Among the amendments to the budget package being taken up by the Assembly today is one that makes a long overdue change to the Homestead Tax Credit program.

The Homestead Credit is a critical program in making property taxes less burdensome for low-income households in Wisconsin. In most respects, it is a very well targeted and well designed form of property tax relief. However, unlike most other portions of the Wisconsin tax code, it is not indexed for inflation.

Most components of the Homestead formula have not been changed since 1991 (with the exception of the upper income limit, which was last increased in tax year 2001). As the chart below indicates, inflation has been eroding the value of the program:

• The inflation-adjusted value of the maximum credit has declined by 37 percent since 1991.
• The real value of the average credit has fallen by $178, or 26 percent.

The Governor’s budget bill and Finance Committee version recommended indexing the income eligibility ceiling for inflation. (See LFB paper # 707 for more info.) That’s a very significant step forward, but wouldn’t fully address the problem. Anyone who has property taxes of $1,450 or more and annual income of $8,000 or less would see no benefit from that change.

Assembly Democrats approved a change offered by Rep. Krusick to index the full Homestead formula, which has long been a priority of WCCF. (See, for example, our January 2009 analysis. ) That amendment won’t change the credit in the next year or two, but will prevent future erosion of the credit for all low-income households.

We are optimistic that full indexing will be approved by the Assembly. The fate of that amendment will then be in the hands of the Senate and ultimately the Governor.

(Source: Wisconsin Budget Project analysis of DOR data)