The Budget Bill’s Hidden Tax Hike for Struggling Wisconsinites

by | February 2, 2012

Home 9 Family Economic Security 9 The Budget Bill’s Hidden Tax Hike for Struggling Wisconsinites

Low-wage Workers and Seniors Will Pay Millions More in Property Tax

The 2012 poverty level was announced late last week, and the new income level for a family right at the federal poverty level (FPL) is now about 3 percent higher than it was in 2011, which reflects an increase in the cost of living. The change in the poverty level raises the eligibility ceiling for most public benefits, such as BadgerCare, child care subsidies, Wisconsin Works (W-2) and Food Share.

One very important program for low-income households that is not being adjusted to reflect the cost of living is the Homestead Tax Credit. That credit provides targeted property tax relief for nearly 250,000 Wisconsinites with annual incomes of less than $24,680. A new issue brief by the Wisconsin Budget Project examines how the decision in the last budget bill to stop adjusting the credit each year will be very costly for low-income Wisconsin households.The analysis focuses on how the Homestead Credit will shrink over time for seniors as their Social Security income gradually increases. The portion of property taxes that the credit covers will drop to 18 percent in 2016, from 25 percent in 2011, for a person who is living only on Social Security. That decline continues a long drop in the credit’s value over the past two decades. Twenty years ago, this property tax credit was more than two and a half times larger than today and covered nearly three-fifths of the property tax bill of someone relying on Social Security for their income.

The credit’s dramatic drop in value since 1990 convinced Governor Doyle and legislators that the Homestead Credit should no longer be the only significant part of the tax code that isn’t annually adjusted to reflect inflation. They approved a formula for making yearly cost of living adjustments to the credit, starting with tax year 2010. Unfortunately, that long-overdue reform didn’t last long. Governor Walker and the current Legislature decided last year to once again freeze the formula, beginning with tax year 2011 – thereby cutting this property tax relief by $14 million in the current biennium.

Read more about the effects on low-income seniors in Wednesday’s Wisconsin Budget Project Blog post, or in the press release that we issued with assistance from AARP and the Coalition of Wisconsin Aging Groups. 

Jon Peacock

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