Why Not a 4% Flat Tax for State?
Proposal drops income tax to 4% for all, adds sales tax on gas.
Dale Kooyenga
Give Rep. Dale Kooyenga and Assembly Republicans credit for thinking big about Wisconsin’s tax base.
His Assembly bill that addresses the biggest sore thumbs in the current tax posture of the state has drawn skepticism from Gov. Walker, some Republican legislators and, of course, Democrats.
Yet, the bill advanced by Kooyenga and fellow assembly members goes right at taxation issues that keep Wisconsin from being a more competitive state. That is no small matter because job and wage growth here are generally ranked in the bottom third of the 50 states.
Even though our unemployment rate is better than average, and Chief Executive Magazine just ranked Wisconsin 10th for business, we remain a slow-growth state.
The Kooyenga bill addresses these major competitive issues:
- Our state income tax is among the highest in the country. His bill would set a path over the next 12 years to replace the current three brackets with a flat 4% tax. That reduction and simplification would make our tax climate much more attractive. Wisconsin has an exodus of 10,000 college graduates every year, and taxes no doubt play a major role in that unacceptable loss of talent.
- Wisconsin’s economy relies heavily on manufacturing, agri-business, trucking and tourism – all dependent on a first-class state highway and local road structure. Kooyenga would lower the gas excise tax by about five cents, but apply the state’s 5% sales tax to gasoline. That would boost revenues for transportation projects and offer an inflation hedge in future years.
- His higher gas tax revenues would reduce bonding for transportation projects. Debt service already chews up one of every five dollars going into the state transportation fund.
There are lots of ins and outs to any major tax reform proposal, and there are always winners and losers. Those need to be worked out so there are way more winners than losers.
Under the Kooyenga plan, many tax credits – all sacred cows to some interests – would go away, but so would the state’s alternative minimum tax. These are all relatively obscure pieces of our tax labyrinth. They do nothing to define the perception of the state’s tax and business climate.
The Assembly Republicans But taxpayers and political leaders are keeping their eyes on the main prize. That would be the perception and reality of the state as a competitive economy. Prosperity of the people in the state is the end game.
That goal was clearly in the minds of GOP leaders when they built Gov. Walker’s first-term budget. They surprised the business world by creating an exemption from the state’s 7.9% corporate income tax for manufacturers and agri-business companies. That’s a huge positive when leaders in those two sectors consider expansions. That major tax break really does say that the state is open for business in those two industries.
That said, Wisconsin can’t rely on agri-business and manufacturing for major job creation in today’s world; both have become uber-productive, and that trend is not going to change. Production will rise, but their job totals will not grow much. The transition to automation and robots is real.
In that vein, the new budget is inert on the need to accelerate the reinvention of the state’s economic mix through entrepreneurs; major gains have been made on that front, especially in Milwaukee, but we need to go even faster.
There is another dimension to the Kooyenga initiative. What is being proposed by the Trump Administration at the federal level for tax reform reinforces the merits of a lower 4% flat tax at the state level.
The Trumpsters propose to pay for lower federal taxes in part by eliminating the deduction for state and local taxes. No longer will the high Wisconsin income tax (7.65% in the top bracket) be mitigated by deducting it against federal taxes.
The same could be said of the Kooyenga 4%. It will leave more funds in pass-through corporations for reinvestment.
In short, the Trump reforms could work hand in hand with the Kooyenga reforms. Business could be doubly stimulated in Wisconsin.
As for the big picture, the state’s economy and business climate are in better shape than they have been for a decade. That acknowledged, we can’t just put them on cruise control. Remember the Great Recession just a decade ago? Who can forget?
There will be other downturns ahead. The best protection is a robust, diversified economic platform before a storm hits.
The Assembly GOP plan breaks new ground. It’s bold, and bold is what we need in a state that has long been behind the growth curve.
John Torinus is the chairman of Serigraph Inc. and a former Milwaukee Sentinel business editor who blogs regularly at johntorinus.com.
