“You’ve heard someone say, I’ll pay you back when I get my tax money,” Judy told me. “People rely on this money to live.” Judy is an 80-year-old widow still living on the family dairy farm.
Judy came to a town hall meeting I held in Eau Claire County. She testified against the Governor’s plan to change two tax plans that benefit those of modest income.
The first is the Earned Income Tax Credit or EITC. It is a credit on taxes paid.
The credit acts in two ways: reducing taxes on low and moderate earners by off-setting Social Security and Medicare taxes, and - for those of most modest income - supplementing wages.
Because the tax credit is refundable (like a refund) a minimum wage worker may get back more than they actually paid in taxes. But the credit is only available to people who work - hence the name “earned income”. The credit is more generous to those with children.
The plan was seen as a way to supplement the “Welfare to Work” program. Earned Income Credits are a very effective way to help families meet basic needs, to encourage savings, home and auto ownership and higher education or training. Researchers attribute EITC with moving millions of people nationwide from welfare to work.
Conservatives and liberals supported the plan. The EITC began in 1975 as a Republican idea under President Ford and was expanded by Presidents Reagan and Bush. Our current state policy became law under Governor Thompson in 1995.
President Reagan called the EITC, “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”
Governor Walker is proposing to cut the EITC by $41 million or by about a third. The cuts would fall hardest on those earning the least and folks with two or more children - cutting the maximum credit for a family with two children from $716 to $409.
The Center on Budget and Policy Priorities reported such a change “would more than double the tax bill for a single working parent with two kids and earning $25,000.”
The second tax credit for those of modest means changed in the Governor’s budget is the Homestead Tax Credit.
Wisconsin pioneered this approach of providing credit to off-set property taxes for those of modest means. Twenty states followed our lead.
Sometimes called “circuit breaker” credits, Homestead Exemption Tax Credits are supposed to kick in when folks cannot afford to pay their property taxes. The credit is a sliding scale based on income with the full credit going to households making a bit more than $8,000 a year and those making over $24,500 unable to claim any credit.
These numbers are set by law and had not changed in ten years. Because of inflation and increasing property taxes, the income threshold reflected the real need for property tax relief less and less as years went by.
The 2009 Legislature dealt with this problem by making the income levels and the tax amount change as inflation changed (using the Consumer Price Index). These modest changes would increase the maximum income level this year by $490 and the maximum credit by $20.
Governor Walker’s budget proposes repealing the changes made in 2009 - effectively freezing the program at the rates set in 1999.
These two changes in tax policy are the only tax increases in Governor Walker’s Budget proposal.
There are tax decreases in the budget - amounting to about $83 million this budget but climbing steeply as they are phased-in later years. Two of these changes are to the capital gains tax - something the Legislature also modified in 2009.
According to the Legislative Fiscal Bureau more than 50% of the benefit from changes to the capital gains laws went to the top 2% of earners while the bottom two-thirds of earners got only 15% of the benefits.
Now is not the time to provide additional tax breaks to those who have done well in today’s economy; nor is it time to increase the taxes on those who have not faired as well.