Empower Wisconsin | Jan. 16, 2023

MADISON — In case you missed it, Senate Majority Leader Devin LeMahieu (R-Oostburg) and Rep. Rob Brooks (R-Saukville) rolled out a tax reform proposal Friday that would ultimately phase in a 3.25 percent flat income tax rate by tax year 2026.

The lawmakers noted that Republicans in charge of the Legislature over the past dozen years have cut taxes for Wisconsinites by a total $22 billion. With a historic surplus projected at $6.6 billion, LeMahieu said the state clearly continues to tax its citizens too much.

“This proposal will fundamentally transform Wisconsin’s individual income tax and keep more money in the pockets of hardworking Wisconsinites,” LeMahieu said in a  statement.

Wisconsin’s four tax brackets range from 3.54 percent to 7.65 percent. Only nine states have an individual income tax rate higher than Wisconsin’s top rate. Thirty-one states have a top individual income tax rate lower than Wisconsin’s third tax bracket of 5.3%. Nearly two-thirds of Wisconsin income tax filers fall into that third bracket.

Ten states have some form of a flat tax, with another five planning to move to a flat tax in the years ahead, according to the Tax Foundation. Four states adopted flat tax legislation last year in what the foundation’s Jared Walczak calls a “flat tax revolution.”

Walczak said a flat-rate income tax tends to work as a bulwark against unnecessary tax increases, providing greater certainty for individual and business taxpayers. He said flat taxes tend to be harder to raise in the future, while highly graduated taxes are more susceptible to targeted, but often economically inefficient, tax hikes.

“Taxpayers seem to sense this intuitively: it seems to have been persuasive in Illinois, for instance, where voters lopsidedly rejected a constitutional amendment permitting a graduated-rate structure even though the initially proposed tax increase would not increase tax liability for the vast majority of voters,” the tax expert said. “They seemed to recognize that, once the principle was established, higher rates would be established for more and more taxpayers—even setting aside the implications for the state’s economic competitiveness.”

Gov. Tony Evers has called for a 10 percent tax cut that he says would target the middle-class. It would skip tax relief for those who pay the highest taxes in the state and pump more money into the pockets of those who pay little or no taxes.

Evers has threatened to veto a flat tax bill because he asserts it would unfairly help the wealthiest Wisconsinites.

The Badger Institute says the flat tax proposal would reduce taxes for all taxpayers and will be beneficial for almost all businesses, 95 percent of which are taxed on their owners’ personal returns.

“Moving toward a flat tax with a low rate will benefit everyone – small business owners who create jobs, individuals looking to earn more or keep more, folks who aspire to start businesses themselves and would like to do it in Wisconsin,” said Badger Institute President Mike Nichols. “Right now, we’re nowhere close to competitive…Our neighbors will be thrilled if we remain complacent. They’ll gladly steal our companies, our jobs and our tax revenue.”

LeMahieu’s bill is expected to be formally introduced this week.

“I’m looking forward to continuing to work with the Governor and the State Assembly to provide this much-needed tax relief for middle class Wisconsinites and main street businesses,” the Senate Majority Leader said.