The administration did not provide a fiscal estimate of each income tax modification on an individual basis because of the interaction of the different provisions. For example, the estimated cost of eliminating the working families credit would be greatly offset due to the proposed increase in the standard deduction, the creation of the personal exemptions and the lower income tax rates.
A. Social Security Benefits. Federalize the treatment of social security benefits beginning with tax year 2000. Under federal law, no social security benefits are taxable for taxpayers with provisional income below $25,000 if single and $32,000 if married filing a joint return. Provisional income is defined as one-half of social security plus federal adjusted gross income (AGI), tax-exempt interest and other specified amounts that are excluded from gross income. Up to 50% of social security benefits are taxable if provisional income exceeds these base amounts and is below $34,000 if single and $44,000 if married-joint. For taxpayers with provisional income above the higher thresholds, up to 85% of benefits are taxable. Married taxpayers who file separate returns pay taxes on up to 85% of social security benefits.
Under current state law, up to 50% of social security benefits are taxable for taxpayers with provisional income above $25,000 if single, $32,000 if married-joint and zero if married-separate. No benefits are taxed for taxpayers with income below these amounts.
Under the Governor's recommendation, up to 85% of social security would be taxed by the state for taxpayers with income above $34,000 if single and $44,000 if married-joint and for all married-separate taxpayers. Taxpayers with income below these amounts would not be impacted by the modification.
B. Sliding Scale Standard Deduction. Increase the sliding scale standard deduction beginning with tax year 2000 by increasing the maximum standard deduction and the AGI amounts over which the credit is phased out. The estimated current law standard deduction formulas for tax year 2000 and the formulas under the Governor's proposal for 2000 are shown below. The estimated formulas under current law reflect two years of indexing over the 1998 amounts. The standard deduction would continue to be indexed for changes in inflation for tax years 2001 and thereafter under both current law and under the Governor's proposal.
Estimated Current Law Standard Deduction
Tax Year 2000
Filing Status Wisconsin AGI Standard Deduction
Single Less than $7,790 $5,400
$7,790 to $52,790 $5,400 – 12%(WAGI-$7,790)
Greater than $52,790 $0
Married, Less than $10,380 $9,240
Joint $10,380 to $57,099 $9,240 – 19.778%(WAGI-$10,380)
Greater than $57,099 $0
Married, Less than $4,940 $4,390
Separate $4,940 to $27,136 $4,390 – 19.778%(WAGI-$4,940)
Greater than $27,136 $0
Head-of- Less than $7,790 $7,310
Household $7,790 to $25,955 $7,310 – 22.515%(WAGI-$7,790)
Greater than $25,955 Single Standard Deduction
Governor’s Proposed Standard Deduction
Tax Year 2000
Filing Status Wisconsin AGI Standard Deduction
Single Less than $10,380 $7,200
$10,380 to $70,380 $7,200 – 12%(WAGI-$10,380)
Greater than $70,380 $0
Married, Less than $14,570 $12,970
Joint $14,570 to $80,150 $12,970– 19.778%(WAGI-$14,570)
Greater than $80,150 $0
Married, Less than $6,920 $6,160
Separate $6,920 to $38,070 $6,160 – 19.778%(WAGI-$6,920)
Greater than $38,070 $0
Head-of- Less than $10,380 $9,300
Household $10,380 to $30,350 $9,300 – 22.515%(WAGI-$10,380)
Greater than $30,350 Single Standard Deduction
C. Personal Exemptions. Provide personal exemptions to be subtracted from Wisconsin AGI in calculating Wisconsin taxable income, which is the amount of income subject to tax, beginning with tax year 2000. Under the Governor’s proposal for the 2000 tax year, a $600 personal exemption would be provided for each taxpayer, the taxpayer’s spouse and for each individual claimed as an exemption under the Internal Revenue Code (IRC). The personal exemption amount would be increased to $700 for tax year 2001 and thereafter.
Provide an additional $200 exemption in tax year 2000 for each taxpayer who has reached age 65 before the end of the tax year (two exemptions would be provided if both the taxpayer and their spouse are 65 at the end of the year). The additional exemption would be increased to $250 for tax years 2001 and thereafter. Thus, for each taxpayer over the age of 65 the total exemption would be $800 in 2000 and $950 in 2001 and thereafter.
