Tommy Washbush
Wisconsin’s got $7 billion dollars burning a hole in its pocket. Some Republicans want to pretty much blow it all on a goofy flat tax scheme.
The state’s projected surplus by the end of this budget cycle on June 30 just keeps growing. The latest estimate is $7.1 billion, up about $500 million from the previous projection. This is technically described by economists and budget experts as “a bunch of money.”
So, now Gov. Tony Evers and the Republicans who control the Legislature get to play the fun game of spending it. Evers, who will introduce his budget next month, has promised an across-the-board 10 percent state income tax cut plus increased spending on schools, local services, clean water programs and more.
Republicans balk at the governor’s spending plans, though significantly, they haven’t called them “dead on arrival.” But they want even deeper tax cuts and they want them focused on higher earners.
A specific proposal advanced by Senate Majority Leader Devin LeMahieu (R-Oostburg) would eliminate our progressive income tax system and replace it with a flat tax of 3.25 percent. Our current rates range from 3.54 percent to 7.65 percent. The top rate applies to individuals earning over $280,000 a year.
So, under LeMahieu’s proposal everybody would get a tax break, but the lowest income workers would get under $300 while those in the highest brackets would see a windfall of over $100,000.
This would blow a projected long-term hole into Wisconsin’s future budgets to the tune of about $5 billion. While the state could weather it over the coming two-year budget cycle with its big surplus, it would probably rule out most of Evers’ spending increases. And it’s not sustainable. It would mean pressure for budget cuts or tax increases down the road. That’s likely one of LeMahieu’s goals. Traditionally, Republican tax cut schemes have had two goals: give big breaks to the richest people and put pressure on government to reduce services. As tax fighter Grover Norquist has said, they want, “a government small enough to drown in a bathtub.”
That’s probably the Republicans’ real goal, but their rhetoric dresses up the flat tax in the language of economic development. LeMahieu says we need this to keep up with other states that are moving toward flat taxes or even eliminating the income tax altogether.
So, let’s look at those claims. Let’s start by looking at the states sharing a border with us — Minnesota, Michigan, Illinois and Iowa. Michigan and Illinois already have a flat tax, a point that LeMahieu likes to emphasize. As we’ll see, he might want to reconsider those comparisons.
Let’s start with unemployment. Minnesota has a much more progressive income tax than we do and yet their unemployment rate is the second lowest in the nation at 2.2 percent. Iowa also has a progressive income tax (though it will go to a flat tax next year) and it ranks 17th with an unemployment rate of 3.1 percent. Wisconsin sits at 18th with an unemployment rate of 3.3 percent.
And how about those neighboring flat tax states? Those would be Michigan with a 4.3 percent unemployment rate, ranking 43rd and Illinois, which has 4.7 percent unemployment and ranks 50th. So, if income taxes in the Midwest were all you looked at you’d have to conclude that it’s actually a progressive income tax that produces lower unemployment.
Next let’s look at median income. The ranking among our neighbors goes like this: Minnesota, Illinois, Wisconsin, Iowa, Michigan. So, once again, the state with the most progressive tax (Minnesota) comes out on top, but a flat tax state (Illinois) comes in second followed by two progressive states (Wisconsin and Iowa) followed by a flat tax state (Michigan) at the bottom. Mixed results, but again generally better for progressive tax states.
If a low flat tax is good for state economies then it’s fair to conclude that Republicans think that no state income tax would be great. Eight states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. None of those states has a lower unemployment rate than progressive Minnesota and only two are lower than Wisconsin. Only two have higher median incomes than progressive Minnesota. Four, half of them, have higher median incomes than Wisconsin.
Finally, let’s look at net migration. Admittedly, Wisconsin is not doing great here. We rank 26th with a net in-migration of only .56 percent between 2020 and 2021. But flat tax neighbor Michigan does even worse, coming in at 36th with a net out-migration of .79 percent and flat tax Illinois comes in at 49th with a net out-migration of a whopping 9.66 percent.
And of the states with no income tax at all, only Texas and Tennessee rank in the top 10 for gaining residents. Texas ranks 7th and Tennessee 10th. Alaska, with no income tax, had a net out-migration of 5.29 percent. In full disclosure though, progressive Minnesota didn’t fare well either, with a net out-migration of 2.65 percent.
All of which is to say that the numbers don’t lie and they don’t tell us that a flat tax will help Wisconsin’s economy by any measure. If anything, when you add it all up, progressive tax states probably do somewhat better. Economies are complex and taxes are only one part of the mix. They don’t determine anything.
But what we know for sure is that a flat tax will once again disproportionately benefit the rich and that it will turn a surplus into a deficit quicker than you can say “snow job.”
Dave Cieslewicz is a Madison- and Upper Peninsula-based writer who served as mayor of Madison from 2003 to 2011. Both his reporting and his opinion writing have been recognized by the Milwaukee Press Club. You can read more of his work at Yellow Stripes & Dead Armadillos. He’s the author of Light Blue: How center-left moderates can build an enduring Democratic majority.
