (FAIR) Credit, which would reduce taxes by 10% for single filers with an annual adjusted gross income of $100,000 or less, and married-joint filers with an annual adjusted gross income of $150,000 or less.
The credit would be phased out gradually for single filers with AGIs between $100,000 and $120,000 and married joint filers with AGIs between $150,000 and $175,000.
The credit will have a $100 minimum for single and married-joint filers and a $50 minimum for married-separate filers below the start of the phase-out thresholds.
This will result in total tax relief of $418.7 million in fiscal years 2023-24 and $420.9 million in fiscal years 2024-25, with over 1.9 million Wisconsin taxpayers receiving an average tax cut of more than $200 per year.
Increasing Wisconsin’s EITC supplement to the federal EITC for working families with one or two children.
Targeted tax relief through the EITC has been effective in reducing child poverty and assisting children in succeeding; however, Wisconsin’s credit for those with one or two children lags behind most other states and should be increased.
Beginning with tax year 2023, the governor’s budget will increase the percentage of the federal credit that filers with one dependent child can claim from 4% to 16%, and the percentage that filers with two children can claim from 11% to 25%.
According to these changes, nearly 200,000 filers with children will receive total tax relief of $60.7 million in fiscal year 2023-24 and $63.8 million in fiscal year 2024-25, with an average tax relief of more than $300 per year.
Beginning with tax year 2023, the current state Child and Dependent Care Tax Credit will be increased from 50% to 100% of the federal credit.
Most people who qualify for the credit can claim up to $600 for one qualifying individual’s expenses or $1,200 for two or more qualifying individuals’ expenses.
This will provide over $27 million in tax relief to over 100,000 Wisconsin taxpayers each year, with a benefit of more than $260 per filer.
Creating a caregiver tax credit of 50% of qualifying expenses incurred by those providing care or support to adult family members who require assistance with one or more daily activities, with a maximum credit of $500 per tax year.
The credit will be available for single filers with incomes up to $75,000, with a phase-out for those with incomes between $75,000 and $85,000. The credit will be available to married-joint filers earning up to $150,000, with a phase-out period for those earning between $150,000 and $170,000.
This will result in $96.7 million in tax relief in fiscal years 2023-24 and $98.3 million in fiscal years 2024-25, giving an estimated 240,000 taxpayers a tax cut of nearly $400 on average.
Modifications to a dwelling for the care or support of a family member, the purchase or lease of assistance equipment, and the acquisition of goods, services, or support to assist in caring for a qualified family member are all eligible expenses under the credit.
The governor’s proposed budget provides targeted property tax relief by:
Improving the Homestead Credit to provide more property tax relief to low-income Wisconsin residents, particularly seniors and people with disabilities.
Republicans have eroded the value of the state’s Homestead Credit over the years by failing to adjust the credit for inflation, and as a result of inflationary adjustments in Social Security benefits, the number of senior claimants of the Homestead Credit has decreased significantly in recent years.
The governor’s budget will raise the maximum eligible household income under the program from $24,680 to $35,000, and indexing for the credit will be restored beginning with tax year 2023, which is critical for those on fixed income streams such as Social Security or disability payments.
Beneficiaries will receive approximately $100 million in targeted property tax relief over the biennium as a result of the Homestead Credit expansion.
Extending the Veterans and Surviving Spouses Property Tax Credit to include renters and making the credit available to those with disability ratings greater than 70%.
This proposal would increase the credit for renters by 20% for those who have heat included in their rent and 25% for those who do not have heat included in their rent.
These provisions will save $26.2 million in fiscal years 2023-24 and $27.3 million in fiscal years 2024-25. This proposal was previously announced, along with other budget investments by the governor to support Wisconsin’s 300,000 veterans.
Read More: Taxation 101: 2022 Vs 2023 Tax Brackets
In order to keep his promise to student loan borrowers, the governor’s budget will include federal tax changes that will ensure federal student debt relief received by Wisconsinites is not subject to state taxes.
The federal ARPA exempted student debt relief from taxation until 2026, but Wisconsinites who qualify for student debt relief will be subject to state income tax if current law is not changed in accordance with the governor’s recommendation.
More than 300,000 Wisconsin residents have applied for and been approved for student loan debt relief under President Biden’s plan, and the governor believes they should not be penalized for doing so.
