Economists Call Michels’ Flat Tax ‘Disastrous’

A group of economists and researchers from Wisconsin and across the country have signed a letter stating that Wisconsin gubernatorial candidate Tim Michels proposal for a flat tax would have “disastrous” effects on the state budget and economy.

Earlier this month, Michels told reporters that he wants to lower state income taxes across the board, and suggested a flat tax.

Michael Rosen, a retired professor of economics at the Milwaukee Area Technical College (MATC), organized a press conference Tuesday with economists from UW-Milwaukee and MATC to explain ruinous effects it would have on the state and the impact it would have on working people and the middle class. The letter criticizing Michels’ tax proposal had 30 signatories.

The economists explained that a flat tax rate that doesn’t raise taxes for anyone in Wisconsin would mean a 3.4% income tax rate across the board. Such a policy would gut the state budget by approximately $5.5 billion in the first year.

The economists provided a breakdown of the top 10 general purpose revenue programs in the state, showing their size relative to the necessary budget cuts, and how they would be decimated by a flat tax like the one proposed by Michels. The annual budget gap after the first year would be roughly $3.9 billion they calculated, which is roughly three times the size of the budget for the entire UW-System or 51% of all K-12 education spending.

What’s more, if such a tax plan were created to be revenue neutral, the tax rate would need to be set at 5.22%. Such a tax rate would result in a tax increase for approximately 97% of taxpayers and a tax decrease for the wealthiest 3% of taxpayers.

“The flat tax is a regressive tax,” said Luz Sosa, a professor of economics at MATC. “You’re going to put the the burden mainly on the working class and the middle class, while giving a huge tax cut on the wealthiest Wisconsinites.” Sosa said that the middle class in Wisconsin already pays more income tax, as a percent of their income, than the richest people in the state.

This sort of tax plan cannot move forward without massive cuts to state services provided by the government like education, public safety and environmental stewardship and protection. Jeffrey Sommers, a professor of political economy and public policy at UW-Milwaukee, said such a move would have the effect of “redistributing income and wealth upwards.”

William Holahan, professor emeritus of economics at UW-Milwaukee, said the problem with Michels tax proposal boils down to simple math. “If you take the graduated income tax and flatten it, arithmetic requires there to be a tax increase on some people, to finance the tax cut on the other people,” Holahan said, as regards a revenue-neutral flat tax. If the flat-tax isn’t revenue neutral, there will need to be cuts or increases in other taxes like the sales tax or property tax.

“And what is so strange is that they’re waiting until after the election, to tell us exactly the details of what is in effect, a very complex situation,” he said. Or, as Sommers put it, “There’s no plan.”

Holahan said the services provided by the public sector cannot be lightly tossed aside by even the most ardent capitalist. Rather, he said, it is “a key part of capitalism.”

“You need certain things done in the public sector, precisely because the market needs those things done but will not do it itself,” he said. This includes vital infrastructure like roads and bridges and ports, but also vital services like education. “When we look at kindergarten through 12th grade math, for example, here’s an investment opportunity,” Holahan said. “Not all investments are physical assets; human assets are more and more important as time goes on.”