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What happened when Kansas slashed their income tax? Disaster, and even Republicans acknowledge that now. https://www.theatlantic.com/politics/archive/2017/02/the-republican-blowback-against-sam-brownback-kansas/517641/
The idea that college graduates are fleeing the state because of taxes is a joke. Talk about someone who is out-of-touch. Has this old man talked to a college graduate recently? Or in the last few decades? Unreal. The stories from this guy are totally useless. There have been a ton of stories about the state’s brain drain. Grads mention public transportation, the weather, the political climate, the industry they are in. Not a single mention of taxes, specifically high taxes, as the reason.
Woohoo, can’t wait for all the money that the wealthiest folks save to trickle down to the middle class and poor! I also like how the author admitted that the repeal of the corporate income tax for manufacturers and agri-business companies didn’t really do much to create jobs. How many of the promised 250,000 jobs has Walker gotten so far?
What is the real reason to not just raise the “gas tax” but add “sales tax” to gas? Usage of funds raised?
What a disaster of an idea.
So-called ‘Progressive’ taxation is a cancer on society, leading to a comparatively small number of people shouldering most of the tax burden. A flat tax is a FAIR TAX. Let’s bring some fairness to our society and encourage success, rather than resent and penalize it.
The State has a pretty balanced tax system right now. Our real estate taxes and our income taxes are relatively high, but we have a pretty low sales tax rate. While it may make sense to cut the income tax rate it is likely it may have to be balanced by raising one of the other 2 taxes.
Vincent is right, no college student is fleeing the State over taxes. I would contend though that some seniors do flee the state because a high income tax and a high real estate tax likely becomes more important to them.
This would be a disaster for Walker in 2018. Democrats can package a lot of creative commercials. In the Red parts of Wisconsin, Democrats will rail against Walker raising gas taxes when he promised to lower your taxes. In Milwaukee and Madison the Democrats will state Republicans our giving money away to the well to do.
And those would both be true right Jason? So Walker only has himself to blame if it’s a disaster for him. Boo hoo.
“I’m leaving Wisconsin after I graduate because of the progressive state income tax rate.” -said no 22 year old ever.
“I’m leaving Wisconsin after I graduate because of the one party rule, political climate, teacher bashing, anti science, anti choice, anti green energy policies of the current gov and party in power.” -said several engineering graduates I have tried to hire in the past several years who decided to take jobs in Minnesota instead.
Mr. Torinus, with all due respect, you can’t have it both ways. I seem to recall that the Manufacturing/Ag tax cuts (which often ended up as very large personal tax benefits for owners) were presented as a way to stimulate job creation. But that doesn’t seem to be happening, as you described the ‘uber-productive’ environment that will not grow many jobs.
So, why the incentives? Especially when the cuts have become far more expensive than anyone dreamed. The state may be open for business, but not for jobs as you inadvertently point out here.
Also, please provide citation for your statement that graduates are leaving the state because of taxes. Throwaway lines like that do you no credit.
And, if this bill goes through, someone please make sure Mr. Kooyenga shows up to the signing ceremony sober. Or if that can’t be done, at least don’t let him speak.
A Flat Tax would be awesome, in conjunction with removing tax deductions.
It would be great if the Federal government did the same.
We waste billions of dollars a year on filing our taxes.
A flat tax without tax deductions would:
A) Reduce taxes
B) Make filing/paying taxes easier and more obvious
C) Reduce costs for filing taxes for individuals
D) IRS could cut back on the number of employees, which would then lower the government overhead.
A flat tax is an out-and-out giveaway to the wealthy.
Be leery of anyone advocating for a flat tax. It drastically reduces revenue, greatly increases economic inequality, and as previously mentioned significantly benefits the wealthiest. https://www.washingtonpost.com/posteverything/wp/2015/05/26/the-flat-tax-falls-flat-for-good-reasons/?utm_term=.8b34e46f6dee
Kansas: “Brownback, in 2012 and 2013, signed a two-part tax package exempting 191,000 businesses from income taxes and lowering the top income tax rate for individuals from 6.45 percent to 4.9 percent. It sinks to 3.9 percent by 2018 and even further toward zero each year if revenue grows.
Although income taxes composed almost half of Kansas’ general fund, Brownback said the cuts would grow the economy and attract new business, so that revenue would spring back quickly, essentially paying for the cuts. He had Reagan-era tax guru Arthur Laffer at his back supporting him.