Prorate the personal exemptions for nonresident and part-year resident taxpayers based on the ratio of Wisconsin AGI to federal AGI.
D. Rates and Brackets. Create a fourth income tax bracket and reduce the tax rates in tax years 2000 and 2001. The rate and bracket schedules under current law for tax years 1999 and 2000 and under the Governor's proposal for 2000 and 2001 are shown below. The current law bracket amounts for 2000 reflect two years of indexing over the 1998 brackets; these amounts will continue to be adjusted for changes in inflation in tax year 2001 and thereafter. Under the Governor's proposal, the tax brackets would be indexed for changes in inflation in tax years 2002 and thereafter.
Current Law Rates and Brackets
Tax Year 1999
Taxable Income Brackets Marginal
Single Married-Joint Married-Separate Tax Rates
Less than $7,620 Less than $10,160 Less than $5,080 4.77%
7,620 to 15,240 10,160 to 20,320 5,080 to 10,160 6.37
15,240 and Over 20,320 and Over 10,160 and Over 6.77
Estimated Current Law Rates and Brackets
Tax Year 2000
Taxable Income Brackets Marginal
Single Married-Joint Married-Separate Tax Rates
Less than $7,790 Less than $10,380 Less than $5,190 4.77%
7,790 to 15,580 10,380 to 20,770 5,190 to 10,380 6.37
15,580 and Over 20,770 and Over 10,380 and Over 6.77
Governor's Proposed Rates and Brackets
Tax Years 2000 and 2001
Taxable Income Brackets Marginal Tax Rates
2001 and
Single Married-Joint Married-Separate 2000 Thereafter
Less than $7,500 Less than $10,000 Less than $5,000 4.73% 4.60%
7,500 to 15,000 10,000 to 20,000 5,000 to 10,000 6.33 6.15
15,000 to 112,500 20,000 to 150,000 10,000 to 75,000 6.55 6.50
112,500 and Over 150,000 and Over 75,000 and Over 6.75 6.75
E. Indexing. The Governor would maintain current law and index the standard deduction and tax brackets for changes in inflation in tax year 1999. The standard deduction would not be indexed in 2000 because it would be increased statutorily under the bill; the proposed standard deduction formulas would be indexed in 2001 and thereafter. The tax brackets would not be indexed for changes in inflation in tax years 2000 and 2001, which are the years the fourth tax bracket and lower tax rates would be implemented. Bracket indexing would resume in 2002.
The first three tax brackets are the same under the Governor's recommendation as under current law for tax year 1998, prior to any indexing adjustment. Since indexing would take place in 1999, the first three brackets for 2000 and 2001 under the bill would be lower than the 1999 tax brackets. For example, the first tax bracket for married-joint taxpayers was $10,000 in 1998. This amount is indexed to $10,160 in 1999 under current law and under the Governor's proposal. However, under the bill, the first married-joint tax bracket would be statutorily set at $10,000 in 2000 and in 2001 before indexing would resume in 2002. It should be noted that over the same time period, the lowest tax rate would be reduced from 4.77% in 1999 to 4.73% in 2000 and 4.60% in 2001.
F. Withholding Table Adjustments. The bill would modify current law provisions related to the Department of Revenue's adjustment of the withholding tables. Generally, under current law, DOR is directed to periodically adjust the withholding tables to reflect any statutory changes in the income tax rates, any applicable surtax, changes in the tax bracket amounts or the working families credit. An exception under current law prohibits DOR from adjusting the withholding tables to reflect the rate reduction that took effect in 1998 or any indexing adjustments before January 1, 2000. As a result, the withholding tables for the 1999 tax year do not reflect the tax rate reduction that took effect in 1998 or the first year of indexing. The withholding tables would be adjusted as follows based on current law provisions and the Governor's recommendation:
As under current law, on January 1, 2000, the Department would be allowed, but not required, to adjust the tables to reflect the current law tax rate reduction that took effect with the 1998 tax year.