Steven Walters
The State of Politics

Why Republicans Push ‘Flat’ Income Tax

Could mean big increases for lower and middle income taxpayers.

By - Jan 16th, 2023 10:49 am
100 Dollar Bill. Photo by Dave Reid.

100 Dollar Bill. Photo by Dave Reid.

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%. Iowa’s flat tax will be 3.9% 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% 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% – on company profits. According to the nonpartisan Legislative Fiscal Bureau, Wisconsin’s net effective income tax rate was 4.27% in 2020.

A flat income tax would dramatically reduce the state’s largest source of revenue. In November, the state Department of Administration estimated that it will 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 (WPR) 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%, 4.65%, 5.3% and 7.65% – 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%, 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% – like Illinois – in the 2023 tax year, here is what three hypothetical taxpayers would pay:

-A married taxpayer filing jointly with 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. That’s a 5% tax decrease.

-A married taxpayer filing jointly 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. That’s decrease of only .5%

-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. That’s a 12.2% tax increase.

The Institute for Reforming Government (IRG) is pushing a bolder plan: eliminate the personal income tax outright.

Last week, IRG reported that Senate President Chris Kapenga, a certified public accountant, supports that change. 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.”

The 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

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8 thoughts on “The State of Politics: Why Republicans Push ‘Flat’ Income Tax”

  1. Ryan Cotic says:

    It sounds like a good idea to help attract high achieving workers from sinking states like Illinois!

  2. Alan Bartelme says:

    You can tell the GOP is hiding something when they want to borrow fiscal policy from Illinois.

    The bulk of taxpayers are in the 5.3% bracket, assuming the majority earns more than $25k per year. The 7.65% rate doesn’t kick in until you make more than $280k per year, which is a small subset of the population. So this proposal increases the tax rate for anyone making less than $25k per year, slightly reduces it for the majority of people, and gives a big cut to the wealthiest people. In other words, a tax cut for rich people and no discussion of what they’ll cut to fund that. I’ll give you a hint – they’ll cut education, social services, and roads to make up for it. Just look at what they did in 2010.

    There’s several states without an individual income tax; they’re not all experiencing huge growth just because they don’t have income taxes. FL and TX have better weather (generally, though I’d rather have cold than hurricanes) which means way more to transplants than taxes. Plus TX has way worse property taxes than WI. South Dakota and Wyoming don’t have income taxes; why isn’t everyone moving there for tax freedom?

    Honest legislators would call this what it is – a tax handout to the rich. And they would clearly state what will be on the chopping block when revenues drop and things need to be cut. Sadly we don’t have honest legislators – we have the GOP.

  3. GodzillakingMKE says:

    Anything can be fixed with a tax cut for the rich. I think all of the states billions should be 100% tax cut for those making 7 figures or more.

  4. Colin says:

    How about a progressive tax rate of 0% for up to $100k, then 3-6% for up to $350k, and then 10++% for anything beyond that? Hah.

  5. kaygeeret says:

    Love your idea Colin!

    Let’s start a petition to send to the legislators – – – so they can rip it up while toasting their overloards, the WI millionaires.

  6. Ron Hockersmith says:

    Vos and Kapenga forget to consider the other types of taxes and fees the states he favors have, such as significantly higher sales taxes. Texas is actually not a low tax and fee state for most people.

    A flat tax isn’t flat if all the complex deductions and credits still exist along with it. Since these are usually leveraged more by those with higher incomes, the true effective tax would be regressive, not flat. If the WI tax code was simplified to eliminate all deductions and credits, and then move to a true flat tax of 4.9%, it probably would result in a tax increase on many wealthy taxpayers today.

  7. fred@fredbellpaintings.com says:

    Thank God for Tony Eavers.

  8. gerrybroderick says:

    To paraphrase W.H. Auden: ‘We are all here on earth to help others. What Republicans are here for I don’t know.”
    Themselves perhaps?

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