A set of tax hikes recently approved in the Illinois state budget will reduce Wisconsin’s general fund by $51 million in the next state budget, according to a memo released Tuesday by the nonpartisan Legislative Fiscal Bureau.
The Illinois budget, enacted last week after a two-year stalemate by a legislative override of Gov. Bruce Rauner’s veto, includes a 32 percent tax increase that will bring in an additional $5 billion for the state. Because of an income tax reciprocity agreement between the two states, that means Wisconsin’s budget will take a hit.
The agreement has been in place between the two states since 1973. It allows people who live in one state and work in the other to pay income taxes only in the state in which they live. Because Wisconsin has more residents working in Illinois than Illinois does in Wisconsin, Wisconsin makes a payment to Illinois each year. In addition, Wisconsin residents who earn income in Illinois other than personal service income pay taxes on that income in Illinois, then claim a credit in Wisconsin.
Those two factors together will result in a $51 million reduction to Wisconsin’s general fund in 2017-19, according to the memo.
While unpleasant, some perspective is necessary. This $51 million represents about 0.07% of the state budget. It’s a rounding error, sadly. That’s how much our state government spends.