June 12, 2023
Guest Perspective by Rob Hutton
Wisconsin faces a big choice. The choice is not how much of its record surplus to spend, and on what. The choice is between a future of growth and prosperity and a future of demographic and economic decline.
Reports from the nonpartisan Legislative Fiscal Bureau have consistently shown that the state government has been taking in too much money. Our record $7+ billion surplus means government is taxing its people too much. It also presents lawmakers a once-in-a-generation opportunity to transform Wisconsin’s economic future by reforming and reducing its tax burden.
Unfortunately, for some this historic surplus has become an historic opportunity to permanently grow government by locking in new spending. The moment the doors to the legislative session swung open, the line of special interests looking for a piece of your excessive tax payments already stretched as far as the eye could see.
Perhaps the most prominent request for more spending has come from local government leaders asking for more money in the Shared Revenue formula. This and Milwaukee’s pension problem have consumed the debate. These are pressing and serious issues, but it seems like taxpayers are an afterthought and will have to make do with leftovers after the lobbyists leave satisfied.
It seems like taxpayers are an afterthought and will have to make do with leftovers after the lobbyists leave satisfied.
This is the wrong focus in light of the very steep hill we have in front of us. Wisconsin is just starting to face down serious demographic problems. According to a new Wisconsin Manufacturers and Commerce study, Wisconsin is one of just 14 states with a median age over 40. The number of children under age 5 shrunk by 10 percent over the last decade and the number of people 65 and older expanded nearly 42 percent.
Ominously, Wisconsin’s population growth from 2010-2020 was less than half the national average, total births dropped to their lowest level since 1979, and the fertility rate dropped to a record low. Whistling past the graveyard will ensure these trends worsen, and employers are taking notice. As an employer myself, I know that business owners that love Wisconsin and are committed to their communities are losing sleep about these realities.
One of the most important steps Wisconsin must take to turn the tide is to shed its counterproductive income tax system that was devised in 1911, just three years after the first Ford Model T rolled off the production line. Nearly everything has changed since then, yet we are still saddled with that era’s tax notions that never envisioned today’s economic mobility and rapidly changing economy.
In order to promote more business investment in Wisconsin, we must become more competitive. Our current top individual tax rate of 7.65 percent is one of the ten highest in the country. While some politicians defend this high rate as a way of taking more from wealthy individuals and promoting “fairness,” in reality this is a tax on small businesses.
Nine out of ten employers pay their business taxes at the individual level, and the vast majority pay at the top rate, according to the Institute for Reforming Government (IRG). This high tax rate is a disincentive for new businesses to locate here and for new ones to remain here once formed.
In order to retain working age residents and turn the demographic tide, we must reduce the tax burden on everyone by pursuing one of the many tax reform plans in the public discussion.
One idea is a flat tax like the one that’s been proposed by the MacIver Institute. A flat tax replaces the multi-tier, increasingly punitive income tax with one single rate and a minimum of tax credits (also called loopholes). With the exception of Minnesota, all our bordering states have a flat tax on the books, including Illinois’ 4.95% flat tax.
The ultimate goal should be to do away with the income tax altogether. One plan put forward by IRG would eliminate income taxes and reduce the overall tax burden by $3.5 billion. The Center for Research on the Wisconsin Economy at UW-Madison (CROWE) estimates this would spur $28 billion in economic growth.
In 2021, Wisconsin lost 92,000 tax filers representing $4 billion in income, $2.6 billion of which went to states with a flat tax or no income tax at all like the fastest growing state in the country, Florida.
In order to stop the population drain of both young families and our seniors, we must take less of the income they need to provide for themselves and their families. In 2021, Wisconsin lost 92,000 tax filers representing $4 billion in income, $2.6 billion of which went to states with a flat tax or no income tax at all like the fastest growing state in the country, Florida.
Some pro-tax politicians argue that tax reform will result in less government revenue, but this ignores the facts. Between 2010 and 2020, revenue to the government went up $4.8 billion at the same time Wisconsin income taxes were cut several times, all while population growth was lackluster at best.
Mountains of evidence shows us that rigid, onerous tax systems result in more political squabbling over a shrinking pie. That’s not a future anyone should want. On the other hand, a competitive tax system and lower tax burden result in more growth in population, prosperity and revenue to the government.
Our state has a choice between two divergent futures. One choice is demographic and economic decline. The other is to seize the opportunity at hand right now to transform our tax system and make Wisconsin a regional or even national magnet.
The future prosperity of individuals, families and businesses that politicians on both the right and left talk about being champions of depends on bold action on tax reform before the opportunity slips by.
Rob Hutton represents Wisconsin’s 5th Senate District in the State Senate, covering Brookfield, New Berlin and Elm Grove and portions of Waukesha, Wauwatosa and West Allis.