In high-income-tax states, people vote with their feet
I’m writing the beginning of this Viewpoint while down in the Fort Myers/Naples area of Florida where Bucky is everywhere — on sweatshirts, on golf shirts, on bumper stickers, on shorts.
Except not really.
Many of the folks proudly wearing the cardinal and white are Wisconsin transplants who are now sunburnt Florida residents. They were lured south, many of them, for short stints by the sun and the surf, but stayed for the taxes — or, actually, the lack thereof.
Just one year of IRS data for folks who lived in Wisconsin in 2018 but were residents of Florida in 2019 tells the tale.
According to the IRS, 7,684 people (included on 4,307 returns) migrated from Wisconsin to Florida in that period. These were well-to-do Wisconsinites with average incomes of well over $100,000 per year and a total aggregate adjusted gross income of $530 million. And that surely does not do justice to their real wealth.
Some, of course, did go the other way — but they weren’t nearly as wealthy or numerous.
Wisconsin in just that period, therefore, lost a net of 2,742 people on 1,432 returns with a total adjusted gross income of $317 million. Who knows what amount of other assets they spend or donate in whatever community they live in down in Florida. And that’s just one year in one state.
As we’ve pointed out in the beginning chapter of our Mandate for Madison, Wisconsin is attracting people and businesses from some other places. We have a lot to offer — affordability, beauty, convenience, right-to-work. But high taxes are the major obstacle in the way of true growth and prosperity.
“I saw a Pew study that was done, oh, probably six, seven years ago. And they asked people, ‘What is the number one reason why you would pick up your family and move to another location?’”, said Scott Manley, executive vice president of government affairs for Wisconsin Manufacturers & Commerce, in a podcast I did with him this week. “Most people think it’s weather, and it’s not. The number one reason is related to economic opportunity.
“If we can reduce and flatten our tax structure here and provide that economic opportunity for people, I think that it logically follows that we will see a significant influx of people voting with their feet and coming to live and work in our state, which has the dual benefit of solving our workforce shortage.”
Wisconsin has a progressive income tax structure with a top rate of 7.65% — higher than all the non-coastal states in the country other than Minnesota. Meanwhile, 14 states already have or are moving to a flat tax and at least three others are basically flat because they have so few brackets. Another eight or nine, depending how you count, have no income tax at all — including Florida.
Wisconsin isn’t going to be Florida. Florida has massive sales tax revenue, much of it from tourists, that constitutes approximately three quarters of state general revenue. Wisconsin has one of the lowest sales taxes in the country while the income tax carries the largest share of the tax burden — about 44% of all state tax revenue. That’s approximately $9 billion of tax revenue in most years and it would be politically impossible to eliminate all of that.
But a flat tax, Manley points out — and the Badger Institute and Tax Foundation have determined — is more than doable. Elsewhere, it’s commonplace.
“Over the past three years, we’ve had nearly half of the states in the United States of America cut their income taxes. And a lot of them are our next-door neighbors or are very near neighbors here in the upper Midwest,” said Manley. “Iowa is on a glide path right now to have a flat tax of 3.9% by, I think it is, 2026 when it’s fully implemented.
“Our neighbors to the south for all of their faults — and their faults are many in Illinois — they’ve got a 4.95% flat tax . . .” Michigan has a flat tax as well. Here in Wisconsin, Senate Majority Leader Devin LeMahieu, citing Badger Institute research in an accompanying memo, has introduced a flat tax of 3.25%, and another proposal is likely to soon come out of the Assembly.
Wisconsin businesses support reform. A plurality of 34% said the number one thing government can do to improve our business climate is to reduce taxes, according to a recent WMC survey of 164 businesses. Eighty-nine percent said they support significantly reducing and flattening the individual income tax.
That makes sense because most are pass-throughs and taxes are paid by owners at the individual rather than corporate rates.
“Reducing the individual income tax or flattening the individual income tax is going to mean that small businesses — and they’re typically small businesses — are going to have a whole lot more money to do things like reinvest, to pay higher wages or benefits to their employees, to hire additional employees, and there are so many good things that would come from reducing the income tax that would accrue to the benefit of workers all across the state.”
Most business owners take great pride in creating jobs and opportunity — but they are also like the rest of us and have something else: self-interest.
As Manley put it, “The other piece of it is that people act rationally and make decisions that are in their best interest. And there are a lot of people, particularly people who are upper middle class or even higher in the economic strata who, frankly, after they retire and they’re spending their nest egg and wanting to preserve some of it to pass along to their children, they’d frankly rather give that nest egg to their children than the government.”
Former Wisconsinites driving around with Bucky bumper stickers down in Florida do love their home state, but that shouldn’t be confused with loving Wisconsin’s progressive governance or it’s unfair tax burden. They just leave.
The tax-lovers in government on the left in Madison will never win that battle. And until they do what so much of the rest of the country is doing, flatten the tax structure, they’ll never lure all those sunburnt Badgers back home.
Mike Nichols is the president of the Badger Institute. Permission to reprint is granted as long as the author and Badger Institute are properly cited.