State must focus on future with proposed tax cuts

Wisconsin needs to focus on the long term future of the the state and direct tax cuts to where it will provide an investment for the future and balance deep tax cuts for retirees with tax incentives for young families.

A group of Republican lawmakers have introduced a bill to exempt retirement income for virtually all Wisconsin residents.

State Rep. David Steffen, R-Howard, and state Sen. Rachael Cabral-Guevara, R-Appleton, proposed a plan that would exempt the first $100,000 of retirement income for individuals, and the first $150,000 for married and joint filers, who are 67 or older. That includes income from IRAs, 401(k) plans and pensions.

Wisconsin already exempts military retirement from state income tax and it is among 39 states that do not tax income from Social Security payments.

On the surface, the plan has a lot of merit.

On its face, providing tax cuts to retirees makes a lot of sense and with about 20% of the state population 65 and older is sound politics.

On Wisconsin Public Radio, Steffen shared the need for the plan. “They often are on fixed income, their level of revenue isn’t increasing on a regular basis,” he said. “This helps with that specific demographic, our seniors, who are often dealing with high property taxes, high inflation and don’t have a mechanism to adequately address it.”

The proverbial fly in the ointment is that when you look at the Census Bureau demographic data, it paints a different picture.

By the numbers, the median Wisconsin household income for people age 65 and older is $48,793. This means that 50% of all households earn less than that amount and 50% earn more.

Setting the threshold at double the median household income for individuals and triple the median household income for married couples provides a disproportionate tax benefit to wealthy retirees.

A better plan would be to exempt the first $50,000 of retirement income which would benefit all Wisconsin retirees and wipe away the tax burden for those lower half of them — the ones who are struggling to make ends meet.

At the same time, Wisconsin needs to also look at the other end of the age and income demographics and provide relief to young families. The median household income for 25 year-olds is $37,323. This demographic is impacted by inflation and rising property taxes, as are the older demographics, while at the same time is paying high costs for childcare, student loans and housing.

While Wisconsin should explore tax cuts for seniors citizens, lawmakers should also focus attention on the unique needs of young families. Wisconsin is facing a demographic crisis when it comes to workforce particularly in the skilled trades. Rather than focusing on keeping retirees from becoming snowbirds, Wisconsin should put its focus on attracting and retaining young workers and families to keep the manufacturing and agriculture engines of commerce strong.

Tax cuts make sense, if done right and for the right reasons. Wisconsin must use its surplus funds to reinvest in future generations.