Wisconsin Legislators Reportedly Reach Tax Cut Deal

Last year, Wisconsin reduced each tax bracket slightly, collapsing them from five to four, retroactive to January 1, 2013:

Wisconsin Income Tax Rates Before and After 2013 Tax Changes

Last month, Wisconsin officials reported that the state was expecting a budget surplus of about $1 billion. Governor Scott Walker (R) proposed a package of income and property tax cuts, which the Assembly passed. These include further reducing the 4.4% tax bracket to 4%, which would cut taxes for nearly all taxpayers (estimated total: $98 million), and by reducing a local college property tax and boosting state aid to colleges to cover it (estimated total: $406 million). The Senate (narrowly Republican-controlled) has been reluctant to approve the package, pointing to a projected structural budget deficit in future years.

The deal reached today appears to keep the income and property tax cut components, instead deleting a planned $113 million transfer to the rainy day fund. This seems a silly sticking point for senators: that money instead will sit in the bank as unobligated and be available for next year's budget, which can't be all that different from depositing it in the rainy day fund. On paper, however, it reduces next year's projected deficit from $807 million to $658 million. The deal also requires state agencies to return $38 million in unspent funds. (For context, Walker faced a $3.6 billion deficit when he assumed office, so much progress has been made on chopping that down.) Democrats, for their part, called for using the surplus to boost spending and warned about the long-term budget picture.

Using his own executive authority, Walker reduced Wisconsin's excessive tax withholding, which is presently designed to withhold 120 percent of projected tax liability. Taxpayers get the excess money back when they file their taxes, but it is essentially a forced-interest free loan to the state in the meantime. The money also sat on the state's books as a liability, worsening the paper deficit by some $323 million.