Wisconsin GOP lawmakers' bill would eliminate nearly all state income taxes for retirees

MADISON - Two Republican lawmakers released a proposal Monday that promises to eliminate nearly all state taxes on retirement income for Wisconsin residents.

The bill from co-authors Rep. David Steffen of Green Bay and Sen. Rachael Cabral-Guevara of Appleton introduces new optional retirement income tax exemptions for Wisconsin taxpayers 67 or older. Individual filers would be exempt from paying taxes on the first $100,000 of annual retirement income, while married and joint filers would see a tax exemption for the first $150,000.

Retirement income taxes would be completely eliminated for over 98% of all taxpayers age 67 or older, according to a Legislative Fiscal Bureau estimate from Steffen's office.

Steffen and Cabral-Guevara said in a joint statement Monday the tax exemption would attract new employees and retain Wisconsin retirees by bringing the state in line with neighbors like Illinois, Iowa and Pennsylvania that don't tax retirement income from IRAs, 401(k) plans and pensions.

The lawmakers' plan would create tax exemptions for IRAs, 401(k) plans, 403(b) plans and pensions in Wisconsin as well as other qualified retirement plans under federal tax codes.

Two Milwaukee Democrats — Rep. LaKeshia Myers and Sen. Lena Taylor — support the bill, Steffen's office told the Milwaukee Journal Sentinel on Tuesday

“Retirement income and savings is something that impacts folks for years after they retire. This is then reflected by how much people spend at restaurants, on housing, and in their community,” Cabral-Guevara said. “By keeping these retirees in Wisconsin, we will see an economic benefit."

Republican lawmakers floated a budget amendment in January that would have delivered similar tax relief for retirees, but the measure increased the amount of eligible tax-free income to $200,000 for married and joint filers age 67 or older.

Steffen told the Milwaukee Journal Sentinel he reduced the cap for married and joint filers in Monday's bill to lower costs and focus tax cuts on middle-class earners. He hoped the changes would placate Gov. Tony Evers, who previously vetoed a tax cut for married filers earning between $36,840 and $405,550 annually.

"My goal is to return as much of that $4 billion of tax cuts that the governor removed from the budget [and] find a way to get that back to the people's pockets," Steffen said. "It's all an overpayment by taxpayers."

Evers said before the state budget-writing cycle began he would not sign into law tax cuts for top earners in the state but instead wanted a 10% income tax cut for middle-class residents delivered through tax credits.

The governor told CBS 58 on Monday during a stop in Montello he was willing to negotiate a new tax cut bill as long as Republicans avoided giving tax cuts to wealthy Wisconsinites.

Assembly Speaker Robin Vos said in response he was open to negotiations if Evers was "admitting he made a mistake" when vetoing the previous tax cuts.

The nonpartisan Legislative Fiscal Bureau has yet to release an updated analysis for the proposal released Monday, though an analysis of the earlier proposal estimated over 240,000 filers would receive a total tax cut of $422.2 million in 2024, an average reduction of $1,749 per filer.

Wisconsinites age 67 or older making less than $100,000 per year would see about half of the total estimated decrease.

Additionally, Wisconsin would see an estimated $169 million income tax revenue reduction in the 2023-24 fiscal year that would grow to $422.2 million in 2024-25 and all years after under the earlier tax plan. Steffen anticipated the annual cost would fall below $400 million once the LFB completes its analysis of the bill released Monday.

Retirement income already exempted from Wisconsin income taxes — such as Social Security and military earnings — would not count towards the earning caps established in lawmakers' proposal.

Current state law allows individuals 65 or older with federal adjusted gross income under $15,000 or married and joint filers under $30,000 to claim a $5,000 exemption on retirement income in certain accounts.

Participation in the tax exemption program is optional. Those who choose to participate would not receive any state income tax credits.

Steffen and Cabral-Guevara expect the bill to receive a public hearing this fall.

Tyler Katzenberger can be reached at tkatzenberger@gannett.com.

This article originally appeared on Milwaukee Journal Sentinel: Wisconsin GOP bill would cut most state income taxes for retirees