Research report: February 21, 2020
By: Junjie Guo and Noah Williams, Center for Research on the Wisconsin Economy
We evaluate the effects of the expansion in the standard deduction proposed recently in AB 910 by Wisconsin lawmakers. We find it would reduce taxes for about 2 million taxpayers and reduce state tax revenue by about $200 million, so the reduction per affected taxpayer is about $100. Low-to-middle-income taxpayers would benefit the most. Moreover, the expansion would reduce the effective marginal tax rates (MTR) and thus provide work incentive for some low-to-middle-income taxpayers, although it would also raise the effective MTR and thus reduce the work incentive for some relatively high-income taxpayers. We end the paper by considering some alternative revenue-equivalent reforms, with the finding that, by reducing a particular statutory rate and expanding the corresponding bracket at the same time, we could reduce the effective MTR and thus provide stronger work incentives for a large group of taxpayers.