Legislative Fiscal Bureau One East Main, Suite 301 Madison, WI 53703 (608) 266-3847 Fax: (608) 267-6873 Email: fiscal.bureau@legis.wisconsin.gov Website: http://legis.wisconsin.gov/lfb February 25, 2013 TO: FROM: Members Wisconsin Legislature Bob Lang, Director SUBJECT: Distributional Information on Proposed Individual Income Tax Rate Reduction In response to numerous legislative inquiries, this memorandum provides distributional information related to the Governor's proposal in Assembly Bill 40 (AB 40), the 2013-15 biennial budget bill, to reduce individual income tax rates. Current Law Under the state individual income tax, Wisconsin taxable income is multiplied by the applicable tax rates to arrive at gross tax liability. Currently, the state employs five tax brackets, with a separate tax rate assigned to each bracket. The tax rate structure is cumulative so that each tax rate applies only to income that falls within the corresponding bracket. A taxpayer with income exceeding the threshold for the top bracket would have income subject to each of the five tax rates. The tax brackets vary by filing status and are indexed annually for inflation. The following table reports the rate and bracket structure by filing status for tax year 2013. Tax Rates and Brackets for Tax Year 2013 Married-Joint Single or Head-of-Household Married-Separate 4.60% Less than $14,330 Less than $10,750 Less than $7,160 6.15 14,330 to 28,650 10,750 to 21,490 7,160 to 14,330 6.50 28,650 to 214,910 21,490 to 161,180 14,330 to 107,450 6.75 214,910 to 315,460 161,180 to 236,600 107,450 to 157,730 7.75 315,460 and over 236,600 and over 157,730 and over This office issued general fund revenue projections for the current year and the coming biennium on January 24, 2013. Those projections include individual income tax collections
estimated at $7,280 million in 2012-13, $7,465 million in 2013-14, and $7,855 million in 2014-15. AB 40 Proposal In AB 40, the Governor proposes to reduce the rates that apply to the three lowest tax brackets, beginning in tax year 2013. The respective rates would decrease from 4.60% to 4.50%, from 6.15% to 5.94%, and from 6.50% to 6.36%. The Administration estimates that the proposed reductions would cause individual income tax collections to decrease by $172.6 million in 2013-14 and $170.6 million in 2014-15, relative to the amounts reported above. Although the budget bill will likely not be enacted until mid-year, the tax rate changes for 2013 would apply retroactively to January 1. The decreases translate to reductions in individual income tax liabilities of $162.3 million in tax year 2013 and $170.1 million in tax year 2014. Three attachments to this memorandum display the estimated distribution for tax year 2014 of taxpayers with tax decreases by Wisconsin adjusted gross income (AGI). Attachment 1 includes all tax filers, Attachment 2 includes married-joint filers, and Attachment 3 includes all other types of filers (single, head-of-household, marriedseparate, and single-dependent). Although "other" taxpayers represent over half (51.7%) of the taxpayers with a tax reduction, married-joint filers are expected to realize a larger share of the tax reductions (71.0%). This occurs because the income of married-joint filers represents almost 70% of Wisconsin AGI, and the married-joint tax brackets are wider than the brackets for other filing types, causing more income to fall within the brackets with the reduced rates. As a group, the total net tax liability of married-joint filers significantly exceeds the total liability of other filers. Prepared by: Rick Olin Attachments Page 2
