Terry Branstad’s plan to overhaul Wisconsin’s tax code aims to make the state the first in the nation to create a Smart Tax, a way to lower taxes on businesses and the wealthy.
The governor’s tax plan includes several tax breaks that could help businesses, but also could hurt the middle class.
The plan includes a tax break for businesses, which is a good thing for the economy, but it would be a bad thing for middle-class families, according to a new report from the Economic Policy Institute.
“This tax break is an example of how a tax credit is often designed to benefit one group at the expense of another,” says Peter A. Orr, the institute’s chief economist.
“But if it were used for other purposes, the effect would be more severe.”
The Tax Foundation found that if the plan is implemented as originally written, Wisconsin would receive about $1 billion in tax relief in 2022 and 2024, and that money could be used for economic growth and job creation.
But in a statement, Branstad defended the tax plan by noting that it has been approved by the Wisconsin legislature and signed into law by Gov.
Branstad’s proposal, the Tax Foundation wrote, would: Eliminate state income tax brackets.
Eliminate a 5 percent corporate tax rate.
Eliminates an estate tax rate for wealthy taxpayers.
Elimination of the state sales tax on certain purchases.
Eliminated a 3.8 percent personal income tax.
Elimined a 2.5 percent property tax.
Eliminates income taxes on some individuals and families, but the Tax Institute notes that the proposal would be less burdensome on the middle-income and working-class taxpayers than the tax credit currently exists.
The Tax Foundation estimated that eliminating the state income and property taxes would increase the state’s gross domestic product by $12 billion and its Gross Domestic Product Growth by 1.7 percentage points.
Additionally, the plan would eliminate the estate tax and the state property tax, and eliminate the state personal income and sales taxes.
Branstad would also eliminate the personal income exemption for couples filing jointly, and the corporate income tax exemption for corporations, but only for the individuals who earn more than $500,000 a year.
Instead of eliminating the personal exemption, the proposal eliminates it entirely.
And if you’re earning more than that, Branstad says, you’d pay a $200 surcharge on your taxable income.
Wisconsin has the lowest personal income exemptions in the country, according the Tax Policy Center, and a separate study released last year found that Wisconsin residents earning $500 a year or less would be hit with a $1,100 tax increase if the state eliminated the personal and corporate income exemptions.
According to the Tax Reform Network, the state would end up with about $5 billion in additional revenue in 2022.
Other tax breaks would also benefit the wealthy, according a Tax Foundation analysis.
The plan would increase taxes on corporations by $1.5 billion, and individuals would save $2.3 billion.
But in the end, the tax cuts for the wealthy would make up for the higher taxes they’d pay on the rest of Wisconsin’s population, according another Tax Foundation report.
Under the tax reform plan, Wisconsin’s wealthy would pay about $3,500 in state taxes a year in 2022, according, according The Wisconsin State Journal.
That’s about $8,500 more than their federal taxable income, the newspaper reported.
However, the wealthiest taxpayers in the state — those earning $1 million or more — would see their taxes rise by $879 a year, according an analysis by the Tax Research Center.
The wealthiest taxpayers would save about $7,400 in state tax revenue.
The wealthy would also pay more in taxes on their wages, but that would come from a reduction in their state sales and property tax bills.
The Tax Policy Network estimates that the Tax Reduction Tax Relief Act will reduce Wisconsin’s overall budget deficit by about $12.2 billion over the next decade, and increase state revenues by $3.5 trillion over that same period.
This story was updated to include a statement from Branstad.