This post originally appeared at https://www.wmc.org/op-eds/wisconsin-cannot-wait-to-catch-midwest-nation-in-tax-rate-competitiveness/

By Evan Umpir

Next month marks 112 years since Wisconsin became the first state in the nation to levy an income tax.[1]  Since then, 40 other states have enacted an income tax.  Over a century later, Wisconsin finds itself slipping behind the nation in tax policy.  States are in a race to lower, flatten and even eliminate income taxes altogether.  From a farmer in Sauk County to a factory worker in Beaver Dam and from a truck driver in Green Bay to a doctor in Hudson, everyone will benefit from returning Wisconsin’s $6.9 billion surplus to taxpayers by enacting meaningful income tax reductions.

In 2021 and 2022, 43 states acted to provide tax relief for workers and businesses, including twenty-one states that cut income tax rates.[2]  Fifteen years ago, Utah adopted a five percent flat tax. More recently, Arizona moved to a 2.5 percent flat rate and Colorado a 4.4 percent rate. This left the president of the Utah Taxpayer Association saying, “we’re no longer the cool kid on the block at all.”[3] With a historic surplus, we cannot afford to improve our tax climate slowly and cautiously. As other states take bold steps to reduce and flatten their income tax, the status quo or incremental progress just results in Wisconsin falling behind.

Wisconsin’s top 7.65 percent income tax rate is the eighth highest in the nation and we are the eighth least tax-friendly state for middle class families.[4]  Nine states have no income tax and another thirteen states have a flat rate or are moving toward one.  In the Midwest, all but one of our peers have lower or flat rates ranging from 3.15 percent to 4.95 percent.  Even Illinois has a lower income tax than Wisconsin!

In addition to providing much-needed tax relief to Wisconsinites, making the tax code more competitive would help address Wisconsin’s severe worker shortage.  April’s unemployment rate was 2.4 percent, and there were about 93,500 jobs open on the Job Center of Wisconsin’s website in early June.[5]

Data show that workers are flocking to low- and no-tax states, while they are fleeing high-tax states.   In 2022, the states that saw the most population growth were low-tax states.  The Tax Foundation found that, “[i]n the top third of states for population growth (including D.C.), the average combined top marginal state income tax rate is about 4.0 percent. In the bottom third, it’s about 6.6 percent.”[6]  Any individual in Wisconsin making over $12,760 a year is taxed over 4.0 percent, and our top two rates average 6.5 percent.

Most importantly though, the direct impact of returning the taxpayers’ surplus is ensuring that workers and businesses are able to keep more of their hard-earned dollars.  Businesses will use the additional dollars for higher wages, capital expenditures and investing in their local communities. Meanwhile, workers will have more money in their pockets to spend or save how they see fit. As a bonus, all of this will result in higher payroll, sales and other tax collections for state and local governments.

Recent studies of different tax proposals all point to significantly higher after-tax household income.[7] Imagine having another $1,500 or $1,800 or more in your pocket every single year.[8] What would you and your family do with an infusion of cash like that? And how much additional economic growth would be spurred through increased spending and a faster growing population?

WMC Foundation’s Wisconsin 2035 Report stated that, “people follow opportunity, but high taxes can serve as a deterrent. As other states take action, Wisconsin cannot rest on its laurels. A bold tax reform plan will help drive the state’s economy forward.”  If recently re-elected Democrat Governor Jared Polis can advance his goal of eliminating Colorado’s individual income tax[9] to become the “cool kid on the block,” surely Wisconsin can charge “Forward” and unlock prosperity and opportunity by enacting meaningful tax reduction.

As the Legislature finalizes the state budget, call or email your legislators and tell them to make Wisconsin more competitive and return the taxpayers’ surplus to you – the hardworking people of Wisconsin!

Contact your state legislators and the governor by visiting: www.wmc.org/action-center-income-tax-cut/

Evan Umpir is Director of Tax, Transportation & Legal Affairs at Wisconsin Manufacturers & Commerce – the combined state chamber and manufacturers’ association.

[1] 1911 Wisconsin Act 658, available at: https://docs.legis.wisconsin.gov/1911/related/acts/658.pdf; https://www.wpr.org/wisconsin-and-creation-modern-income-tax.

[2] https://taxfoundation.org/state-income-tax-relief-2023/.

[3] https://www.wsj.com/articles/the-state-tax-cut-movement-budget-revenue-flat-tax-11675120292.

[4] Author’s calculation based on Americans for Tax Reform State Tax Rate Map;  https://www.kiplinger.com/taxes/least-tax-friendly-states-for-middle-class-families

[5] https://jobcenterofwisconsin.com/

[6] https://taxfoundation.org/state-population-change-2022/

[7] https://crowe.wisc.edu/wp-content/uploads/sites/313/2023/05/FiveOptions.pdf

[8] Dan Spika, Memo to Sen. Devin LeMahieu on LRB 1049/1, Legislative Fiscal Bureau (January 12, 2023).

[9]: https://www.nationalreview.com/2023/02/colorado-on-track-to-eliminate-its-income-tax/ (“I don’t expect that we can fully eliminate the income tax by our 150th anniversary [in 2026], but let’s continue to make progress.”)

The post Wisconsin Cannot Wait to Catch Midwest, Nation in Tax Rate Competitiveness appeared first on WMC Wisconsin’s Chamber .