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.
On July 1, 2000, the Department would be required to adjust the tables to reflect the proposed tax rates for tax year 2001. The administration indicates that the tables would be adjusted to reflect the proposed 2001 rate cut prior to its statutory effective date so that the cost of the reduction would not be pushed out of the 1999-01 biennium and so that the tax cuts would be available to taxpayers earlier. The Department is also directed to adjust the tables to reflect bracket indexing. However, as noted in the section on indexing, the tax brackets would not be indexed in 2000 and 2001 because the amounts would be set statutorily.
The Department indicates that it would likely not adjust the tables on January 1, 2000, since the tables would be adjusted again six months later under the Governor's proposal.
G. Itemized Deduction Credit. Eliminate miscellaneous itemized deductions as eligible expenses under the state’s itemized deduction credit. This modification would first apply to tax years beginning on January 1, 2000. Miscellaneous itemized deductions allowed under federal law include unreimbursed employe expenses, tax preparation fees, safe deposit box rent, gambling losses (to the extent of gambling winnings), casualty and theft losses from income-producing property and other amounts paid to produce or collect taxable income and manage or protect property held for earning income. Under the IRC, certain miscellaneous itemized deductions can only be deducted to the extent that they exceed 2% of the taxpayer's AGI.
Under current law, the itemized deduction credit is equal to 5% of the excess of allowable itemized deductions over the sliding scale standard deduction. State itemized deductions generally conform to the expenses permitted as federal itemized deductions and currently include charitable contributions; medical expenses exceeding 7.5% of AGI; interest expenses for a principal residence or a second home in Wisconsin; interest expenses for property sold on a land contract; other interest expenses, except personal interest; and miscellaneous itemized deductions.
H. Married Couple Credit. Increase the maximum credit to $440 in 2000 and to $480 in 2001 and thereafter. Under current law, two-earner married couples are eligible for a credit equal to 2.75% of the secondary earner’s earned income in 2000 (up to a maximum of $385) and 3.0% in 2001 and thereafter (up to a maximum of $420). These percentages would not be modified.
I. Eliminate Certain Tax Credits. Eliminate the property tax/rent credit (PTRC), dependent credit, senior citizen credit and working families credit for tax years 2000 and thereafter. Under current law, the PTRC is equal to 10% of property taxes, or rent constituting property taxes, to a maximum credit of $200 (the credit was increased to 14% of property taxes to a maximum credit of $350 on a one-time basis in 1998). Current law also provides for a $50 dependent credit and a $25 senior citizen credit for persons age 65 and over who fall under certain income limitations. The working families credit is equal to the net tax liability for taxpayers with Wisconsin AGI below $9,000 ($18,000 if married-joint); the credit phases out over the next $1,000 of income until eliminated when AGI exceeds $10,000 ($19,000 if married-joint).
Joint Finance: Modify the Governor's recommended income tax proposal as follows:
A. Reestimate Cost. Reestimate the cost of the Governor's recommendation to be $152.2 million in tax year 2000 and $253.0 million in tax year 2001. The total estimated cost for the 2000-01 fiscal year is $266.1 million, which includes $113.9 million from the proposed withholding table adjustment. These revised estimates are lower than the administration's by $15.8 million in tax year 2000 and $16.0 million in tax year 2001; the estimated cost for the 2000-01 fiscal year is lower by $22.9 million.
B. Modify Governor's Proposal. Modify the Governor's income tax proposal as described below. These modifications are estimated to reduce income tax revenues from the reestimated cost of the bill by $42.9 million in tax year 2000 and $52.1 million in tax year 2001. For the 2000-01 fiscal year, revenues are estimated to be lower by $51.8 million, which includes $8.9 million as the additional cost of adjusting the withholding tables. Based on these changes, the income tax proposal, as modified, is estimated to reduce income tax revenues from current law by a total of $195.1 million in tax year 2000 and $305.1 million in tax year 2001. Revenues for the 2000-01 fiscal year are estimated to be lower by $317.9 million, which includes $122.8 million as the estimated cost of the withholding table adjustment.
