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Despite lower income-tax rates enacted by lawmakers, Wisconsin workers didn’t see the result in their paychecks in 2013 unless they took special action.
Taxpayers will see the benefit when they file their tax returns this year and get either a larger refund or a smaller bill.
The state did not change the tax withholding tables to reflect the new, lower rates -- following a long tradition in Madison.
The state currently has no plan to update the withholding tables in 2014, either.
That’s the sum of what we learned as we checked out a claim by state Sen. Kathleen Vinehout, D-Alma, about what the average worker would save from the tax cut approved in 2013 by Republican lawmakers and Gov. Scott Walker.
Vinehout, who is mulling a run for governor this fall, opposed the tax cut, as did many Democrats. She says the savings for individual families wasn’t worth the $650 million in lost revenue to the state over two years.
This is what she told a small audience in Waukesha on Dec. 5, 2013:
"Get rid of the tax decrease," Vinehout said. "Did you know -- you might not know this -- if you make the average amount of people in Wisconsin, $50,000, you got $1.60 less a week in taxes? You might not have known that because they didn’t change the withholding tables, so it didn’t show up in your paycheck."
She added: "But, if you file for your refund, and let’s say you file it a little late, and you get that refund sometime in June, you’ll maybe have a little more money, which might be just about the time the governor’s is out there on the campaign trail saying, hmm, you got more money in your pocket because of what I gave you."
Let’s examine the elements of Vinehout’s claim.
Check’s in the mail
Wisconsin Revenue Department spokesperson Laurel Patrick confirmed that withholding tables were not updated after the tax cut, and said no decision has been made to do so in 2014 either. The tax cut reduced rates in all five tax brackets.
That means the tax-rate changes are not automatically reflected on people’s paychecks. To get the tax savings on their regular paycheck, employees must file a new WT-4 or WT-4A form with their employer.
Todd Berry, president of the Wisconsin Taxpayers Alliance, said the state, with a few exceptions, has long tried to help its immediate cash flow needs by not automatically making tax cuts show up on people’s paychecks. The practice predates Walker.
The state is now over-withholding by 20 percent or more because it has typically not adjusted the tables, Berry said.
Many taxpayers may prefer getting a lump sum at refund time, Berry said, but they should understand that as a group they essentially are giving state government a billion-dollar annual no-interest loan that adds to the state deficit under generally accepted accounting principles.
"Politicians know it’s more politically valuable for people to get a nice refund in 2014," Berry said.
What’s the savings?
The rest of Vinehout’s claim was that "if you make the average amount of people in Wisconsin, $50,000, you got $1.60 less a week in taxes" under the income tax cut.
When we asked for evidence, Vinehout’s office pointed to a Legislative Fiscal Bureau analysis of the tax savings from the income-tax changes, and to separate state figures on tax burdens.
The average Wisconsin adjusted gross income, across all types of filers, was $47,310 for tax year 2010, according to a Revenue Department analysis. There is 2011 data, the latest available, that puts the figure at $48,537, according to Dale Knapp, research director at the Taxpayers Alliance.
Vinehout looked up that average income in the June 2013 memo by the non-partisan Fiscal Bureau, which presents ranges of income along with tax changes estimated for 2014.
The Fiscal Bureau is the independent budget scorekeeper in Madison, and its reports on taxes are used by both parties to gauge the impact of proposals.
The bureau’s analysis said that in the $40,000 to $50,000 range, the average savings is $85 for one year.
That works out to $1.63 a week, which Vinehout referred to as $1.60 in her claim.
So, Vinehout puts the average income into the slot, and with a bit of rounding her figure for the average tax change is on target.
There’s some imprecision built in here, though, because the Fiscal Bureau memo uses income ranges rather than one particular income.
So while Vinehout mentions $50,000, she gets the $1.60 average tax change from an income range of $40,000 to $50,000. And because the average state income is above the midpoint of that range, it’s likely the average tax change would differ slightly from the $1.60.
There are other ways to illustrate the impact of the tax cut. One is to look at the types of filers rather than just the composite income brackets as in the Fiscal Bureau memo.
Depending on the example used, one approach yields a smaller tax change figure than Vinehout’s approach, the other a larger one.
The average single person who filed taxes had $26,556 in income, while married couples had an average of $83,480, said Knapp.
Walker, for his part, chooses the married couple example. Such a couple with two children would save about $173 a year, or $3.33 per week over the two years.
On the lower end, the average single would see a weekly savings of about 73 cents.
The overall state average that Vinehout cites is a middle ground between those two numbers.
Vinehout said that "if you make the average amount of people in Wisconsin, $50,000, you got $1.60 less a week in taxes" under the $650 million state income-tax cut, but "it didn’t show up in your paycheck."
The average income she cites is slightly high but within reasonable rounding range. She uses a reliable source for her tax-change numbers, and they are on target or very close, with the caveat that the analysis is set up for income ranges rather than a precise income.
She’s right that the tax cut did not just show up in workers’ paychecks, due to inaction by the state.
With the clarifications noted, we rate her claim Mostly True.
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YouTube video of Senator Vinehout appearance at home in Waukesha, Dec. 5, 2013
Email exchange with Joel Nilsestuen, Office of Sen. Kathleen Vinehout, Jan. 9, 2014
Email exchange with Laurel Patrick, communications director, Wisconsin Department of Revenue, Jan. 13, 2014
Wisconsin Taxpayers Alliance newsletter, "State tax refunds top $1.8 billion: Boon or loan?" March 2010
Interview with Todd Berry, president, Wisconsin Taxpayers Alliance, Jan. 10, 2014
Interview with Dale Knapp, research director, Wisconsin Taxpayers Alliance, Jan. 13, 2014
Legislative Fiscal Bureau, memo to Legislature, "Distributional Impacts of Individual Income Tax Proposal," June 5, 2013
Wisconsin Department of Revenue, "Individual Income Tax Statistics Report for Tax Year 2010"
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