Economists from Suffolk University’s Beacon Hill Institute for Public Policy have determined through economic modeling that Wisconsin would benefit long-term from further tax cuts. Yet, they’ve found, Wisconsin doesn’t just suffer from high taxes. It suffers from the wrong tax mix.
By David Tuerck, Paul Bachman, Michael Head and Frank Conte
Both a comparison to states with which Wisconsin competes and economic modeling indicate that the Badger State would benefit long-term from lower taxes and a different tax mix.
Compared with the rest of the country, taxes in Wisconsin are high. Approximately 11.6% of personal income typically goes to pay an array of taxes — a higher percentage than in at least two-thirds of other states. Decreasing that percentage would make Wisconsin more prosperous in specific, tangible ways.
Reducing the individual income tax rate by 10% and reducing the corporate rate to the same level as the new highest individual rate of 6.885% would, for instance, be one way to cut the tax burden by more than $900 million and, by 2018, create 11,300 new private-sector jobs, more than $300 million in new investment and more than $1.1 billion in new, real disposable income.
Tax cuts, at the same time, are not the only way to improve long-term economic prosperity in Wisconsin. Legislators could help spur similar economic growth and lose almost no government tax revenue by simply changing the tax mix, that is, by reducing income and property taxes and making up for them by broadening the sales tax base.
This would not entail increasing the sales tax rate. In fact, Wisconsin could cut the individual income tax by $730 million, cut the property tax by more than $1.1 billion, broaden the sales tax base to include some (but not all) areas that are currently exempt and still cut the sales tax rate from 5% to 4.475%. By just changing the mix — “swapping” one tax for another — the state would gain 10,580 private-sector jobs, realize an increase of $948 million in investment, and see an increase of $892 million in real, disposable income.
Expanding the tax base while lowering the tax rate is preferable to simply raising the current sales tax rate, and there are a variety of ways to structure such a broad-based consumption tax. Various routes deserve further study, as does the issue of how Wisconsin can make sure its tax system fairly treats individuals across the entire economic spectrum.
The path to prosperity, though, starts with lower income taxes and property taxes and recognition from legislators that the current sales tax structure can and should be broadened.
