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.
c. Reestimate the cost of the property tax/rent credit by -$4,500,000 in 1999-00 and -$8,300,000 in 2000-01 to account for lower property taxes due to the increased lottery credit. The 6.4% PTRC would cost an estimated $147.7 million in 2000-01 rather than $156.0 million due to the impact of the increased lottery credit.
In addition, reestimate the cost of the Joint Finance provisions by $5.0 million in tax year 2000 and $8.0 million in tax year 2001 ($8.0 million in 2000-01, which includes $3.0 million as the reestimated cost of the withholding table adjustment) to reflect revised general fund tax estimates released by the Legislative Fiscal Bureau in July, 1999. Compared to current law, the Conference Committee's provision is estimated to reduce revenues by $352.9 million in tax year 2000 and $316.6 million in tax year 2001 (in 2000 dollars). On a fiscal year basis, the proposal is estimated to cost $478.8 million in 2000-01, which includes $125.8 million as the cost of adjusting the withholding tables on July 1, 2000, to reflect the 2001 tax rates.
Veto by Governor [F-15 and F-16]: The Governor's partial veto makes the following changes.
Miscellaneous Itemized Deductions. Delete the exceptions to the elimination of miscellaneous itemized deductions from the itemized deduction credit. As passed by the Legislature, the enrolled bill would eliminate miscellaneous itemized deductions from the calculation of the itemized deduction credit, with the exception of union and professional dues and travel and home office expenses. No miscellaneous itemized deductions will be considered under the Governor's veto. This is estimated to have a minimal impact on revenues.
Property Tax/Rent Credit. Increase the PTRC for tax year 1999 to 16.4% for a maximum credit of $328 and increase the PTRC for 2000 to 10% for a maximum credit of $200. Retain the elimination of the PTRC beginning with tax year 2001. The veto reduces general fund tax revenues by an estimated $150.6 million in 1999-00 and $94.0 million in 2000-01 as compared to the enrolled bill. These estimates reflect projected reductions in property taxes due to the lottery credit increase in 1999(00) and levy credit increase in 2000(01) contained in the act.
[Act 9 Sections: 1674, 1674t, 1688d, 1689 thru 1707, 1711, 1714, 1715, 1716, 1716p, 1717, 1721, 1722, 1784 thru 1787 and 9343(20)&(20tx)]
[Act 9 Vetoed Sections: 1711, 1716m and 1716p]
Act 10: Eliminate the PTRC for tax year 1999 and thereafter. Compared to Act 9, this would increase tax revenues by an estimated $399.1 million in 1999-00 and $241.7 million in 2000-01 for a total of $640.8 million over the biennium. This funding was used to partially fund a one-time sales tax rebate of $700 million in 1999-00.
[Act 10 Sections: 2, 2m and 3]
2. INDIVIDUAL INCOME TAX CREDIT FOR MILITARY INCOME
GPR-REV - $260,000
Assembly/Legislature: Provide an income tax credit for up to $200 in income received as an active duty member of the U.S. Armed Forces while stationed outside of the U.S. beginning in tax year 2000. A married couple would be eligible for a credit of up to $400 if both spouses qualify. Require that the credit be subtracted from the regular income tax for purposes of determining if the Wisconsin alternative minimum tax applies. Finally, specify that the credit would not be available to nonresident and part-year resident taxpayers. This provision is estimated to reduce income tax revenues by $260,000 in 2000-01.
Veto by Governor [F-14]: Eliminate the requirement that the credit be subtracted for purposes of the alternative minimum tax.
[Act 9 Sections: 1715m, 1719g, 1719j and 9343(20ty)]
[Act 9 Vetoed Sections: 1719g and 9343(20ty)]
3. INDIVIDUAL INCOME TAX DEDUCTION FOR POLITICAL CONTRIBUTIONS
Assembly: Provide an income deduction for up to $500 in political contributions made by an individual beginning in tax year 1999 (a total of $1,000 for a married couple filing a joint return). Specify that contributions made to individual candidates for elective public office in Wisconsin, including federal, state and local races, would be allowed. This provision is estimated to reduce income tax revenues by $60,000 annually.
Conference Committee/Legislature: Delete provision.
4. ASSIGNMENT OF LOTTERY PRIZES: TAXATION
Assembly/Legislature: Allow lottery prizes to be used as security for a loan or assigned to another person. Specify that all income that is realized from the sale of or purchase and subsequent sale of lottery prizes is taxable to Wisconsin if the winning tickets were originally bought in Wisconsin. In addition, specify that such income would be taxed as ordinary income and would not qualify for the capital gains exclusion. Allowing prize winners to assign their prize to another person would have an unknown impact on state tax revenues. More information on this provision is provided under "Lottery."
