Tuesday, October 15, 2013

Property Tax Relief Targeted at Low-Income People Should be Part of Tax Cut Legislation

$11  Million Drop in Homestead Credit Offers Opportunities

Governor Walker’s proposed $100 million property tax cut is on a fast track through the legislature, with the Senate voting to approve the measure today and the Assembly set to consider the measure as soon as Thursday. The rush to cut property taxes is a bit ironic considering that the legislature recently raised property taxes by chipping away at a property tax credit aimed at keeping property taxes manageable for low-income people. Legislators could improve the tax cut proposal currently on the table by making sure that targeted property tax relief for low-income people is included as part of the legislation.

Back in 2011, the legislature raised property taxes for low-income people by freezing many of the factors used in the formula for calculating the Homestead Credit. This action means that some people, especially those who rely on Social Security benefits to make ends meet, are pushed out of eligibility for the property tax credit, and others receive a smaller credit. (See this Wisconsin Budget Project report for the details of how that happens.)

The good news is that lower-than-anticipated spending on property tax relief for low-income people this year creates a window of opportunity for legislators to make structural changes to the program that will help preserve property tax relief in the future, and to piggyback those changes in the property tax cut legislation currently under consideration. In 2012, it was anticipated that spending on the Homestead Credit would stay at about the same level as it was in 2012, but in fact spending on the Homestead Tax Credit fell to $122.8 million in 2013 from $133.7 million in 2012, as shown in the chart below. That represents a drop of $10.9 million. The sharp decline in spending means that the legislature could lift the freeze on the Homestead Tax Credit formula and give greater property tax relief to low-income owners and renters, possibly without actually spending any more money than originally anticipated.

But if the legislature is set to approve a new property tax cut, then why is it important that we also boost the Homestead Credit? Because the property tax cut advocated by the Governor isn’t targeted, and unlike the Homestead Credit, his tax cut doesn’t seek to provide relief to the people for whom property taxes are the greatest burden. In addition, residents in some 65 school districts will not receive any tax relief from the Governor’s plan, because the proposed tax cut is delivered through school districts, and those districts do not receive any general school aid from the state. Yet there are certainly low-income people in those districts that could benefit from property tax relief.

Legislators seem to be nearly unanimous in their desire to pass a property tax cut. However, there are still some important questions that need answers, such as whether Wisconsin can afford this tax cut and whether it would hinder the state’s ability to help build a favorable environment for creating new jobs. But if the legislature is set on approving a new tax cut, they should consider the favorable conditions that exist right now for making sure that part of the property tax relief goes to the people who need it the most.

Tamarine Cornelius

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