The governor’s budget also includes the majority of the major remaining provisions of the Tax Cuts and Jobs Act of 2017, which have resulted in higher tax collections in the numerous other states that automatically adopted them. These provisions are expected to generate $187.6 million in fiscal year 2023-24 and $200.6 million in fiscal year 2024-25.
Small businesses employ nearly half of Wisconsin workers, employ more than 99 percent of Wisconsin businesses, and are more likely to hire locally, buy supplies locally, and reinvest in local communities.
Supporting small businesses has been critical to Gov. Evers’ successful economic recovery efforts, and it remains a top priority in his plans to strengthen Wisconsin’s workforce and keep the economy moving forward. According to a recent 2023 report, Wisconsin ranks first in the country for both aid directed by Gov. Evers to support businesses and aid directed by the governor to economic development as a share of aid received under the American Rescue Plan Act (ARPA).
The governor maintains his support for small businesses and provides them with additional tax relief in his 2023-25 budget by:
Wisconsin’s outdated personal property tax is completely repealed, and businesses receive more than $200 million in tax relief.
Homeowners will be protected from any shift in property tax burden because this provision also provides $202.4 million in fiscal year 2024-25 to compensate all local taxing jurisdictions for the reduction in their property tax bases.
Local governments will continue to receive payments to offset property tax cuts, which will rise in line with inflation.
Increasing the refundable portion of the research credit for businesses from 15% to 50% beginning in fiscal year 2024.
This increase will provide $16.1 million in tax relief to businesses in fiscal year 2023-24 and $64.4 million in annual tax relief beginning in fiscal year 2024-25, further incentivizing critical R&D spending by Wisconsin businesses and improving their competitiveness in developing new products.
The research credit’s refundability is critical because many of the most innovative start-up companies do not have the tax liability to offset with a nonrefundable credit. Increasing refundability provides a significant incentive for new firms to conduct research in Wisconsin.
The governor’s proposal ensures that Wisconsin’s wealthiest earners pay their fair share by reducing special tax breaks that primarily benefit millionaires and billionaires while generating the ongoing revenue required to invest in key priorities such as public safety, infrastructure, and K-12 schools. Among Gov. Evers’ tax-fairness proposals are:
Limiting the manufacturing portion of the Manufacturing & Agriculture Credit to the first $300,000 in qualified production activities income for each qualifying firm, while retaining the agricultural portion of the credit as it currently exists.
While costing the state more than $400 million per year, this credit has failed to demonstrate any measurable success in increasing Wisconsin’s share of national manufacturing employment or wages in the manufacturing sector.
Wisconsin’s relative position in manufacturing wages has deteriorated, with Wisconsin manufacturing workers ranking 34th out of 50 states in terms of average annual wages.
Meanwhile, in tax year 2021, only 7,560 taxpayers—roughly 0.3 percent of all individual income tax filers with a net tax liability—claimed the manufacturing portion of the credit, totaling $402.4 million, or $53,300 per claimant.
Sixty-seven percent of the total tax break went to taxpayers with incomes exceeding $1 million, with more than half of those claims going to taxpayers with incomes exceeding $5 million. In 2021, approximately 170 claimants with incomes greater than $5 million claimed $149.7 million in manufacturing credits, amounting to nearly $900,000 per claimant.
Restricting the credit will generate $348.7 million in fiscal year 2023-24 and $306.4 million in fiscal year 2024-25, that will be used to counteract some of the additional tax relief provided to lower- and middle-income Wisconsinites, as well as to support small business growth and development.
Restricting the current 30 percent long-term investment income exclusion to individuals earning less than $400,000 and married couples earning less than $533,000.
This exclusion is yet another significant tax break that primarily benefits a small portion of the entire taxpayer population by offering a preferable rate for vastly disproportionate high-income earners on capital asset sales income.
Investment gains qualifying for the capital gains exclusion have an effective preferential rate of 5.355 percent for very high-income Wisconsin taxpayers subject to the highest tax bracket, rather than the ordinary 7.65 percent marginal rate that applies to wage and salary income. This is only slightly higher than the marginal tax rate faced by the majority of middle-class taxpayers.
The governor’s recommendation keeps the exclusion in place for all but the highest income earners while continuing to help ordinary retirees and small investors.
The limitations on the 30% long-term capital gains exclusion are expected to raise $185.2 million in fiscal year 2023-24 and $154.2 million in fiscal year 2024-25.