[Act 9 Sections: 1674v, 1682pd, 1722yb, 1722ym, 1738t, 1748Lm, 1748Ln, 1748y, 1748yb, 1748ym, 1749p, 1753d, 1753m, 1786, 3023t, 3025m and 9343(23cm)]
5. INCOME TAX EXCLUSION FOR MASS TRANSIT FRINGE BENEFITS
Senate/Legislature: Allow taxpayers to exclude from taxable income the amount paid by an employer for a public transportation pass, token or fare card that is provided to the employe, or the value of such pass, token or fare card. Specify that this provision would first apply to taxable years beginning on the January 1 following the year in which the bill takes effect.
Under current law, the maximum amount that may be excluded as a transportation fringe benefit, not including parking, is $60 per month. This amount would be increased to $65 per month in 1999 and to $100 per month in 2002 under the federal Internal Revenue Code update provision of the budget bill. This provision would eliminate the limit on the amount that may be excluded for employer-provided transit passes, which is estimated to have a minimal impact on tax revenues.
Veto by Governor [F-13]: Delete provision.
[Act 9 Vetoed Sections: 1688h and 9343(7c)]
6. INCOME TAX EXCLUSION FOR AMOUNTS RECEIVED BY VICTIMS OF NAZI OR AXIS PERSECUTION
Senate/Legislature: Exclude any amounts received as a settlement for claims for recovered assets, or any amount of assets or any gain generated on such assets, that were stolen from, hidden from or otherwise lost by an individual who was persecuted by Nazi Germany or any Axis regime during any period from 1933 to 1945 and that have been recovered, returned or otherwise paid to the original victim, heir or beneficiary. Specify that this provision applies to cash, bonds, stocks, deposits in a financial institution, proceeds from a life or other type of insurance policy, jewelry, precious metals, artwork or any other item of value owned by such a victim during any period from 1920 to 1945. Specify that this exclusion would take effect with tax year 1999.
The fiscal effect of this provision is unknown because there is no information available on the number of Wisconsin taxpayers that would be affected by this provision nor on the amount of income that would be excluded from taxation.
[Act 9 Section: 1688f]
[Bill Sections: 1674, 1685, 1689 thru 1707, 1711, 1713 thru 1717, 1721, 1722, 1784 thru 1787 and 9343(20)]
7. HOMESTEAD TAX CREDIT: EXPANSION [LFB Paper 110]
Governor: Increase funding by $2,600,000 in 1999-00 and $1,100,000 in 2000-01 to reflect estimated expenditures for the homestead credit under current law (-$3,000,000 in 1999-00 and -$5,000,000 in 2000-01) and to fund the Governor's proposed expansion of the homestead tax credit ($5,600,000 in 1999-00 and $6,100,000 in 2000-01). Under the bill, the maximum income amount under the credit would increase from $19,154 to $20,290, beginning with claims filed in 2000 and thereafter based on property taxes or rent constituting property taxes accrued during the previous year (tax year 1999). In addition, the bill would reduce the percentage used in phasing out the credit for higher-income claimants from 13% to 11.8%. The homestead credit formulas under current law and under the Governor’s proposal are shown below. Under current law and the Governor's proposal, property taxes claimed for the credit may not exceed $1,450 and the maximum credit is $1,160. With the reestimate of current law funding and the proposed expansion, the bill would provide a total of $84,600,000 in 1999-00 and $83,100,000 in 2000-01.
Current Law Credit = 80% (Property Taxes – 13.0% (Household Income - $8,000))
Proposed Credit = 80% (Property Taxes – 11.8% (Household Income - $8,000))
Joint Finance: Include the provision but decrease funding by $3,400,000 in 1999-00 and $4,500,000 in 2000-01 to reflect a reestimate of the cost of the credit, including the proposed expansion. Total funding for the homestead credit would be $81,200,000 in 1999-00 and $78,600,000 in 2000-01.
Senate: Provide $7,700,000 in 2000-01 to fund a further expansion of the homestead tax credit beginning with claims filed in 2001 and thereafter on property taxes or rent constituting property taxes accrued during the previous year (tax year 2000). Increase the maximum income amount from $20,290, as recommended by the Governor and adopted by the Joint Committee on Finance, to $22,000 and reduce the percentage used in phasing out the credit for higher-income claimants from 11.8% to 10.4%.
Conference Committee/Legislature: Provide $18,200,000 in 2000-01 to further expand the homestead credit beginning with claims filed in 2001 and thereafter on property taxes or rent accrued during the previous year (tax year 2000). Increase the maximum income amount to $24,500 and reduce the percentage used in phasing out the credit for higher-income claimants to 8.8%.
The following chart shows the parameters of the credit under prior law for tax year 1998 and under the budget provisions for 1999 and 2000.
