Senate tax bill could give state big cut, then hike

Wealthiest taxpayers hit less by 2027 increase

2019, Wisconsin taxpayers making up to $70,040 a year would see an average tax cut of $440, according to an analysis of the tax overhaul passed by the U.S. Senate last week.

But the bill’s tax cuts for individuals are set to expire by 2025, turning the legislation into a tax hit for state taxpayers if a future Congress doesn’t act. The Institute on Taxation and Economic Policy found that under the bill the bottom three-fifths of Wisconsin households would pay $190 more in taxes on average by 2027.

Taxpayers as a whole in Wisconsin would see a hefty $4.7 billion tax cut in 2019 under the bill, with the tax cut flipping to a $34 million increase in 2027 without congressional action. The wealthiest taxpayers — who also pay the most in taxes — would see the biggest cut in percentage terms and would still pay less in taxes even in 2027, according to the institute.

The expiration date of these tax cuts is one of the differences between the Senate tax overhaul bill and similar legislation passed by the House last month. Resolving those differences is up to a conference committee of law

makers from both houses.

Opponents of the bill say that it would give permanent tax cuts to corporations, sunset individual tax cuts, increase the national debt and repeal a key piece of the health law known as Obamacare.

“When you look beyond the initial effects of the revised plan, low- and middle-income taxpayers will generally be paying more taxes and will have less access to affordable health care. However, the wealthy and most powerful will enjoy huge benefits,” Jon Peacock, research director of the advocacy group Kids Forward, wrote in a recent blog post.

Supporters of the proposal say it would make American businesses more competitive globally, put more money in taxpayers’ hands and boost economic growth and jobs. They say that the tax cuts for individuals could be renewed in the future, just as the tax cuts passed by President George W. Bush were renewed for all but the very richest taxpayers.

An analysis by the Tax Foundation of a version of the Senate bill found that it would lead to the creation of 18,700 jobs in Wisconsin and add $2,632 to the after-tax income of the median income family in Wisconsin.

“The Senate’s plan would grow the economy while simplifying the tax code and reducing marginal rates,” Tax Foundation analysts Nicole Kaeding and Morgan Scarboro wrote.

The Senate tax bill would have broad impacts such as:

Ending the mandate that individuals purchase health coverage. This provision is one of the least popular ones within the federal Affordable Care Act but is also seen as important to ensuring insurance marketplaces for individuals keep functioning.

Cutting the top tax rate for corporations to 20% from 35%.

Cutting the estate tax paid by wealthy heirs, which the liberal Center on Budget and Policy Priorities has estimated would benefit 70 estates in Wisconsin.

Nearly doubling the standard deduction for individuals and couples and doubling the child tax credit.

Sunsetting the individual tax cuts in the bill to help hold down the $1.5 trillion proposal’s effect on the deficit. The

“Their plans are tax giveaways to the wealthiest few, big corporations, and Wall Street while hardworking Wisconsin families will see a tax hike.” Sen. Tammy Baldwin (D-Wis.)

House version of the tax cut bill makes these individual cuts permanent.

Ending or limiting some deductions and exemptions, including for dependents, medical expenses and all state and local taxes except for property taxes, which would be limited to $10,000. A report by the Government Finance Officers Association found that 31% of Wisconsin taxpayers deduct their state and local taxes paid on their federal income taxes. Much of those deductions are from income and sales taxes.

U.S. Sen. Tammy Baldwin (D-Wis.) said that this last provision in the Senate bill could lead to Wisconsin residents being taxed twice on $10 billion of income. She said both the House and Senate bills weren’t fair to ordinary taxpayers.

“Their plans are tax giveaways to the wealthiest few, big corporations, and Wall Street while hardworking Wisconsin families will see a tax hike, and now Republicans are debating which middle class tax deductions to cut in their final plan,” Baldwin said.

One silver lining for state residents is that after six years of GOP control in Wisconsin, the state no longer ranks as high in state and local taxes as it previously did. That blunts some of the effect of losing these deductions, said Todd Berry, president of the Wisconsin Taxpayers Alliance.

For his part, U.S. Sen. Ron Johnson (R-Wis.) has said he is concerned about the state residents who are losing deductions but is more focused on passing a bill to spur the economy.

“There are going to be some people who have higher taxes. I don’t like that element of it,” Johnson told reporters. “But I’m not going to let my vision of perfect be the enemy of the good.”