Budget committee rejects Scott Walker's income tax cut, credit for working poor, passes cuts for rich, business owners

From the Wisconsin state budget series

By Molly Beck 

Lawmakers next week will take up a two-year spending plan that includes tax cuts for wealthy families and business owners but rejects Gov. Scott Walker’s proposals to ease the tax burden on poorer families, under amendments adopted late Wednesday by the Legislature’s Republican-controlled budget committee.

The Joint Finance Committee approved the package of tax provisions during its last day of work writing the $76 billion 2017-19 state budget, which was due on Walker’s desk more than two months ago.

The committee rejected Walker’s proposal to reduce the lowest income tax rate, which would have saved 70 percent of tax filers an average of $44 this year. The committee also rejected Walker’s proposal to boost the earned income tax credit for the working poor by $20 million, which would have applied to about 130,000 families.

But the committee’s Republican majority approved a $74 million cut to the tax businesses pay for machinery and tools and moved to eliminate the state’s alternative minimum tax beginning in 2019.

The alternative minimum tax, which applies to individuals making between $200,000 and $500,000 annually and is meant to ensure filers with lots of tax deductions pay a minimum amount of income tax, would be eliminated starting in 2019. The change could mean a $7 million tax cut for those individuals.

The package also eliminates the state’s Working Families Credit, which has given a modest tax credit to about 725 individuals making about $9,000 a year. And the committee rejected Walker’s proposal to exempt school supply shoppers from sales taxes during one weekend before the next school year starts.

Democrats blasted the tax package, saying it disproportionately helps Wisconsin’s wealthiest individuals.

“You’re giving tax breaks to millionaires and you’re kicking working families while they’re down,” said Rep. Katrina Shankland, D-Stevens Point.

But Rep. Dale Kooyenga, R-Brookfield, said many of the proposals — including the elimination of the alternative minimum tax and the Working Family Credit — apply to relatively few individuals and their elimination is “just cleaning up the tax code.”

Before the committee began its final day of work, committee co-chairs Sen. Alberta Darling and Rep. John Nygren told reporters that there wasn’t enough money to pay for everything Walker proposed.

Under Walker’s plan to reduce the lowest income tax rate, nearly 2.2 million out of 3.1 million tax filers with an adjusted gross income of $30,000 or more would have seen a reduction in their taxes.

But Darling characterized the proposal as a “modest cut” and said lawmakers decided it wasn’t the “best bang for your buck.”

In other changes, the GOP tax package would:

  • Limit the amount of tax credits for individuals restoring historic properties to $5 million per property.
  • Allow families that adopt children from other states and countries to deduct $5,000 for adoption expenses.
  • Exclude the value of medals won by athletes competing in the Olympics, Paralympics and Special Olympics from their taxable income.
  • Provide a tax credit to television and radio station owners and sales tax exemptions for the purchase of broadcast equipment, including satellite dishes and communication towers.
  • Eliminate the sales tax on internet service.
  • Exempt beekeepers and fish farm owners from sales taxes.

Also Wednesday, lawmakers voted 12-4 to set up a new regulation system for short-term lodging providers like Airbnb to allow municipalities to enforce local room taxes on such rental providers and require “lodging marketplaces” to register with the state and obtain a license.

And the committee voted to prohibit local governments from banning short-term rentals if the guests’ stays were longer than six days and shorter than 29 days, while requiring homeowners who rent out their homes for more than 10 days per year to register with the state.


Voucher changes

The budget also changes how students enroll in the state’s newest private voucher school program, designed for students with disabilities. The plan is expected to cost around $3.1 million and double the enrollment in the program that began in 2016.

Currently, children applying to be in the program must have applied to a school district under the state’s open enrollment program, have been denied and have been enrolled in a public school for one school year before applying for a voucher. Those rules would be eliminated under the proposals Republicans adopted Wednesday.

“Sometimes kids are locked in a situation that is not best for them,” Nygren said. But Democrats said the proposal funnels more money into schools that aren’t subject to as much public scrutiny as public schools.

Lawmakers also included a change in the amount private schools receive for each student using a voucher for students with disabilities, and for disabled students who attend a school district through the open enrollment program.

The current amount is set at $12,000 per child in each scenario. Under the language lawmakers put in the budget, the payment will be greater than what schools currently get or greater than the actual costs the private schools incur in the prior year to educate the students.


Fewer secret amendments

The panel also took up a general wrap-up motion, an often controversial maneuver legislators deploy at the end of the committee’s work to add major policy changes to the state budget with little or no public scrutiny. A key feature of the motion is that the lawmakers who sponsor policy components don’t attach their names to the proposals — unlike amendments that are brought up in committee and on the floor.

But this year’s motion contained far fewer dramatic changes than one introduced two years ago, when lawmakers sought to drastically limit public access to government documents, and four years ago when it surfaced in the middle of the night.

In this year’s omnibus motion, lawmakers adopted a Walker proposal to require the UW System to monitor teaching workloads and report that data to the governor and the Legislature; to move up by a few months 2 percent raises for state employees; and to require an audit of family planning service reimbursements received under the federal medical assistance program between 2013 and 2016.

Overall, the budget will have about a $196 million cushion in its general fund in 2019 — up from the $11.6 million Walker proposed.

Lawmakers in the Senate and Assembly plan to take up the budget next week.