ATTACHMENT 1 All Filers, Tax Year 2014 Under $5,000 19,526 0.95% -$50,000 0.03% -$3-1.51% 355,335 5.5% 5,000 to 10,000 17,730 0.87-101,000 0.06-6 -2.15 232,179 7.6 10,000 to 15,000 79,614 3.89-304,000 0.18-4 -2.50 193,816 41.1 15,000 to 20,000 123,019 6.02-937,000 0.55-8 -2.90 174,597 70.5 20,000 to 25,000 133,813 6.54-1,835,000 1.08-14 -3.00 158,866 84.2 25,000 to 30,000 141,834 6.94-3,162,000 1.86-22 -3.27 149,108 95.1 30,000 to 40,000 267,249 13.07-9,259,000 5.44-35 -3.18 270,802 98.7 40,000 to 50,000 217,026 10.61-11,211,000 6.59-52 -3.04 218,342 99.4 50,000 to 60,000 174,854 8.55-11,750,000 6.91-67 -2.93 175,604 99.6 60,000 to 70,000 145,671 7.12-12,000,000 7.05-82 -2.87 146,197 99.6 70,000 to 80,000 124,042 6.07-12,148,000 7.14-98 -2.84 124,471 99.7 80,000 to 90,000 106,809 5.22-12,157,000 7.15-114 -2.81 107,070 99.8 90,000 to 100,000 88,589 4.33-11,512,000 6.77-130 -2.79 88,826 99.7 100,000 to 150,000 248,116 12.13-41,927,000 24.65-169 -2.73 248,783 99.7 150,000 to 200,000 77,777 3.80-18,455,000 10.85-237 -2.58 78,072 99.6 200,000 to 250,000 29,247 1.43-8,526,000 5.01-292 -2.36 29,410 99.4 250,000 to 300,000 14,121 0.69-4,203,000 2.47-298 -1.90 14,223 99.3 300,000 and over 35,949 1.76-10,571,000 6.21-294 -0.57 36,178 99.4 Total 2,044,986 100.00% -$170,106,000 100.00% -$83-2.23% 2,801,879 73.0% An estimated 2,044,986, or 73.0% of all taxfilers in 2014, would have a tax decrease under the proposal. The total tax decrease is estimated at $170.1 million in tax year 2014. For all taxpayers with a tax reduction, the average 2014 tax decrease would be $83. The average tax decrease would increase as income rises. On average, taxpayers with AGI between $25,000 and $30,000 would experience the largest percentage reduction in net tax liability (3.3%), but that percentage decreases as AGI increases. The percentage reduction for taxpayers with $300,000 or more of AGI would be 0.6%. Taxpayers with AGI greater than $100,000 comprise 19.8% of those who would receive a tax reduction, but would receive 49.2% of the $170.1 million total decrease. These taxpayers have 50.9% of AGI and pay 61.2% of income taxes under current law. Page 3
ATTACHMENT 2 Married-Joint Filers, Tax Year 2014 Under $5,000 6,703 0.68% -$21,000 0.02% -$3-1.14% 67,450 9.9% 5,000 to 10,000 5,015 0.51-38,000 0.03-8 -1.92 31,212 16.1 10,000 to 15,000 3,871 0.39-49,000 0.04-13 -2.06 33,194 11.7 15,000 to 20,000 3,280 0.33-59,000 0.05-18 -2.17 32,832 10.0 20,000 to 25,000 8,949 0.91-91,000 0.07-10 -2.48 32,417 27.6 25,000 to 30,000 28,579 2.90-314,000 0.26-11 -3.79 34,994 81.7 30,000 to 40,000 77,499 7.85-1,775,000 1.46-23 -3.62 80,088 96.8 40,000 to 50,000 79,907 8.10-3,626,000 3.00-45 -3.63 80,710 99.0 50,000 to 60,000 82,267 8.34-5,172,000 4.28-63 -3.27 82,803 99.4 60,000 to 70,000 85,813 8.70-6,818,000 5.64-79 -3.07 86,203 99.5 70,000 to 80,000 86,164 8.73-8,277,000 6.85-96 -2.95 86,504 99.6 80,000 to 90,000 82,252 8.34-9,264,000 7.66-113 -2.88 82,467 99.7 90,000 to 100,000 73,442 7.44-9,495,000 7.85-129 -2.83 73,632 99.7 100,000 to 150,000 220,909 22.39-37,404,000 30.96-169 -2.76 221,472 99.7 150,000 to 200,000 71,075 7.20-16,962,000 14.04-239 -2.61 71,333 99.6 200,000 to 250,000 26,427 