But his plan didn’t pan out. Revenues are way down, and job growth remains below the national average. His own budget director says they may have to stop some of the tax cuts from going into effect.” http://www.politico.com/story/2014/12/gop-learns-lessons-from-brownbacks-tax-scare-113806
Very similar occurrence recently in Louisiana under Bobby Jindal. So why do people still insist that this will work when all evidence says it doesn’t?
We are losing tons of our wealthy businessmen, women, seniors, families to south, with there capital and the jobs, investment.
All Torinus has to do is look to our neighbor to the West. Minnesota has a robust and growing economy. The taxes in Minnesota are not lower than Wisconsin by any measure. The big difference is that the tax system is fairer. The wealthy are paying a fair share (not an exorbitant amount) and the money is being spent well with adequate and transparent checks and balances in place. Education in Minnesota IS supported unlike here in Wisconsin. The University system is an incubator for entrepreneurial and scientific start-ups that generate enormous economic energy. While Minnesota cities deal with issues of poverty and crime; racism in Minnesota is not sucking the life out of Minnesota cities the way it is here in Wisconsin. While the weather in Minnesota can be brutal in the winter, the climate is generally warm and welcoming. College grads stay in Minnesota because they find good opportunities, good places to live and socialize, and a good place to start a family, start a business and make a life. What does Wisconsin have to offer?
Evidence that tons of people are fleeing Wisconsin because of taxes please. No one should be expected to just take your word for it. Because this:
“Millionaires don’t flee high-tax states more often, study says”
https://www.usatoday.com/story/news/nation/2016/05/26/millionaires-dont-flee-high-tax-states-more-often-study-says/84921126/
No one is leaving the state due to income tax or gas tax rates, except maybe retirees. They need to focus efforts on bringing business into the state. Jobs, jobs, jobs.
Torinus: Provide proof of this statement – “Wisconsin has an exodus of 10,000 college graduates every year, and taxes no doubt play a major role in that unacceptable loss of talent.” Many younger adults leave the state for other reasons – e.g., they can find places they would rather live. Your statement is a facile claim.
Recent college graduates hate high-tax places, like San Francisco, New York, D.C., Chicago, and Boston.
I don’t know of any recent college grads who left because of taxes… but I know several retirees who live out of state during enough of the year to avoid them.
A slightly progressive tax system is generally better, but if a flat tax eliminates a lot of deductions, I wonder how many wealth might actually pay more than they do now, while saving money for many middle and upper middle class families. I haven’t seen enough details on the plan to have a final opinion… but Torinus and others have enough valid points to be worth exploring.
But retirees also live out of state because of weather, so that’s a moot point. Please study up on all the problems with a flat tax and large income tax reductions AG. The flat tax is a terrible idea, unless you want us to end up like Kansas or Louisiana.
I’m familiar with the pros and cons of a flat tax. There’s a lot of variables to consider, including the idea of eliminating many tax deductions (that already create an effective rate below 4% for some). Further, appealing to the most extreme examples doesn’t really make a case against lowering taxes.
Leaving Wisconsin due to taxes ??? No matter how much we might lower them;nothing competes with no income tax in Florida as well as the weather. Not as familiar with the southwest tax situation for the retired. When you retire you want to be active and not worry about who will be shoveling your walk or plowing your driveway.
-The gas tax juggling is another way of “RAISING TAXES ” while avoiding the obvious labeling. ( Nice try -it’s still a TAX INCREASE governor )
” It will leave more funds in pass-through corporations for reinvestment.” ( Not happening even now ) Leaving more funds in the bonuses of CEO’s is more likely.
-I don’t see John Menard or Diane Hendricks adding many new jobs. There are only so many squares of shingles and siding you can sell in one state. The rest of the state manufacturing industries that might stop outsourcing ( production or just assembly) to China could help our state.
Doesn’t seem like it. Those are cited as cautionary tales for good reason AG and we’re not simply debating lowering taxes in general. Drastically cutting income taxes is a bad idea and a flat tax is a bad idea.
