Gov. Scott Walker said Tuesday he’s open to making his $100-per-child tax credit proposal available only to families who earn enough to pay income taxes.
Questions remain about whether the Legislature will go for Walker’s plan with Senate Majority Leader Scott Fitzgerald, R-Juneau, expressing doubts Tuesday about making the proposed child tax credit permanent. But he also said he shares Walker’s interest in giving part of a projected $385 million budget surplus back to the people.
Walker defended his plan to make the tax credit available as a sales tax rebate check later this summer — right before he stands for re-election. Democrats and even some conservatives have questioned using the surplus as an election-year gimmick.
“This was the quickest, easiest way to get money right back in the hands of hardworking taxpayers,” Walker said. “I believe we’ll see a huge increase in families coming in and buying school supplies, new shoes and clothing and other things. That will almost entirely recycle those dollars back into the state’s economy, which means going into next year, the new budget, I believe it will help us create another bigger-than-expected surplus, which will then help us on our priorities like schools and finding ways to lower property and income taxes.”
Under Wisconsin tax law, families who don’t earn enough to pay taxes are still eligible to receive a tax refund if they qualify for what are known as “refundable” tax credits.
Walker’s proposal calls for the child tax credit to be refundable. Only two other states, New York and Colorado, offer a refundable child tax credit. The federal child tax credit is partially refundable.
On Tuesday he said he would be “open if the Legislature so deemed to tie it into taxable liability” in future years.
Impact an unknown
It’s unclear how many families would not receive the child tax credit if it is only available to families who pay taxes. Of the state’s 3 million tax filers, about 29 percent pay no income taxes, but that doesn’t account for how many have children, said Rick Olin, a tax policy analyst for the nonpartisan Legislative Fiscal Bureau.
“If you made the credit nonrefundable, we know there’s a substantial number of people who wouldn’t receive the credit,” Olin said.
For a married couple filing jointly, the threshold for having a tax liability is about $22,000 in adjusted gross income. For a single person, it’s $15,250. There are numerous factors, including other tax deductions, that would affect which tax filers would be affected.
The state already offers an earned income tax credit (EITC), which Walker scaled back in a previous budget. Only families who work and make up to a certain amount of income may receive that credit, which means it primarily benefits low-income workers.
About 253,000 tax filers claimed the EITC in 2015, at a cost of about $100 million to the state, according to the Department of Revenue. The EITC phases out for a two-parent household with two children at about $50,000.
The proposed new child tax credit could cost the state $122 million a year in tax revenue if all 670,000 families with children under 18 claimed it. Walker’s proposal doesn’t include an income-based threshold, as the five state and federal child tax credits do.
Families would receive a postcard in the mail directing them to a Department of Revenue website, where they would have to apply for the credit by June 30. The funds would be mailed out or directed deposited by Sept. 1.
The new child tax credit was one of several items Walker proposed in his State of the State address last week. He has urged lawmakers to pass the changes quickly.
Fitzgerald told reporters Tuesday legislators might not want to create a tax credit that would extend beyond the current budget. The state is already planning to spend about $191 million more in 2018-19 than it expects to collect in revenue, so making the child tax credit permanent would add another $244 million to the budget hole in the next biennium.
“If you did that one time rather than stretching it out over future years that makes sense,” Fitzgerald said. “It certainly would put it in a better place than as announced.”
Assembly Minority Leader Gordon Hintz, D-Oshkosh, said by floating a nonrefundable tax credit option Walker is trying to appeal to conservatives.
“The idea that you have an untargeted, expensive, not well-thought-out proposal I think makes it ridiculous,” Hintz said.
Assembly Speaker Robin Vos, R-Rochester didn’t respond to a request for comment.