Wisconsin Representative Dale Kooyenga today introduced a bill that reforms a host of elements of Wisconsin’s 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. code that would improve the state’s ranking in the State Business Tax Climate Index, moving Wisconsin out of the bottom ten. The plan expands on Governor Walker’s income tax cut which as currently written into the budget, and also includes additional reform that simplifies the code, makes it more neutral to different types of business activity, and trims several odds and ends that have persisted for decades. The result is an Index ranking of 40, up from the current ranking of 43.
A full list of provisions is found in the legislative note, but the major changes include:
- Reduce income tax rates across the board, while reducing the number of brackets from five to three by 2015 (see table)
- Eliminate the Alternative Minimum Tax starting in tax year 2013
- Sunset defunct provisions relating to the now-extinct estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. “pick-up” credit
- Recouple depreciation and depletion schedules to the federal standard
- Eliminate or reduce several distortionary business tax credits, including, but not limited to:
- Eliminate the jobs credit
- Make credits for research and development available to passthroughs for 2013, but then repeal the research facilities credit in 2014
- Eliminate film tax credits
- Limit the manufacturing and agricultural tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.
- Increase the cap on capital losses from $500 to conform to the federal $3,000
- Ensure that any new federal rule with regard to internet sales tax that increases state 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. revenue be put toward lowering 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
Individual Income Taxes Under Kooyenga Plan
|
Current Law |
Governor's Plan |
Kooyenga's Plan in 2015 |
||||||
|
4.60% |
> |
$0 |
4.60% |
> |
$0 |
4.50% |
> |
$0 |
|
6.15% |
> |
$14,510 |
5.94% |
> |
$14,510 |
5.94% |
> |
$14,510 |
|
6.50% |
> |
$29,020 |
6.36% |
> |
$29,020 |
7.60% |
> |
$319,460 |
|
6.75% |
> |
$217,630 |
6.75% |
> |
$217,630 |
|||
|
7.75% |
> |
$319,460 |
7.75% |
> |
$319,460 |
|||
|
Rates given are for married joint filers |
These changes improve Wisconsin’s score in our State Business Tax Climate Index as follows:
Index Scores under Kooyenga Plan
|
Current Law |
Kooyenga plan |
|
|
Overall |
43 |
40 |
|
Corporate |
32 |
26 |
|
Individual |
46 |
45 |
|
Sales |
15 |
15 |
|
UIT |
23 |
23 |
|
Property |
33 |
33 |
To be sure, more needs to be done to remove problems in the Wisconsin tax code, but this plan is a concerted step in the right direction. It removes some of the special treatment of some businesses (which comes with the cost of higher overall rates), and all the while cuts income taxes across the board. It will be interesting to see how this develops.
Good analysis by the McIver Institute here.
Follow Scott Drenkard on Twitter @ScottDrenkard.
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