A key element of the Senate’s plan to balance the state budget is the elimination of the income tax break for capital gains income. A short issue brief on the topic by the Wisconsin Budget Project notes that Wisconsin is one of just 9 states that treat capital gains income differently than other income. The other 8 states are mostly relatively small and account for just 4.6% of the total US population.

Using figures from a recent Legislative Fiscal Bureau paper, the brief notes that the top 1.9% of Wisconsin taxfilers, those with income over $200,000, receive 51% of the benefit of the capital gains exclusion.

Another good source of information on the topic is a March 2009 report by the Institute on Taxation and Economic Policy, “A Capital Idea: Repealing State Tax Breaks for Capital Gains Would Ease Budget Woes and Improve Tax Fairness.”

Whereas the Senate budget bill would repeal the capital gains tax break, the Governor and Assembly recommended reducing it from a 60% exclusion to a 40% exclusion, and unlike the Senate they propose a new oil company tax. Those differences will have to be settled in negotiations between the two houses over the next week or two.