Instead of one-time rebates and school funding patches, tax and spending reform
Think of the failure of the $1.8 billion tax-and-spending deal between Gov. Tony Evers and the Legislature as a second chance at better policy.
The deal died Wednesday night. After passing the Assembly, it fell 18-15 in the Senate. Three Republican senators who voted no called it fiscally irresponsible. Evers failed to persuade a single Senate Democrat to back it.
The Republican majority leadership’s aim — to get a projected $2 billion state surplus back to taxpayers who have been overcharged— was well-intentioned.
But that aim is better accomplished by means other than rebate checks, gimmicky exemptions and a buydown of one year’s worth of spiraling school taxes.
Rebates
Tax rebates are fun and perhaps good politics: Who doesn’t want a check in the mail?
That’s why the biggest part of the deal would have involved sending out exactly such one-time checks — up to $300 for single filers, $600 for couples filing jointly — to everyone who paid Wisconsin income taxes for 2024. This would have whisked $870 million from Madison back into the hands of taxpayers.
Some Republicans worried the surplus would be squandered should the state turn blue in November.
“There was some talk of, ‘Well, we don’t want to leave the money. What if (Democrats) take over?’” state Rep. Lindee Brill (R-Sheboygan Falls), who opposed the bill, told WIBA-AM host Vicki McKenna Wednesday. “What kind of attitude is that?”
A pessimistic one, and you can see why: Legislative Democrats almost unanimously opposed the deal, complaining most about sending money to taxpayers.
But returning the overcharge by reducing income tax rates in a permanent, pro-growth way would be far more preferable. Instead of a one-time check, taxpayers would get a break every year — and maybe a better job or a raise created by the improved economic growth.
Assembly Majority Leader Tyler August called the rebates first aid for taxpayers “feeling the pain” after “property taxes last December skyrocketed,” in an interview with Milwaukee radio host Benjamin Yount on Tuesday.
“We can get some more money back in their pockets to help with some of this as a kind of stopgap” until, as August hopes will happen, presumptive Republican nominee Tom Tiffany wins the governor’s race “and can do some even bigger, bolder reforms.”
For his part, Tiffany opposed the deal, telling Yount, “We need to make sure and do stuff that is going to give taxpayers back their money permanently.”
That is just good policy. For half a century or more, tax policy experts have pointed out that one-time checks mean a little more cash right away but do nothing to reward people who expand a business, take a tougher but better-paying job, invest, take risks.
By contrast, broad-based and permanent income tax improvements, which most directly incentivize growth, can drive lasting prosperity in Wisconsin.
Besides, personal and corporate income taxes account for about 80 percent of the surplus, so they’re a reasonable channel for returning money to those who paid it.
Two other flashy elements of the deal have a similar problem. One would exempt income earned as tips from income tax, aligning Wisconsin with what is temporarily federal tax law.
It would amount to tax relief of about $53 million in the fiscal year starting July 1 — but relief only to some taxpayers, done in an arbitrary way. As a Tax Foundation analysis points out, taxpayers in similar circumstances with similar earnings would face markedly different tax bills if one were in tipped occupation and the other weren’t — a waiter and an administrative assistant, for example.
The deal also exempted some overtime pay from income tax, as federal tax law now does, up to $25,000 of such pay for couples. That would amount to $180 million in tax relief next fiscal year. The better route: improve the standard deduction, which helps lower income workers ineligible for overtime, such as supervisors earning just over $36,000.
Schools and aid
Evers billed the deal as sending a lot of money to schools, but actual new money for districts amounted to about $315 million more in special education reimbursement over the current fiscal year and the next.
School districts have forever complained that such state reimbursement is low, but the deal’s added funding — a 26 percent boost in fiscal year 2026-27 — would have come atop state reimbursements that already had risen $487 billion, or 127 percent, since 2019-20, according to the Legislative Fiscal Bureau. For a fuller look, see By the Numbers here.
An additional $302 million in “general aid” to school district was seen by backers of the deal as property tax relief. They are half right.
Some of Wisconsin school districts’ revenue is limited by state law. Each district is instructed how much it can collect per-pupil between local property taxes and general state aid. As long as this revenue limit stays fixed, the district must levy less if the state sends more aid.
The $302 million in aid in the deal would have meant that state money would replace some of what districts otherwise could levy from property taxes. If substituting a one-time income tax windfall for property tax revenue is tax relief, then the package offered it.
But school district revenue limits aren’t staying fixed. They are rising faster than ever and are due to go on rising for nearly four centuries because of Evers’ infamous “400-year veto,” as Tiffany and other Republicans pointed out.
Lawmakers in 2023 gave every school district’s revenue limit a two-year boost of $325 per pupil — much more than any previous increase. Evers used the absurd veto power of Wisconsin governors to strike out individual digits so the increases would continue until the year 2425, an additional $325 per pupil in spending power every year.
It means school districts saw a sharp upturn in their power to spend, with no end in sight, and property tax bills leapt upward.
Without a repeal of Evers’ 400-year veto, they’ll go on leaping unless the Legislature agrees to shake down income-tax payers for additional school aid. Otherwise, school districts will be able to extract it via higher property taxes. When lawmakers objected, Evers replied with a cartoonish social media message saying, “Deal with it.”
The one-time $302 million windfall would have amounted to $387 per pupil, displacing just a bit more than a one year’s increase in what the districts could levy in property taxes. And because the deal didn’t define the $302 million as one-year, lawmakers would have to find another $300 million windfall somewhere next year, or property taxes would spring up all the faster.
The obvious policy solution — especially since Wisconsin school districts already have more revenue than ever in history, $18,592 per pupil by the most recent state figures — is to repeal Evers’ 400-year vengeance. This, like the Act 10 labor reforms of 2011, would put some reins on school spending that has resumed its sharp upward trajectory.
Tiffany this week again said the 400-year spiral should end immediately — even as Democratic lawmakers and his potential gubernatorial opponents repeated talk of schools being underfunded. The state Senate’s late night rejection, then, seemingly throws the decision to a much larger body — the November electorate.
Patrick McIlheran is the executive editor at the Badger Institute.
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