Tax Reform Roundtable - A Discussion of Wisconsin's Tax System

1. A Discussion of Wisconsin’s
Tax System
Lieutenant Governor Kleefisch
Secretary Rick Chandler
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2. • Job creation is the top goal for the Walker
administration
– Tax reform is a key element in the state's job creation
efforts
• Wisconsin's tax climate has become more
competitive in the past three years
– Wisconsin has historically had an above-average tax
burden
• What ideas should be considered for future tax
reform?
2

3. Governor Walker's Tax Reform Initiatives
Highlights of Reforms Implemented in 2011 and 2013
• Income tax reform initiative
– Rate reductions, focused on middle class rate cuts
– Increased deductions for Health Savings Accounts, health
insurance premiums, child care and private school tuition
– Tax simplification
• Business tax incentives
– Manufacturing and agriculture tax credit
– Investment incentives
– WEDC credits
• Total tax reduction of $1.4 billion in 2011 and 2013
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4. Reversing Direction on State Taxes
State taxes have been cut in the most recent two budget periods
11-13 budget
13-15 budget
13-15 budget
Biennial tax reduction compared with base year
$0
($200,000,000)
($400,000,000)
$408 million
$506 million
($600,000,000)
($800,000,000)
($1,000,000,000)
$1,084 million
($1,200,000,000)
Total tax cuts: $2 billion in two budget periods
4
Source: Department of Revenue

5. Income Tax Reform Initiative
• Significant tax rate reductions were included in
2013 and 2014 initiatives
– Taxes are reduced by $748 million
– Rates were reduced for all brackets
– Largest reductions were for middle class taxpayers
– Provides broad-based tax relief
• Increases in deductions provided additional tax
relief
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6. Governor Walker's Tax Reform Initiative
Reduces Income Tax Rates
Tax Rate Reduction
Bottom Rate
2nd Rate
3rd Rate
4th Rate
Top Rate
Before
4.60%
6.15%
6.50%
6.75%
7.75%
After
4.00%
5.84%
Rate
6.27%
7.65%
Overall Income Tax Reduction From Rate Cuts: $748 million
(Amount of reduction in budget bill for Tax Years 2013 and 2014)
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7. Income Tax Payments Are Reduced
for Taxpayers at All Income Levels
Middle Class Taxpayers See the Greatest Relief
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8. Holding the Line on Property Taxes
Property taxes have been controlled in the most recent two budgets

9. Holding the Line on Property Taxes
Property taxes have been controlled in the most recent two budgets
• Property taxes for the typical homeowner have gone
down each year Governor Walker has been in office
• Property taxes for the typical homeowner went up
27% in the decade prior to Governor Walker taking
office
• Property taxes for the typical homeowner are
estimated to be lower next year than when Governor
Walker took office
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10. Wisconsin’s Tax Makeup
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11. Wisconsin’s State and Local Tax Mix
Sources of tax revenue
State and local tax collections for 2012-13, Millions of Dollars
Property taxes
$10,469.9
39.7%
Income taxes
7,496.9
28.3
Sales taxes
4,707.7
17.8
Motor vehicle taxes
1,396.1
5.3
925.4
3.5
1,425.1
5.4
$26,393.8
100%
(incl. gas tax & vehicle registration fees)
Corporate income taxes
Other
(incl. unemp comp tax, cig & other excise
taxes, utility, ins premium,)
Total
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12. Wisconsin's State Tax Mix
State Sources Of General Fund Revenue
FY 13 GPR Tax Collections (Total $14 Billion)
Income ($7.4 billion)
Sales ($4.4 billion)
Corporate ($0.9 billion)
Excise Taxes ($0.7 billion)
Public Utility ($0.3 billion)
Insurance Companies ($0.2 billion)
Miscellaneous Taxes ($0.1 billion)
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13. Wisconsin’s Revenue and Tax Rank
State and local revenue for 2010-11
Wis % of
pers inc
U.S. % of
pers inc
Wis
rank
Amt above
nat’l avg
Total tax collections
11.8
10.9
10
+ 9%
Property taxes
4.5
3.6
10
+ 26
Indiv income taxes
3.0
2.3
12
+ 28
General sales taxes
2.0
2.4
35
- 16
Corp inc taxes
0.4
0.4
18
--
Fees/charges
3.4
3.5
30
-3
15.2%
14.4%
14
+ 6%
Taxes and fees
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14. The Individual Income Tax
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15. Wisconsin’s Individual Income Tax
• Total revenue collected: $7.470 billion per year
– This is 53% of the state general fund
• The income tax is $1,304 per capita
• Wisconsin’s rank is 12th of the 50 states
– Wisconsin’s rank in the Midwest is 3rd of 12 states
– Wisconsin's rank among our neighboring states is 2nd
of 5 states
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16. Key Points – Income Tax
• Most states (43) have an individual income tax
– Seven states (including Florida, Nevada, Texas and
Washington) have no individual income tax
• Wisconsin has graduated individual income tax rates,
with four brackets starting at 4.40%, then increasing
to a top rate of 7.65%
– Seven states have a flat rate system, with rates ranging
from 3.07% to 6.00%
– 36 states have graduated rates
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17. Wisconsin Income Tax Brackets
Married filing jointly, 2013
Taxable income
Marginal tax rate
$0 - $14,330
4.40%
$14,331 – $28,650
5.84%
$28,651 – $315,460
6.27%
$315,461 and up
7.65%
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18. The Property Tax
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19. Wisconsin’s Property Tax
• Total revenue collected: $10.649 billion per year
• The property tax is $2,938 per typical
homeowner
• Wisconsin’s rank is 10th of the 50 states
– Wisconsin’s rank in the Midwest is 2nd of 12 states
– Wisconsin's rank among our neighboring states is 1st
of 5 states
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20. Who Levies the Property Tax?
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21. Key Points – Property Tax
• The largest portion of the property tax goes to school
districts, followed by municipalities and then
counties and technical college districts
– The state forestry tax portion of the total statewide levy is
less than one percent
• In the most recent tax year 4.5% of personal income
will go to property taxes
21
Sources: Department of Revenue and Wisconsin Taxpayers Alliance