Even the very conservative National Review opposes a flat tax: http://www.nationalreview.com/article/418604/flat-tax-questionable-economics-bad-politics-reihan-salam
The conservative American Enterprise Institute opposes it as well: https://www.aei.org/publication/no-the-flat-tax-isnt-still-a-good-idea-if-it-ever-was/
Is Torinus auditioning for the role of a male Ann Coulter? Writing articles were his opinions are presented as fact, and then arguing to an illogical conclusion based on his dogmatic beliefs, is a classic Coulter tactic. It is also why she, and he fail at one of Ralph Waldo Emerson’s measures of success: earning the respect of intelligent men. The Legislative Fiscal Bureau has scored this billionaires give-away of a proposal: 2.7 billion would be lost in taxes in the next 12 years. 1 billion of the tax savings would go to those making over 300,000 a year. Those making under 60,000 would see their taxes go up by 158 dollars a year. In a era of increasing social unrest, where the left-outs are starting to catch on, is it really a good idea to accelerate income inequality by stupid tax proposals based not on sound economic principles or historical evidence, but on an attempt to stack the deck even further against the underclass? Young people leave this state to go to states with higher state income tax burdens because they see the future for them and their children as brighter in those states, and they are correct.
Wisconsin Republicans seem intent on going all the way in instituting their ideal regime while they have unchallenged control of the state. They should remember, however, that the pendulum swings both ways, and the precedents they have mercilessly set since 2010 may very well be followed by the other party in the near future.
A 4% flat tax on $20,000 (below poverty level) is $800. It’s too much for low income people to manage. If there is going to be a floor, there will have to be a sliding percentage. Someone earning $200,000 may be startled to pay $8000 (4%) but a budget that large does not deprive the worker of food and shelter and a series of necessarily bad decisions.
The rich alteady a lower % of their income on state and local taxes. So what do Torinus and Kooyenga want to do? MAKE THINGS EVEN MORE REGRESSIVE
Hey Johnny and Koo-Koo, wanna know why young people leave the state? It’s because of low pay from the horrid Wisconsin business community, and the regressive politics of the GOPs that are running the state into the ground. If you had talent, why would you locate anywhere in this state outside of progressive and booming Madison?
I’ve got a better idea. How about ignoring mediocre oligarch businessmen like Torinus and the MMAC/WMC cabal, and get some real creators and leaders in charge of the state’s economic policy.
Every single person I work with at UWM wants to leave the state once they are done with their program. I don’t know a single one that wants to stay here. Sure this is anecdotal but it’s dozens of people. Johnny and Koo-Koo are indeed part of the problem, not the solution.
Flat taxes are regressive and unfair. Taking 4% from someone who spends 100% of their income imposes far more of a burden upon them than taking 4% from someone who spends 25% of their income. With the former, you have reduced the 100% spender’s purchasing power and will actually reduce the sales tax base. Republicans are not ignorant of this fact; they just don’t care.
I like the idea of everybody paying the same tax rate because it gives everyone an incentive to A) Pay attention to how their money is being spent and B) Gives everyone an incentive to control the costs of government.
Just because government does many things we want and need is no excuse for giving many people an incentive -as we do now- to demand more spending because they know they will not be bearing the costs.
A decently crafted system would see the rich paying far more in taxes than they receive in benefits, and the working poor ie those with an income- receiving more in benefits than they pay in taxes. In both cases, and with that of the middle class as well, everyone would be paying for their government. That seems to me like a socially responsible thing to encourage.
As for college grads leaving the state due to taxes: They may not be leaving because of taxes on their income, but because taxes on business discourage formation of the jobs those young grads need. Pure speculation on my part, but unlike some people here, I can question some of Mr. Torinus’ assertions and disagree with others without denouncing him personally.
Not that I am thinking of anyone in particular, of course. No need to respond: I already know you think anyone who disagrees with you is a slobbering, mentally deficient a++hole, Vincent Hanna
That certainly isn’t true Penrod. For example, I wouldn’t describe you that way. Maybe WCD though.
“but because taxes on business discourage formation of the jobs those young grads need”
What are you basing that on? Again, I shared a study here that says taxes on businesses don’t stifle economic growth and that in general blue states are far healthier economically than red ones.