Budget deeply cuts, simplifies taxes

Joe Leibham  9th Senatorial District

It has become clear that Wisconsin needs to make two significant changes to our tax laws. First, we need to reduce overall rates. Reducing tax rates pumps more money into the private sector economy that stimulates economic growth for both businesses and families. Second, Wisconsin’s tax code is much too complex and is in need of simplification. A simplified tax code reduces the costs of paperwork and red tape for individuals and small businesses. Since large businesses typically have full accounting departments, a simplified tax code especially helps smaller businesses.

Tax Rate Reductions

The legislature was able to include many tax cuts in the recently approved budget bill. Overall, the Legislative Fiscal Bureau (LFB) counts 27 individual examples of tax cuts in the budget bill. When these tax cuts are added up and combined with additional tax cuts the legislature has made over the past two years which will be taking effect soon, the State of Wisconsin will see nearly $1 billion in tax cuts over the next two years.

The most significant of these tax cuts is an across the board individual income tax cut. Because it is across the board, this tax cut will affect all individuals who currently pay net income taxes. To begin, Wisconsin currently has five income tax brackets constructed as follows (for married joint filers):

· Bracket #1- Annual taxable income up to $14,330, taxed at 4.6%

· Bracket #2- Annual taxable income between $14,330 and $28,650 taxed at 6.15%

· Bracket #3- Annual taxable income between $28,650 and $214,910 taxed at 6.50%

· Bracket #4- Annual taxable income between $214,910 and $315,460 taxed at 6.75%

· Bracket #5- Annual taxable income above $315,460 taxed at 7.65%

This existing tax code is “progressive” meaning that as individual taxable income increases, so does the income tax rate. Therefore, as individuals earn more money, not only do they pay a larger amount of money to the state in income taxes, but they also pay a greater share of their total income to the state in income taxes. This principle of a “progressive” tax code is maintained under the budget, which makes the following changes.

· Bracket #1- New tax rate of 4.40%

· Bracket #2- New tax rate of 5.84%

· Bracket #3 & #4- These tax brackets are now combined into one, which will be taxed at 6.27%.

· Bracket #5- New tax rate of 7.65%

As I mentioned, these acrossthe board changes help all citizens who have an income tax liability in Wisconsin. Furthermore, upperincome earners will still be paying a larger share of their income in the form of income taxes. Overall, the average taxpayer will pay an average of $152 less in income taxes under these changes. Added together, this income tax cut, one of the largest in Wisconsin history, will provide a total tax cut of $648 million over the biennium.

Tax Code Simplification

In addition to cutting overall income tax rates and other targeted tax cuts, the budget bill also simplifies the tax code significantly. Below are a few examples:

The budget contains a signifi- cant update to Wisconsin’s tax code that “federalizes” the treatment of many of the tax provisions in our tax code. This means that, to the maximum extent possible, Wisconsin follows the Internal Revenue Code (IRC) used by the Federal Government when we structure the treatment of individual tax provisions. This way, when individuals or businesses are filing their state and federal tax returns, terms used in both filings will have the same meanings and applicability. This streamlines the tax filing process and reduces the overall compliance burden.

The budget eliminates 16 different tax credits that currently exist but are rarely used. These tax credits have been implemented over the years to create or retain jobs, or to encourage investment in a particular industry. However, upon close review, these rarely used credits are not having the impact that was initially thought and are merely complicating the tax code. Eliminating them makes our tax code simpler and easier to understand.

The budget also eliminates check-offs on the state tax return form that do not generate at least $75,000 per year. This will reduce the overall length of the state tax return form while ensuring that popular check-off items remain available on the tax return form.

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