If the state had a checklist for spring cleaning, income taxes would be on it. No one benefits from complex laws that burden individuals, small businesses, and tax collectors alike.
State officials have been tinkering with the income tax since the late 1990s, piling change on change, adding lines to tax forms and pages to instructions with little benefit to the typical taxpayer.
State income tax instructions are now 22 percent longer than they were in 2001. The number of tax credits has tripled. And, though differences between state and federal income tax laws are supposed to be minimized to ease filing, the number of differences has almost doubled.
The tax has been particularly weighed down in recent years by credits as well as by charitable giving options. Many of these have appealing names and laudable goals, aiming to help a range of groups from film producers to farmers.
The problem is there are at least 27 credits that almost no one uses. Of these, the most claimed credit had only about 7,900 users. That’s less than 0.3 percent of last spring’s 2.9 million income tax filers. Only three of those 27 credits were claimed by more than 1,000 (< 0.1 percent) individual filers.
The financial consequences of these credits are also minimal. Collectively, they generated only $56 million in 2011 income tax savings out of $6.4 billion paid. Even this figure is somewhat misleading: 70 percent of the savings came from two credits.
Not only are these credits rarely used, their use is dropping. Between 2010 and 2011, only one in five increased in use. And, again, none was claimed on more than 0.3 percent of returns.
Even more troubling than the proliferation of tax credits is state politicians’ increasing willingness to use the income tax form to assist private fundraising. Ten lines on the state tax form are now dedicated to soliciting donations on behalf of a select group of good causes, e.g., breast or prostate cancer research, food pantries and even the Green Bay Packers’ stadium.
Combined, the 10 generate slightly more than $1 million. Only one yields over $250,000. Six produce $100,000 or less.
Even the oldest and most “popular” of the options, the endangered resources donation, attracts only 0.5 percent of filers. Its use in 2011 was down 7.6 percent from the prior year. Of the other nine donor offerings, eight were used by less than 0.3 percent of filers. All were used less in 2011 than in 2010.
Such items don’t need to be on tax forms to be supported. If these causes have merit, their promoters can request state funding, as other programs must. If they fail to gain it, perhaps it means their place on tax forms was ill-advised from the start.
Finally, even if these three dozen or so tax items were used by taxpayers, they raise important questions: What place, if any, do they have in a simple, people-friendly income tax? With their legislative adoption numbers growing rapidly, what does this mean for easy-to-use tax forms and instructions? And, should the governor and legislature be empowered to “play favorites,” limiting choices for 5.6 million people?
Todd A. Berry is president of the Wisconsin Taxpayers Alliance.