The following testimony related to tax policy for Wisconsin was submitted for an informational hearing of the Assembly Committee on Ways and Means on Feb. 20, 2025.
Feb. 20, 2025
Ways and Means
Chairman O’Connor and members of the Assembly Committee on Ways and Means,
Thank you for the invitation to submit testimony on potential ways to make Wisconsin’s tax system better serve Wisconsinites.
The Badger Institute is heartened that the committee is able to hear from Katherine Loughead of the Tax Foundation. We worked extensively with Ms. Loughead in recent years as we published a proposal for reforms to Wisconsin’s tax laws and an updated form of that proposal in our 2022 book, “Mandate for Madison.” Her understanding of Wisconsin’s situation and its economic needs are central to our advocacy on tax reform. We urge the committee to heed her advice.
At the heart of our proposals for tax reform are a move to a single-rate, or “flat,” income tax, one in which taxpayers pay a tax bill that’s proportional to their income rather than punitive toward success. Our proposal, valid as ever, takes advantage of Wisconsin’s sliding-scale standard deduction to ensure that taxpayers currently in a bracket below the proposed statewide rate suffer no loss, and it uses the state’s surplus and the fact that Wisconsin has an unusually low sales tax to ensure that the state government has sufficient revenue in the future.
It is a realistic proposal, a proposal that works in the real world.
But why a single-rate tax, rather than simply lowering the existing rates or rebating some of the surplus to taxpayers? There are two reasons.
One is simple fairness: A single-rate tax asks the same fair share of all taxpayers, a share that rises in proportion to income rather than trying to redistribute income. But a single-rate tax works on a practical level, too. Such a reform is likely to retain and attract taxpayers and their investment in Wisconsin’s economy, yielding more jobs and more production here rather than in one of the 41 states with less punishing top income tax rates.
Dr. Don Bruce, head of the Boyd Center for Business and Economic Research at the University of Tennessee, quantified those possibilities for the Badger Institute in 2023. His results were remarkable.
Shifting to a single 5.1% income tax rate, Dr. Bruce calculated, would mean about 23,900 additional jobs for Wisconsinites over just the first five years, and $614 million in added business investment driving that employment. Wisconsin’s economy would produce, in just the first five years, an added $7.2 billion in output — added wealth produced here rather than elsewhere, or rather than not being produced at all. “It is reasonable to expect,” he wrote, that such a reform would encourage potential entrepreneurs and could increase business formation.
That is, a single-rate tax reform would change Wisconsin’s tax picture from a grave liability to an advantage, and without the dependence on high sales taxes that we see in some states that eschew income taxes entirely. It makes our tax system a plus, not a minus.
We heartily encourage the committee’s efforts toward tax reform and commend our detailed proposals for the committee’s consideration.
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