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Lawmakers from both parties agreed in the 2005 budget to phase out taxes on Social Security income, and Gov. Jim Doyle used his partial veto power to speed up the relief, eliminating them altogether in tax year 2008. He touted the move during his 2006 re-election campaign as evidence he was a tax cutter.
But the cuts are coming just as lawmakers confront what the governor says will be a $5.4 billion deficit through mid-2011, the worst in the state’s 160-year history.
An estimated 228,000 senior citizens will get average reductions of $518 on income taxes due in April even as lawmakers will likely be deciding to cut services and raise other taxes and fees to balance the budget, according to the Department of Revenue.
Already, Doyle said he will leave 3,500 state jobs vacant, eliminate bonuses, sell 500 cars, and slash agency budgets. New taxes on hospitals and oil companies also are in the works, and lawmakers are considering imposing the sales tax on certain services.
Todd Berry, president of the nonpartisan Wisconsin Taxpayers Alliance, said the tax cuts for Social Security were one of many examples of irresponsible budget practices by the governor and lawmakers that helped build the deficit. They have routinely made promises for future spending and tax cuts they know they cannot afford, he said.
“The governor, Democrats, and Republicans all fell over themselves to get this enacted,” he said. “No one asked whether it made sense to exempt all Social Security income even in the case of individuals with other substantial sources of income.”
He noted lawmakers could shave more than $100 million from the deficit by eliminating or delaying the breaks.
Doyle’s spokesman Lee Sensenbrenner would not say Tuesday whether the governor supported either approach, saying it’s premature to rule anything in or out of the budget Doyle will introduce next year. He said in general, the governor is looking more at making budget cuts than raising taxes but everything is on the table.
“Clearly, this is an extraordinary fiscal challenge the state is in,” Sensenbrenner said. “It’s fair to say everything is being reviewed and looked at.”
Most states do not tax Social Security benefits, but Wisconsin and 14 others have taxed them to varying degrees until now, according to the Redding, Conn.-based Retirement Living Information Center. Iowa is gradually phasing out its tax through 2014, while Missouri plans to do so by 2010, the center said.
In signing the budget in 2005, Doyle said he was proud he was accelerating tax relief for “Wisconsin’s greatest generation.”
The state has taxed up to 50 percent of Social Security benefits of single taxpayers with incomes greater than $25,000 and married taxpayers with incomes greater than $32,000. Benefits for those with lower incomes were already exempt. The 2005 change wiped out all taxes on Social Security benefits regardless of income.
Former Assembly Speaker John Gard, a Republican who championed the plan, said lawmakers tried to end the tax on Social Security as responsibly as possible and members of both parties took credit for the popular idea during campaigns.
“I think it would be a slap in the face if the Legislature delayed this tax break after everyone and their brother ran on it,” he said. “I think the people who this helps need the money more than the government does.”
The help does come at a good time for senior citizens, whose savings have taken huge hits as a result of the downturn in the stock market. Seniors are eligible for Social Security as early as age 62 but they typically must supplement the income with pensions and other investments to maintain their quality of life, seniors advocates say.
Jane Elmer, executive director of the Wisconsin Retired Educators Association, said the Social Security breaks will help offset the impact of a potential decrease in state pensions starting May 1. She has been traveling the state spreading the news about them to the group’s members.
Tom Frazier, executive director of the Coalition of Wisconsin Aging Groups, said lawmakers should follow through on their promise.
“You’ve got seniors who are really hurting out there,” he said. “It would be a disaster to try to repeal them now. ... This is a very good time for them — not that anybody foresaw that.”
