New tax increases in Illinois will take a $51 million bite out of Wisconsin’s budget over the next two years, complicating an already complex path to agreement among Republican lawmakers on the next state budget.
The projected $51 million reduction in tax revenue is the result of higher income tax credits that people who work in Illinois and live in Wisconsin will be able to claim as a result of $5 billion in tax increases passed by Illinois lawmakers last week to cure a two-year budget stalemate, according to the Legislative Fiscal Bureau.
Because of a tax reciprocity agreement enacted in 1973, Wisconsin residents who work in Illinois file their taxes in Wisconsin to avoid filing two tax returns. Under the agreement, whichever state has more revenue as a result must reimburse the other state.
The effect will be a $51 million loss to Wisconsin’s general fund in the next budget.
The revised budget outlook comes as lawmakers are already more than a week late in passing a new two-year spending plan, with Republicans in the Assembly and Senate still divided on how to fund roads projects.
“Our budget will address the loss of revenue from (Illinois’) tax hike,” Joint Finance Committee co-chairwoman Sen. Alberta Darling and co-chairman Rep. John Nygren said in a statement. “However, we expect that effect will be temporary as more and more companies are taxed out of Illinois” and move to Wisconsin.
Nygren, R-Marinette, said the budget-writing process so far has yielded about $90 million in less spending and higher revenues than Gov. Scott Walker’s draft, but that amount is now reduced by $51 million because of the Illinois tax hike. He said that may mean some lawmakers’ proposals in the final budget deliberations may not get approved.
A spokeswoman for Senate Majority Leader Scott Fitzgerald, R-Juneau, said Illinois’ tax increase “will certainly have an effect on Wisconsin’s budget, but we have not determined where or how.”
Darling, R-River Hills, said Tuesday that Senate Republicans have settled on using $712 million in bonding, $350 million of which would be supported by the state’s general fund.
Fitzgerald said a detailed proposal would be sent to the Assembly sometime next week.
Speaker Robin Vos, R-Rochester, has repeatedly said that unless options to raise revenue such as increases in the gas tax or vehicle registration fees for road projects are considered by the Senate Republican caucus, he would not consider more bonding.
Nygren said any talk of adding to Walker’s $500 million in borrowing to pay for roads must include higher revenues to pay for whatever level of bonds there is.
He declined to comment on the Senate proposal until he sees details.
Darling also said her caucus wanted to resume the Legislature’s budget-writing committee work this week, but that Vos refused unless an agreement on transportation had been made.
She said the committee could meet to settle budget matters related to K-12 education, taxes, the Department of Natural Resources, the Department of Agriculture, Trade and Consumer Protection and district attorneys.
“We have positions on everything — we’re ready to go,” she said. “He won’t agree.”
A Vos spokeswoman did not respond to a request for comment.
GOP leaders are scheduled to meet with Walker on Wednesday.