Are high taxes driving away workers from Wisconsin?

Claiming to have a workforce strategy without a real strategy to attract and retain people makes little sense

By TOM HEFTY | June 28, 2017

Employers are struggling to find workers. A regional newspaper’s front-page headline screamed, “WANTED: MORE WORKERS.” Politicians have jumped on the bandwagon, proclaiming Wisconsin’s new goal is “workforce, workforce, workforce.”

Unemployment in Wisconsin is at record lows. Workforce participation rates are among the highest in the country. Wages are rising. Things are getting better.

A June op-ed in the Milwaukee Journal Sentinel by a conservative economist from the Manhattan Institute celebrated the state’s job growth and concluded, “Wisconsin essentially has run out of people who are unemployed.”

So why are people leaving Wisconsin in record numbers? The U.S. census ranked Wisconsin 39th in net migration to other states — losing over 12,000 people in each of the past three years. At the current rate, people are leaving Wisconsin in numbers equivalent to losing the population of Green Bay every decade.

The Milwaukee rankings on out-migration are even more troubling. In the March 2017 U.S. census report, Milwaukee had the sixth-highest domestic out-migration of any major metro area in the United States. Milwaukee County lost over 13,000 people. Worse yet, the rate of out-migration from the county doubled from 2012-’13 to 2015-’16.

Building a workforce requires people — the natural growth of the population, attracting residents from other states and internationally, and keeping existing residents here. Claiming to have a workforce strategy without a real strategy to attract and retain people makes little sense. 

People move for a variety of reasons: jobs, family, weather, quality of life, schools, housing costs and taxes. Although academic studies differ on the level of importance, every study finds that taxes are one reason that people move. Sometimes, taxes are found to be the significant reason for migration to another state. Taxes have been found to affect even the location of star university scientists. 

Some of the potential reasons for the growing out-migration can be eliminated. Many things haven’t changed in Wisconsin. The winters are still cold. Family and in-laws are the same as ever. The quality of life is good in every national survey. Housing costs are below the national average.

During the 1990s, Wisconsin gained residents in state-to-state migration. However, in the past 20 years, Wisconsin went from attracting people from other states to exporting people to other states.

What changed?

Wisconsin taxes today are relatively higher for upper-income individuals and on all investment gains. Those tax increases took effect during the Doyle administration and have not been reversed. Other states have cut taxes across the board. Wisconsin has not focused on individual tax cuts but rather on business tax cuts.    

The specific driver on out-migration is the tax burden for middle- and upper-income families in Wisconsin. The state ranks seventh-highest for income taxes on middle-class families. The 2017 ranking for property taxes for a middle-class home is fourth-highest in the country, costing Wisconsin residents more than twice what average homeowners pay across the country.

What does this mean to a middle-class family in Wisconsin? The difference is more than $5,000 per year — comparing Wisconsin income and property taxes to the median among the states. Property taxes are $3,248 for the median-priced home in Wisconsin, double the national average. 

A closer look at who is leaving Wisconsin confirms the conclusion. As a Princeton University study in 2008 pointed out, Wisconsin attracts low-income individuals with lower levels of education — and Wisconsin loses upper-income individuals with higher levels of education. Wisconsin already had the third-worst migration pattern in the country in 2008. (See WPRI article “Wisconsin Flunks Its Economics Test.”)

In 2014, a presentation to the Wisconsin Economic Development Association by a University of Wisconsin-Madison business school professor made the same point. Wisconsin attracted individuals from other states with lower levels of education — a net inflow of over 2,700 low-income individuals per year from 2008 to 2012. In that same period, Wisconsin lost 14,000 college graduates each year — the much discussed “brain drain” from the Badger state.

A 2016 report to the Future Wisconsin Summit by another UW-Madison professor repeated the point in comparing those leaving Wisconsin and Minnesota. Over half of those leaving Wisconsin are ages 26 to 65. Over 60 percent of those leaving Wisconsin have incomes above $25,000.

Naysayers might blame Act 10 — the 2011 Wisconsin law that sharply curtailed collective bargaining for most public employees — but the data contradicts that argument. Madison, the metro area most affected by Act 10 with its high proportion of government workers, continues to gain population.

In contrast, Milwaukee, the metro area with no major state government offices, has a growing out-migration. Milwaukee ranks 48th out of 53 major metro areas in out-migration.

Some reports show a declining Wisconsin tax burden, but those compare total taxes collected from all sources to total personal income. By looking at total taxes collected, equal weight is given to selective special interest tax breaks as to across-the-board tax cuts — changes that would attract and retain workers. The bulk of recent tax changes in Wisconsin did not go to middle-income families, the ones who are leaving the state.

What does the future hold for the Wisconsin workforce? Natural population growth is not going to solve the problem. The number of individuals 17 and younger is down by 3 percent since 2010. The natural population pipeline is dry.

Unless out-migration is reversed — or newcomers are attracted — Wisconsin will face growing workforce shortages in the years ahead. The Wisconsin Taxpayers Alliance did an excellent summary of the issues in “Wisconsin’s Migration Challenge” in July 2016.

There are two fundamental policy directions to address workforce shortages.

• Increasing state spending on workforce development and education. That increased spending puts pressure on raising taxes. Wisconsin already spends generously, ranking 12th in per-capita spending on post-high school education.

• Cutting taxes to reduce out-migration and to attract new residents. The fastest-growing states have lower taxes than does Wisconsin.

However, there is a third, middle-of-the-road choice: changing how Wisconsin’s taxing and spending decisions are made.

Ten years ago, Wisconsin debated a Taxpayer Protection Amendment, often referred to as a taxpayer bill of rights, or TABOR. The amendment to the state constitution would have capped all state and local taxes and required voter approval for tax increases and for major spending projects.  

Wisconsin rejected the amendment after an assault on the concept by public spending groups in Madison.

But Wisconsin does have half of a taxpayer bill of rights. For local government and school spending, tax increases and bonding require a local referendum. And those taxes are tied to schools. Local taxes can be increased by referendum, but there is no similar taxpayer power to cut other local taxes. There is no TABOR on state taxes. Wisconsin had a one-way TABOR — up — and only for some local taxes.

Colorado adopted TABOR 20 years ago. Taxes are low. The economy is booming. That state is attracting strong in-migration. TABOR voters are smart — voting for increased spending on K-12 education, for the arts, light rail, airport expansion and even for taxation of legalized marijuana.

Why not give Wisconsin voters the same opportunity to make the decision?

Other states have begun looking at the competitive impact of state taxes. All of the Midwest faces demographic challenges. This is not to argue for simply slashing taxes. But it is time to address the growing workforce shortages and the out-migration causing those shortages. And it is time to move from a top 10 ranking in family taxes to a more competitive position for Wisconsin workers. A taxpayer bill of rights may be an alternative worth consideration.

In June 2017, a more liberal commentator — Urban Milwaukee’s Bruce Thompson — published an article noting the growing Wisconsin out-migration and asked, “Who is leaving Wisconsin?” He did not consider tax burden but noted that middle-aged workers were leaving. His conclusion was, however: “There are more mysteries than answers.”

Wisconsin is losing its workforce — a trend noted by conservative and liberal commentators alike. It is time to find out why. Let’s survey former state residents and ask them.

Tom Hefty is the retired head of Blue Cross-Blue Shield United of Wisconsin. This column represents his personal opinion.