Main Takeaways
Taxes are how we can ensure a solid foundation for every Wisconsinite. Unfortunately, the wealthy few have pressured our decision makers to rig the system and funnel investments & resources out of our communities and into their pockets. This drives economic inequality and increases concentration of income and wealth in few hands who don’t need any more help.
To make matters worse, federal tariffs, program cuts, and anticipated tax cuts will disproportionately impact the lowest income households. Wisconsin decision makers can help counteract these disastrous decisions by creating a more equitable tax system in our state.
Taken together, the Governor’s proposed tax code changes would ensure the wealthy few pay what they owe, and provide overdue relief to the millions of everyday working and middle income Wisconsinites living paycheck to paycheck by:
- targeting proposed income tax cuts to low- and middle-income households;
- increasing refundable tax credits that benefit households with low incomes;
- making household necessities more affordable; and
- ensuring the wealthiest residents pay what they owe in taxes.
Wisconsin’s Wealthiest Already Pay the Lowest Effective Tax Rate
In the last four decades, the wealthiest residents of the state—who are disproportionately white—have seen explosive growth in their incomes, while everyone else has seen little growth. Even worse, families with low incomes already pay a greater share of their income in overall taxes than the richest 1%. That’s because—in addition to income taxes—sales and local property taxes are the next two biggest sources of tax revenue, and they both fall more heavily on people with low incomes.
When factoring for all three forms of taxes, the “effective tax rate” for the bottom 20% of Wisconsinites by income is 10.8%, while the top 1% only pay 6.6%.
Making Household Necessities more Affordable
The Governor proposes limiting sales taxes on health-related essentials like diapers, feminine hygiene and adult incontinence products, breastfeeding equipment, and OTC medications, as well as monthly bills for electricity and natural gas. Sales taxes are a building block for state and local budgets, but they do disproportionately impact people with lower incomes. Limiting sales taxes on essential items and utilities would have a greater everyday impact on low- and middle-income families.
Supporting Low-Income & Working Families
The Governor’s budget expands credits for low- and middle-income families, which is a proven way to keep families out of poverty.
Expanding the Homestead Tax Credit
The proposed budget would expand the Homestead Tax credit (the Governor’s proposal would rename it the ‘Property Tax and Rent Rebate’). This credit eases property tax burdens and rent costs for low income families. Under this proposal, households making up to $37,500—up from $24,680—could qualify for needed support to help pay for property taxes or the property taxes they pay through their rent costs. Importantly, the Governor also recommends tying income threshold to inflation, so that as rent and mortgages go up, so will the credit amounts.
Expanding the Earned Income Tax Credit
The Earned Income Tax Credit (EITC) provides critical relief to low-income working families that are struggling to make ends meet. It’s a proven tool—used in Wisconsin and 30 other states plus DC & Puerto Rico— to ease the burden of low-wage jobs while helping keep millions out of poverty. The Governor’s proposal would increase the percentage of the federal earned income tax credit Wisconsin provides from 4 percent to 16 percent for filers with one qualifying child and from 11 percent to 25 percent for filers with two qualifying children.
Ensuring the Wealthiest Pay What they Owe
The Governor’s budget helps fund the above tax reductions by asking the highest income earners to pay their fair share. The budget creates a new top tax rate for only people earning more than $1 million per year. It would raise taxes on the richest 0.03 percent of Wisconsinites and generate more than $1 billion in new tax revenue. In fact, the Legislative Fiscal Bureau estimates that, among resident filers with a tax increase in tax year 2025, those making $1,000,000 or more would incur 94.1% of the total increase.
The budget also limits some loopholes in how the wealthiest Wisconsinites make their money by no longer allowing filers making over $400,000 per year to write off some of their income made through capital gains.It also proposes to cap the state’s manufacturing tax credit at no more than $300 thousand per year, which would help curb tax credit benefits to high income earners. This one change would net nearly $800 million in revenue over the next two years.
All told, these revenue raisers aimed at the wealthiest earners would generate a little more than $3 billion of the two year budget period.
Reducing Property Taxes for Veterans & Seniors
In total, this budget provides approximately $1.1 billion in property tax reductions over the biennium, along with almost $240 million of tax credits for seniors, low-income families, and veterans to offset their property tax burdens. All these changes will help keep property taxes mostly flat on typical homeowners, reduce costs for Wisconsin families and reduce income taxes for middle class Wisconsinites.
No Taxes on Tips is a Shortsighted Approach
While we support many of the measures the Governor has proposed because they would ease the tax burden of working and lower income families, eliminating the tax on tips has harmful consequences on workers overall. Doing so would likely:
- help very few workers and undermine pay increases for many more;
- expand the use of tipped work instead of paying people a fair wage; and
- incentivize new avenues of tax avoidance among high earners.
Learn more about the challenges Wisconsin’s workers face here and how the state budget can actually address them.
Wisconsin Should Prepare for a Rainy Day
While Wisconsin is in a historically strong fiscal position, much of our state’s so-called surplus comes from one-time money or circumstances. With the potential economic uncertainty and considerable decreases in federal funding for states, we cannot rely on it long term – either to fund new or existing programs or pay for tax cuts.
The Governor’s proposed tax plan is a good start at making a tax code that is more evenly distributed, where the wealthiest pay more of their fair share and lower income, working families receive a little support to get by and get ahead.
