Tax cuts that won’t happen

Earlier this year, Wisconsin’s senate majority leader, Devin LeMahieu (R), introduced a flat-tax proposal to reduce the top personal state income-tax rate to 3.25 percent from 7.65 percent, marking one of the boldest tax plans ever put forth by state leadership. Assembly speaker Robin Vos (R), for his part, has gone on record acknowledging the reality that we must compete with states such as Florida for jobs and people. And senate president Chris Kapenga (R) has outlined a vision of fully eliminating the income tax, a concept supported by the Institute for Reforming Government (IRG), the state’s chamber of commerce, and industry groups across the state.

The momentum for transformational tax reform could not come soon enough. With the country’s ninth-highest top-income-tax rate, Wisconsin has an economy that is on the brink of decline in the wake of the pandemic, economic shutdowns, and inflation. Paired with an aging population and growing workforce shortages, economic projections do not paint a rosy picture for the future of our state, and small fixes at the margins have not reversed the trend of economic malaise. If state lawmakers want the next generation of Wisconsinites to have a shot at the American dream, they need to dramatically course-correct — and fast!

Fortunately, the political climate for transformational tax reform has never been — and possibly never will be — better in the Badger State. Thanks to the groundwork laid by Governor Scott Walker and his administration’s limited-government and pro-growth policies — which have already seen taxes cut by $22 billion — Wisconsin is sitting on an unprecedented $7 billion budget surplus just waiting to be returned to its rightful owners: the people of Wisconsin.

recent poll by the State Policy Network and Morning Consult showed that nearly six in ten Wisconsinites think state taxes are too high. A plurality of Wisconsin voters — across partisan lines — support eliminating the income tax entirely. Only 3 percent of respondents said state taxes are too low, compared to 59 percent who said they’re too high. In a hyperpolarized purple state such as Wisconsin, it’s remarkable that there is such strong support for tax reform.

Furthermore, in 2022, IRG staff members drove more than 5,200 miles across Wisconsin, hosting more than 40 listening sessions to hear directly from the people on the issues impacting them. Reducing the tax burden — and finding a way to eliminate the income tax — was discussed at nearly every single event. One manufacturer in northeast Wisconsin told us that merely simplifying the tax code in any meaningful way would save the company thousands of dollars per year in compliance costs.

The positive effects of Senator LeMahieu’s flat-tax proposal are clear. Nine out of ten small-business owners in Wisconsin pay the individual income tax, so a flat tax would help them by simplifying the tax code and therefore reducing compliance costs. It would also help the average taxpayer better understand his or her obligations, thus reducing the need for expensive tax-preparation services — a necessary burden for too many individuals and small businesses. This would be especially beneficial for middle-income individuals who would no longer have to bear the burden of this hidden tax.

Moreover, in an era of unprecedented competition between states for jobs, families, and capital, LeMahieu’s plan would reduce Wisconsin’s income-tax rate below that of our neighbors in Michigan, Minnesota, Illinois, and Iowa.

Unfortunately, Governor Tony Evers (D) has already vowed to veto the LeMahieu flat-tax plan.  Nonetheless, it is a fight worth having. Wisconsin will either continue down the path of a progressive tax system, forcing businesses and workers to flee the state for greener pastures, or join the ranks of states across the country competing to slash their tax rates. If conservatives are ever going to govern again in Wisconsin, they need to offer a clear contrast.

Ultimately, state policy-makers shouldn’t stop at a flat tax. And Wisconsin should aim higher than simply competing with our neighbors — we should lead the Midwest. But a flat tax is a step in the right direction. That said, if Wisconsin is going to succeed in the hyper-competitive economy of the 21st century — and be on the same playing field as states such as Florida, Tennessee, and Texas — income-tax elimination cannot be a question of “if” but “when.”

Transformational tax reform is Wisconsin’s next Act 10. It’s how Wisconsin can compete for jobs nationally. It’s how we can keep retirees and children from leaving the state. And it’s how we can help solidify Wisconsin’s standing as the absolute best place in the Midwest to live, work, and raise a family.

We must take advantage of this once-in-a-generation opportunity. The time for transformational tax reform is now.

The reason this won’t happen is because Wisconsin voters stupidly reelected Evers, and the GOP doesn’t have a supermajority in the Legislature to override his veto. Evers’ sycophants in local government throughout this state also are banging the drums demanding more state money despite their unwillingness to consider serious proposals to reduce spending and combine services for more efficient use of our tax dollars.

There is also a difference between Wisconsinites believing their taxes are too high (and they are) and Wisconsinites believing their income taxes are too high. The perennial tax complaint since statehood has been about property taxes (especially every time a municipality reassesses its property). The income tax was created more than 100 years ago ostensibly as property tax relief (though sticking it to “rich” people has always been popular in Wisconsin). The sales tax was instituted at 3 percent, increased to 4 percent and then 5 percent, and expanded for a 0.5-percent county sales tax, all supposedly for property tax relief. That was the purpose of instituting shared revenue, too.

Irrespective of the unlikeliness of a flat tax until Wisconsinites get rid of Democratic governors, any tax cut remains at the mercy of legislators’ and governors’ fiscal restraint, because Wisconsin still lacks constitutionally mandated spending and tax limits.


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