Research report: February 21, 2020
By: Junjie Guo and Noah Williams, Center for Research on the Wisconsin Economy
Abstract:
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.
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