Republican legislative leaders say Wisconsin must consider joining the parade of states — including neighboring Illinois and Iowa — that have or will have flat income tax rates.
Illinois has a flat income tax rate of 4.9 percent. Iowa’s flat tax will be 3.9 percent in 2026.
While a flat tax would cut taxes for the wealthiest residents, advocates say it would be an incentive for needed new workers to move here and for retirees to stay here.
Senate Majority Leader Devin LeMahieu and Rep. Rob Brooks are sponsoring a bill that would adopt a 3.25 percent flat tax by 2026. They say it would help small businesses whose owners pay personal income taxes — often at the highest rate of 7.6 percent — on company profits.
According to the nonpartisan Legislative Fiscal Bureau, Wisconsin’s net effective income tax rate was 4.27 percent in 2020.
The personal income tax is the state’s largest source of revenue. In November, the state Department of Administration estimated that it would bring in $9.6 billion in the year ending June 30 — almost half of the $19.6 billion to be collected in general-fund taxes.
In a Wisconsin Public Radio interview, Assembly Speaker Robin Vos said a flat tax would make Wisconsin more competitive. "When you find out that it’s significantly cheaper for someone to live in Florida, Arizona, Tennessee or Texas, we certainly can deal with the tax climate to try to keep more of those people in Wisconsin,” Vos told WPR.
Wisconsin now has four tax rates — 3.54 percent, 4.65 percent, 5.3 percent and 7.65 percent — depending on the taxpayer’s Adjusted Gross Income (AGI) and filing status.
That means, if Wisconsin adopted a Illinois-like flat tax of 4.9 percent, taxpayers in the two lower brackets would see a tax increase.
Republican legislators, who will draft their 2023-25 state budget over the next six months, could add phase-in of a flat income tax to their budget.
But Democratic Gov. Tony Evers, who will recommend his own two-year state budget in February, has called a flat tax proposal a “non-starter.” Evers can veto all or parts of the Republicans’ budget.
“I don’t see that [flat tax] as something that I could support,” Evers told an Associated Press reporter. “I believe that targeting the middle class is where we should be. We should continue to have a progressive tax system.”
A flat tax would give “tax breaks to people that, frankly, are our highest-income folks,” Evers added.
Instead, the governor has said his budget will include a $600-million income tax cut for lower- and middle-income taxpayers.
If Wisconsin had a flat income tax rate of 4.9 percent — like Illinois — in the 2023 tax year, here is what three hypothetical taxpayers would pay:
*A married filing jointly taxpayer with an adjusted gross income (AGI) of $288,000 would have a flat-tax liability of $14,043. This estimate assumes the taxpayer claims the $700 personal exemption for each spouse and does not qualify for a standard deduction.
Under current law, that taxpayer would have a tax bill of $14,780, according to Mike Swenson of Mennenga Tax and Financial in Madison.
*A married filing jointly taxpayer with an AGI of $115,200 would have a flat-tax liability of $5,386, assuming they claimed the $700 personal exemption for each spouse and received a standard deduction of $3,875.
That taxpayer would pay $5,416 under current law, Swenson estimated.
*A single taxpayer with an AGI of $42,300 would have a flat-tax liability of $1,609, assuming they claimed the $700 personal exemption and a standard deduction of $8,759.
That taxpayer would owe $1,434 under current law, Swenson said.
The Institute for Reforming Government (IRG) is pushing a bolder plan: outright elimination of the personal income tax.
Last week, IRG reported that Senate President Chris Kapenga, a certified public accountant, supports that goal.
According to IRG, Kapenga said in a WISN Radio interview, “If we really want to set ourselves apart and step up…we’re not going to have an income tax. If we go to no income tax — like Florida — that will set us apart in the Midwest.”
IRG said Kapenga questioned flat-tax proposals because, “We’ve got other flat tax states like Iowa..Is it really giving us the advantage? And I don’t think it will.”
Steven Walters started covering the Capitol in 1988. Contact him at stevenscotwalters@gmail.com.
