Scott Walker's tax cut plan passes Senate, likely to become law

03/06/2014

Mike De Sisti

Governor Scott Walker speaks on stage during the Governor's Conference on Tourism at the Grand Geneva Resort, in Lake Geneva.

Madison — Senate Republicans Tuesday narrowly passed Gov. Scott Walker's $541 million tax cut proposal in a vote that guaranteed the cuts will become law.

The tax decreases — the third round of cuts by Republicans in less than a year — passed 17-15 with GOP Sen. Dale Schultz of Richland Center joining all Democrats in voting against the proposal. The proposal now goes to the Assembly, which passed a different version of the tax cuts last month with two Democrats joining all Republicans in supporting it.

With growing tax collections now expected to give the state a $1billion budget surplus in June 2015, Walker's bill will cut property and income taxes for families and businesses, and zero out all income taxes for manufacturers in the state.

Senate Majority Leader Scott Fitzgerald (R-Juneau) said his party was delivering on a promise to hold down taxes for the people of the state.

"The bottom line is what a great day for the state of Wisconsin — to finally be out of what was a dark time for Wisconsin," Fitzgerald said, referring to the recent recession.

GOP lawmakers and Walker will use the unexpected windfall for the state as an occasion to trim overall state spending slightly for the next three years rather than increase it.

The votes on the tax cuts, which have split almost entirely along partisan lines in the Legislature, highlight the growing split between the two parties' visions for the state.

Walker's initial tax cut proposal would have drawn down the expected surplus and left the state budget in somewhat worse financial position in the future as measured by one commonly used method. To win over a holdout GOP senator concerned about the state's finances, Walker agreed last month to cut state spending by $38 million to help offset the tax cuts.

Also Tuesday, the Senate voted unanimously to pass a second bill to increase spending on worker training by $35.4 million through June 2015.

Walker's plan for the surplus prioritizes the tax cuts and a roughly $320 million overhaul of income tax withholding over calls from Democrats to decrease more than $1 billion in borrowing, strengthen the state budget and offset past cuts to schools. Democrats said that was a better approach to running state government and boosting the state's economy.

"The property tax burden absolutely weighs down the citizens of our state," Sen. Jennifer Shilling (D-La Crosse) said. "But you know what else weighs down the citizens of this state? Not having a job."

Under Walker's bill, the average income tax filer would receive a tax cut of $46 in April 2015 and the typical homeowner would save $131 over the existing law on this December's bills, according to the Legislature's nonpartisan budget office.

Also, the governor has separately had his administration alter income tax withholding rates so workers have less taken out of each paycheck — about $520 a year for a married couple making a total of $80,000 a year — starting in April.

"The more money that we give back to the taxpayers, the more money they can spend or save as they wish and the more our economy will grow," said Sen. Alberta Darling (R-River Hills), co-chairwoman of the Legislature's budget committee.

The bill would also lower income taxes for factory and farm owners by $36.8 million over the current two-year budget and $91.3 million over the following two years.

GOP supporters of this manufacturing tax cut in the bill see it as fuel for one of the state's main economic engines.

Democratic opponents see it as a giveaway with a dubious payback to some of the richest people in the state, averaging about $800 for roughly 30,000 tax filers in 2015.

The deal between Walker and GOP senators would also use what is essentially an accounting maneuver to keep a chunk of the surplus — more than $100 million — in the state's main account rather than shifting it to a rainy day fund.

Mary Burke, a former state commerce secretary and bicycle company executive running against Walker, has said the state should use about half of the surplus to set aside more money in the rainy day fund and reduce the state's $2billion in new borrowing through June 2015. She would use the remainder for property tax relief and worker training programs.

Burke's plan for property tax relief and separate plans put forward by Assembly and Senate Democrats would all funnel more money toward a state credit for parcels with a home or business on them. That would ensure low- and middle-income homeowners see bigger tax cuts than they would under Walker's plan.

Republicans have said this so-called first dollar tax credit provides no relief to those who own undeveloped land and could draw a legal challenge to the credit if it is increased again.

Senate Democrats Tuesday offered their own plan for the budget surplus that would:

■ Provide a one-time property tax cut of $500 million through the first dollar credit. That means homeowners wouldn't get the tax decrease in future years.

■ Double the transfer of money to the state's rainy day fund by adding $228.7 million.

■ Provide $100 million more to the Wisconsin Technical College System and additional funding for rural K-12 schools and special needs students to offset past cuts to those areas.

■ Not provide the tax cut to manufacturers and not cut down on the amount of extra income taxes that the state is withholding.

The proposal would cut the state's budget deficit in the next two-year budget to zero, according to the Legislative Fiscal Bureau.

"It's hard to look past the next election toward the long-term interests of the state," Senate Minority Leader Chris Larson (D-Milwaukee) said. "Let's transcend the politics."

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