Social Security Benefits. Retain the current state tax treatment of social security benefits.
Indexing. Modify the Governor's recommendation by continuing to index the tax brackets in tax year 2000 and 2001. In addition, modify the current indexing provisions by: (a) eliminating the maximum income amounts for the standard deduction from the statutes; and (b) specifying that the tax brackets and standard deduction be indexed based on the 1998 amounts. These technical changes would allow the standard deduction to be calculated accurately for taxpayers in the phase-out range for the deduction and would incorporate the federal indexing method into state law.
Miscellaneous Itemized Deductions. Adopt the Governor's recommendation to eliminate miscellaneous deductions from the itemized deduction credit with modifications to: (a) continue to allow professional dues and union dues to be included as a miscellaneous deduction in calculating the credit; and (b) specify that the amount claimed as a federal miscellaneous deduction for repayment of income that was taxed in a prior year may be subtracted from federal adjusted gross income.
Filing Threshold. Specify that the filing threshold be set to reflect the gross income level at which no taxpayer would have a state tax liability. The thresholds would be based on whether the taxpayer is filing a single, head-of-household, married-joint or married-separate return and whether the taxpayer is 65 years of age or over.
Withholding Table Adjustment. Increase projected income tax collections by $62.0 million in 1999-00 and reduce estimated collections by $62.0 million in 2000-01. This modification reflects a decision by DOR to not adjust the withholding tables on January 1, 2000, to reflect the 1998 tax rates and indexing adjustments. The Department intends to adjust the tables on July 1, 2000, and again on January 1, 2001, to reflect the various income tax provisions contained in the budget bill.
Assembly: Retain the income tax modifications that were adopted by the Joint Committee on Finance with a modification to allow travel and home office expenses to continue to be claimed as a miscellaneous itemized deduction under the itemized deduction credit. This modification is estimated to have a minimal fiscal effect.
Senate: Delete the individual income tax modifications that were adopted by the Joint Committee on Finance. Instead, increase the property tax/rent credit for renters from 10% of rent constituting property taxes to 14.1% beginning with tax year 2000. In addition, increase the percentages used to calculate the amount of rent that constitutes property taxes from 25% to 35% of actual rent if payment for heat is not included and from 20% to 30% of rent if payment for heat is included. Retain the maximum amount of rent constituting property taxes that may be used in claiming the credit at $2,000; the maximum credit for renters would be increased from $200 to $282.
The PTRC for homeowners would remain at 10% of property taxes for a maximum credit of $200. For taxpayers who claim both property taxes as a homeowner and rent constituting property taxes as a renter in an amount that exceeds the $2,000 maximum, those amounts would be allocated proportionately when determining how much rent would be eligible for the 14.1% credit and how much property taxes would be eligible for the 10% credit.
This provision would retain the current law income tax structure, with the exception of the increase in the PTRC for renters. Eliminating the income tax modifications contained in the budget bill adopted by the Finance Committee would increase tax revenues by an estimated $317.9 million in 2000-01. The proposed increase in the renter's PTRC would reduce revenues by an estimated $49.7 million in 2000-01. In total, this provision would increase income tax revenues by $268.2 million in 2000-01, compared to the Joint Finance provisions.
Conference Committee/Legislature: Include the Assembly provision with the following modifications:
a. Retain the current law working families tax credit on a permanent basis. This is estimated to reduce income tax revenues by $5.1 million in tax year 2000 and $3.5 million in tax year 2001 (in 2000 dollars) compared to the Finance Committee's version of the budget.
b. Retain the PTRC in tax year 2000 at 6.4% of property taxes or rent constituting property taxes to a maximum of $2,000 in taxes or rent. The maximum credit would be $128. Compared to the Joint Finance provisions, the estimated cost of this modification would be $156.0 million in 2000-01. The PTRC would be eliminated with tax year 2001 and thereafter, as under the Finance Committee provision.