22. Key Points – Property Tax
• Businesses pay property taxes on much of their personal property
– Certain types of business property have been exempted from personal
property taxes (e.g., manufacturing machinery and equipment, computer
equipment, inventories, waste treatment equipment)
– Much personal property owned by businesses is still assessed and taxed
(e.g., furniture, equipment other than manufacturing and computer and
waste treatment equipment)
• All non-exempt property owners (individuals and businesses) pay
property taxes on their real property (buildings and land)
• Individuals do not pay property taxes on any personal property
(vehicles, furnishings, investment holdings, etc.)
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23. Key Points – Property Tax
• Wisconsin’s uniformity clause requires that all
taxable property be taxed at the same rate within
each jurisdiction (with limited exceptions)
• Specific classes of property can be exempted from
tax
– All property owned by federal, state and local
governments and by churches, educational institutions,
non-profit hospitals, non-profit housing organizations and
certain charities is exempt from the property tax
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24. The Sales Tax
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25. Wisconsin’s Sales Tax
• Total revenue collected: $4.707 billion per year
– This is 31% of the state general fund
• The sales tax is $822 per capita
• Wisconsin’s rank is 35th of the 50 states
– Wisconsin’s rank in the Midwest is 11th of 12 states
– Wisconsin's rank among our neighboring states is 4th
of 5 states
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26. Key Points – Sales Tax
• Under the Wisconsin statutes:
– Sales of goods are taxable unless specifically
exempted from tax
– Sales of services are not taxed, unless specifically
listed as subject to tax
• Wisconsin has adopted a number of sales tax
exemptions
– Most of the biggest exemptions are for necessities,
sales to non-profits and governments, and business
inputs
– Most of the exemptions Wisconsin has are also
provided in the majority of other states
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27. Key Points – Sales Tax
• Most states (45) have a general sales tax
– Exceptions: Alaska, Delaware, Montana, New Hampshire, Oregon
• Wisconsin's state sales tax rate of 5.0% is lower than in the
majority of other states
• Wisconsin has several local option sales taxes
– Counties can adopt a local sales tax at a rate of 0.5%
– Stadium districts in southeastern Wisconsin and Brown County have
sales taxes
• Wisconsin's maximum state/local sales tax rate of 5.6% is
lower than in the majority of other states
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28. Maximum State and Local Sales Tax Rates
Rates in neighboring states
State
State rate
Max local rate
Combined rate
Illinois
6.25%
3.75%
10.00%
Iowa
6.00
1.00
7.00
Michigan
6.00
--
6.00
Minnesota
6.875
1.00
7.875
Wisconsin
5.00
0.60
5.60
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29. The Corporate Income Tax and
Other Business Taxes
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30. Wisconsin’s Corporate Income Tax
• Total revenue collected: $925 million per year
– This is 6.6% of the state general fund
• Wisconsin's rank is 18th of the 50 states
– Wisconsin's rank in the Midwest is 4 of 12 states
– Wisconsin's rank among our neighboring states is
3rd of 5 states
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31. Key Points - Business Taxes
• Wisconsin’s direct business taxes vary, depending on the
circumstances of the business:
– Corporate income taxes tend to be at or near the national average (but
vary greatly from year to year)
– Income taxes on small businesses that are Sub S corps, LLCs or
partnerships are determined by the individual income tax
– Sales taxes on businesses apply to the same general range of goods
and services as in the majority of other states
– Property taxes vary, depending on the circumstances of the business
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32. Recap and Issues for Discussion
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33. Key Points - Recap
• Governor Walker has reduced taxes on
Wisconsin residents and improved the tax
climate
• Tax climate is important for job creation and
economic development
• Governor Walker is committed to continuing
to reduce Wisconsin’s tax burden
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34. Issues for Discussion
• What sort of tax reform would people like to see in the
future?
– Further individual income tax reform (rate reductions, new
credits and deductions, or other changes)
– Property tax cuts
– More business incentives
• What approach to tax reform would people prefer to see?
– Steady year-after-year reductions as the economy grows
– Major restructuring of the tax system to enable major cuts in
some taxes
• Which taxes do people find the most and least acceptable?
• What tax reforms would most effectively encourage job
creation?
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35. Thank You
Discussion
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