2.68-7,891,000 6.53-299 -2.43 26,564 99.5 250,000 to 300,000 12,723 1.29-3,888,000 3.22-306 -1.97 12,810 99.3 300,000 and over 31,890 3.23-9,673,000 8.00-303 -0.60 32,087 99.4 Total 986,765 100.00% -$120,817,000 100.00% -$122-2.15% 1,168,772 84.4% An estimated 986,765, or 84.4% of all married joint taxfilers would have a tax decrease under the proposal. The total estimated tax decrease for this group of filers is $120.8 million in tax year 2014. For married-joint taxpayers with a tax reduction, the average 2014 tax decrease would be $122. The average tax decrease would increase as income rises. On average, taxpayers with AGI between $25,000 and $30,000 would experience the largest percentage reduction in net tax liability (3.8%), but that percentage decreases as AGI increases. The percentage reduction for married-joint taxpayers with $300,000 or more of AGI would be 0.6%. Married-joint taxpayers with more than $100,000 of AGI comprise 36.8% of those who would receive a tax reduction but would receive 62.8% of the $120.8 million total reduction for married-joint filers. Those taxpayers have 65.2% of AGI and pay 73.6% of income taxes under current law. Page 4
ATTACHMENT 3 Other Filers, Tax Year 2014 Under $5,000 12,823 1.21% -$29,000 0.06% -$2-1.95% 287,885 4.5% 5,000 to 10,000 12,715 1.20-62,000 0.12-5 -2.33 200,967 6.3 10,000 to 15,000 75,743 7.16-255,000 0.51-3 -2.61 160,622 47.2 15,000 to 20,000 119,739 11.32-878,000 1.79-7 -2.97 141,765 84.5 20,000 to 25,000 124,864 11.80-1,744,000 3.53-14 -3.03 126,449 98.7 25,000 to 30,000 113,255 10.70-2,848,000 5.78-25 -3.22 114,114 99.2 30,000 to 40,000 189,750 17.93-7,484,000 15.18-39 -3.09 190,714 99.5 40,000 to 50,000 137,119 12.96-7,585,000 15.38-55 -2.82 137,632 99.6 50,000 to 60,000 92,587 8.75-6,579,000 13.35-71 -2.71 92,801 99.8 60,000 to 70,000 59,858 5.66-5,182,000 10.51-87 -2.65 59,994 99.8 70,000 to 80,000 37,878 3.58-3,871,000 7.85-102 -2.62 37,967 99.8 80,000 to 90,000 24,557 2.32-2,893,000 5.86-118 -2.60 24,603 99.8 90,000 to 100,000 15,147 1.43-2,017,000 4.10-133 -2.58 15,194 99.7 100,000 to 150,000 27,207 2.57-4,523,000 9.17-166 -2.52 27,311 99.6 150,000 to 200,000 6,702 0.63-1,493,000 3.02-223 -2.27 6,739 99.5 200,000 to 250,000 2,820 0.27-635,000 1.30-225 -1.72 2,846 99.1 250,000 to 300,000 1,398 0.13-314,000 0.63-225 -1.34 1,413 98.9 300,000 and over 4,059 0.38-898,000 1.83-221 -0.39 4,091 99.2 Total 1,058,221 100.00% -$49,289,000 100.00% -$47-2.45% 1,633,107 64.8% This table includes single, head-of-household, married-separate, and single-dependent filers. An estimated 1,058,221, or 64.8% of these taxfilers in 2014, would have a tax decrease under the proposal. The total estimated tax decrease for this group of filers is $49.3 million in tax year 2014. For taxpayers with a tax reduction, the average 2014 tax decrease would be $47. The average tax decrease would increase as income rises. On average, taxpayers with AGI between $25,000 and $30,000 would experience the largest percentage reduction in net tax liability (3.2%), but that percentage decreases as AGI increases. The percentage reduction for taxpayers with $300,000 or more of AGI would be 0.4%. Taxpayers with AGI over $100,000 comprise 4.0% of those who would receive a tax decrease, but these taxpayers would receive 16.0% of the $49.3 million total reduction. These taxpayers have 18.1% of AGI and pay 26.7% of income taxes under current law. Page 5