Prior Law Act 9
Tax Year 1998 Tax Year 1999 Tax Tear 2000
8. EARNED INCOME TAX CREDIT [LFB Paper 1082]
Maximum Income $19,154 $20,290 $24,500
Maximum Property Taxes 1,450 1,450 1,450
Property Tax Reimbursement Rate 80% 80% 80%
Income Threshold 8,000 8,000 8,000
Phase-Out Rate 13.0% 11.8% 8.8%
Maximum Credit 1,160 1,160 1,160
[Bill Sections: 1762 and 1763]
In addition, reestimate the cost of the homestead credit by -$3,300,000 in 1999-00 and -$8,700,000 in 2000-01 to account for lower property taxes due to the increased lottery credit. With these modifications and the expansion of the program, the homestead credit is estimated to cost $77,900,000 in 1999-00 and $88,100,000 in 2000-01.
Veto by Governor [F-41]: Increase the estimated cost of the homestead credit to $79,100,000 in 1999-00 and $96,300,000 in 2000-01 to reflect the partial vetoes affecting the size of the lottery credit and providing a one-time funding increase for the school levy tax credit. Changes in the levy credit and lottery credit impact the cost of the homestead credit because the homestead credit is based on the claimant's income and amount of property taxes paid.
[Act 9 Sections: 1762 thru 1763c]
Act 10: Increase the estimated cost of the homestead credit to $96,800,000 in 2000-01 to reflect the Act 10 provision that eliminates the one-time school levy credit increase provided under the Governor's partial vetoes of Act 9. The estimated cost for 1999-00 ($79,100,000) remains unchanged.
Governor: Decrease funding by $2,500,000 GPR in 1999-00 and increase funding by $3,500,000 GPR in 2000-01 for estimated costs of the earned income tax credit (EITC). Total funding would be $74,000,000 GPR in 1999-00 and $80,000,000 GPR in 2000-01. This funding level includes $2,000,000 each year to reflect a November, 1998, Internal Revenue Service ruling that gains realized on the sale of property used in a trade or business are not counted as investment income for purposes of the EITC. This ruling restores eligibility to individuals (particularly farmers) who were not previously able to claim the credit due to the limitation on disqualified income.
Joint Finance: Decrease funding for the EITC by $1,800,000 GPR in 1999-00 and $3,600,000 GPR in 2000-01 to reflect a reestimate of funding needed for the credit. Total funding for the EITC would be $72,200,000 in 1999-00 and $76,400,000 in 2000-01.
Specify that $58,000,000 in 1999-00 and $61,000,000 in 2000-01 of the total cost of the EITC would be funded from a newly created annual PR-S appropriation consisting of federal temporary assistance to needy families (TANF) revenues transferred from the Department of Workforce Development (DWD) to fund the share of the EITC permitted under federal law. Decrease GPR funding for the EITC by the same amounts and specify that the GPR appropriation would be used to cover the costs of the credit that are not paid from the TANF appropriation.
Final federal regulations for the TANF program allow TANF funding to be used to cover the share of the EITC that is refunded to the claimant (rather than used to reduce the claimant's income tax liability). An additional restriction specifies that TANF funds may not be used to provide the credit to certain legal immigrants. More information on this provision is shown under "Workforce Development -- Economic Support and Child Care."
Conference Committee/Legislature: Reduce funding by $9,000,000 in 1999-00 ($2,000,000 GPR and $7,000,000 PR) and by $9,400,000 in 2000-01 ($2,400,000 GPR and $7,000,000 PR) to reflect revised estimates of the cost of the earned income tax credit. Funding for the EITC would total $63,200,000 in 1999-00 ($51,000,000 PR and $12,200,000 GPR) and $67,000,000 in 2000-01 ($54,000,000 PR and $13,000,000 GPR).
[Act 9 Sections: 475, 611, 612m, 1278g and 1719b]
9. LIMIT EDUCATIONAL EXPENSES ALLOWED UNDER THE ITEMIZED DEDUCTION CREDIT
Governor/Legislature: Specify that any amount claimed under the deduction for higher education tuition expenses would not be allowed for purposes of the itemized deduction credit. Specify that this provision would first apply to taxable years beginning on January 1 of the year in which the bill takes effect, except that if the bill takes effect after July 31, the provision would first apply to taxable years beginning on January 1 of the following year.
Under current law, a deduction from income is allowed for higher education tuition expenses for each taxpayer or dependent of a taxpayer, up to $3,000 per student each tax year. The student must be attending an institution of higher education located in Wisconsin or that is subject to the Minnesota-Wisconsin tuition reciprocity agreement. The maximum deduction is available to taxpayers with income below $50,000 if single, $80,000 if married-joint and $40,000 if married-separate. The amount of the deduction phases-out as income increases above these amounts until eliminated when income exceeds $60,000 if single, $100,000 if married-joint and $50,000 if married-separate. In addition, education expenses may be deducted as an itemized deduction for federal tax purposes, and also under the state's itemized deduction credit, if the education is undertaken to maintain or improve a skill required for employment, trade or business. Currently, an individual can deduct the same expenses under both provisions and receive a double benefit.
[Act 9 Sections: 1712 and 9343(4)]
