With July 1st right around the corner, Wisconsinites are anxious to find out whether a new two-year revenue and spending plan will get approved before the start of the state’s next fiscal biennium. Governor Tony Evers (D) introduced his budget bill earlier this year, but the amended version the Republican-controlled legislature sent him this week unsurprisingly looks quite different than the bill he proposed. When it comes to taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. provisions, Republicans stripped out most of the governor’s proposed changes, which we wrote about earlier this year, and included modifications of their own.
Both chambers also recently passed a separate bill, Assembly Bill 251, requiring marketplace providers to collect sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es. Additionally, this bill would dedicate revenue from the anticipated post-Wayfair sales tax collections influx to offset reductions to the state’s two lowest marginal individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rates (which would be calculated later based on actual collections).
Individual Income Taxes
Between Republicans’ proposed rate reduction in the budget (which would bring the 5.84 percent rate down to 5.21 percent starting in tax year 2019) and Assembly Bill 251’s specification that Wayfair revenue be used for rate reductions to both the lowest and second-lowest rates, many Wisconsinites remain hopeful that individual income tax rate reductions will occur in the near future.
Should both the legislature’s individual income tax provisions in the budget and the marketplace provider bill get adopted as is, it is estimated that Wisconsin’s lowest and second-lowest individual income tax rates would be reduced as shown below.
Note: Wisconsin’s bracket levels are adjusted for inflation each year and are not yet available for Tax Year 2020 and thereafter. Source: Wisconsin Legislative Fiscal Bureau; Tax Foundation.
|Current (Tax Year 2019)||Proposed (Tax Year 2019)||Proposed (Tax Year 2020 and Thereafter)|
Even if the governor rejects these provisions, a law passed late last year prescribes rate reductions to all four individual income tax rates (for 2019 only) in accordance with this year’s Wayfair collections influx.
Transportation Taxes and Fees
When it comes to transportation funding in the budget, the governor proposed increasing the gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. by 8 cents per gallon, indexing the gas tax for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. , and removing the minimum markup on gasoline, among other changes. Despite the merits of these proposals, they were rejected by the legislature. Instead, the legislature opted to increase vehicle title fees from $69.50 to $164.50 and vehicle registration fees from $75 to $85. In addition, the budget provides $2.5 million to conduct a mileage-based fee study to explore new infrastructure user feeA user fee is a charge imposed by the government for the primary purpose of covering the cost of providing a service, directly raising funds from the people who benefit from the particular public good or service being provided. A user fee is not a tax, though some taxes may be labeled as user fees or closely resemble them. s, such as mileage-based vehicle registration fees and tolling.
Notably, the legislature’s budget departs swiftly from the governor’s proposal in the taxation of e-cigarettes. Under the legislature’s plan, vapor products would be taxed at a rate of 5 cents per milliliter of nicotine or non-nicotine liquid, similar to the 5-cent per milliliter rates already in place in Delaware, Kansas, Louisiana, and North Carolina. The governor’s budget proposed taxing vapor products at 71 percent of the manufacturer’s list price, which would make Wisconsin’s vapor tax one of the highest in the country.
Will the Governor Use His Partial Veto Authority?
Thus far, the governor has not declared his intentions for the budget or the marketplace provider bill. However, when it comes to the budget, Wisconsin’s governor has exceptionally strong partial veto authorities. Should Gov. Evers neither wish to approve the budget in full nor veto it altogether, he has the option of using a partial veto to strike individual words or lines, and he can make downward adjustments to appropriations figures.
While the legislature specifically amended the budget’s language to try to block the governor from making outright changes to legislative intent, he may yet attempt to make partial changes where possible. To override a veto or partial veto, the legislature would need a two-thirds vote in each chamber, which would be highly unlikely given Republicans’ lack of a supermajority.
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