Everyone will pay
Socialism is the song of upcoming summer in Wisconsin as a self-proclaimed Democratic Socialist leads the race for the Democratic Party gubernatorial nomination and the rest of the pack sings backup.
The common refrain: higher taxes.
The Legislature’s “Socialist Caucus” drafted a bill in March that would raise Wisconsin’s existing top income tax rate by one-sixth and add a new top bracket for households earning $1 million. The new top rate: 17.7 percent.
Retired Fed economist James Bohn added the existing federal top rate to what the Legislature’s “Socialist Caucus” proposed and determined that Wisconsin would have harsher taxes than Sweden.
Yes, Sweden.
Combined state and federal taxes would amount to over 54.7 percent of the next dollar earned and would give Wisconsin a top rate highest in the country, three points harsher than New York City and four points above California.
But that’s not all. The same Socialist Caucus, as fair warning before an election, in February dropped a bill to let counties and municipalities layer a local income tax on those same high-income Wisconsinites who earn $1 million or more. The bill doesn’t specify a rate, letting it go as high as any city dares.
The socialists claim the tradeoff is lower property taxes, hinting they’d dump added revenue into the schools fund, which they claim would lower property taxes by “up to 44 percent.”
But that’s a talking point without guarantees. And the estimate seems to presume high-income taxpayers will stand still in a way they haven’t in, for instance, California. It’s also at odds with another bill from January that codifies Gov. Tony Evers’ “400-year veto” trick, which locked in steep increases in school funding for, literally, centuries before adding an annual inflation adjustment.
The claim also ignores that the socialists, and indeed the entire Democratic Party, are committed to wiping out the Act 10 labor reforms. Those limits on government worker unions turned school property tax levies from rising much faster than inflation to simply keeping even with it.
School taxes, moreover, are just one part of the equation. About 55 percent of gross property tax levies in Wisconsin each year are imposed by local governments other than school districts. From 2001 to Act 10, these property tax levies rose on average 2 percentage points faster than inflation. Since, they’ve actually fallen slightly in inflation-adjusted terms. Repeal Act 10, and property taxes would likely outpace inflation again.
Then there are the really unknowable costs.
The Department of Revenue noted that about 8,500 Wisconsin households earn a combined $15.5 billion in income over the million-dollar line, meaning they’d be affected by the 17.7 percent rate. We already know that nearly all Wisconsin businesses are structured as “pass-throughs,” meaning their income is taxed on their owners’ personal returns, about two-thirds of it at what is now Wisconsin’s top rate — already 10th highest among states.
It is likely that among those 8,500 households to be hit with a 10-point increase in taxes, a high share earn income not just from wages but from businesses they’ve grown. (Not that bigger corporations would fare any better: The socialists’ bill also raises the corporate income tax to 17.7 percent.)
Raising Wisconsin’s taxes on business income to Swedish levels would highlight a harsh fact: Paying high Wisconsin income taxes is optional because doing business in Wisconsin is voluntary. Many high earners could simply leave.
Bohn looks at it from the angle of what an entrepreneur would keep in Wisconsin versus elsewhere. Under the socialists’ threatened scheme, of the next dollar earned, a highly successful entrepreneur would keep 45 cents. If she moves her company and her home to Florida, which has no state income tax, she would keep 63 cents of that next dollar.
“That’s a 40 percent pay raise,” said Bohn. “That’s huge.”
Just move the plant over the border to Dubuque and it’s a one-third raise, since Iowa’s top rate is only 3.8 percent.
Unlike Sweden, where fleeing high taxes means changing citizenship, it’s easy to change states, something that’s paid off for Wisconsin as Minnesota and Illinois have turned hostile to capitalism.
What’s insidious about the socialists’ tax schemes, said Bohn, “is that it’s not only a very high tax rate, but there’s a certain rancor attached to it,” an eat-the-rich rhetoric. “That just adds spite to the whole topic,” he said.
“If you’re a wealthy, successful, entrepreneurial person, it’s nice to be in places where wealthy, successful, entrepreneurial people are appreciated.”
Which means that for all their promises that they’d only increase taxes in the top brackets, the socialists’ plans will make you pay.
For one thing, when high-income taxpayers light out for Texas, those remaining have to pick up the burden unless spending goes down. And spending will not go down, since socialists are promising free school lunches even for well-off kids, free childcare, free healthcare, free tax-funded family leave.
We will all pay in another way as well.
We won’t get those businesses — and those jobs, those customers, those goods and services they would have created had they not left.
“You don’t know what alternatives there could have been had entrepreneurs taken the risk,” said Bohn.
But, hey, at least we’ll have what comfort comes from knowing there would be lots of ex-Wisconsinites earning a million bucks somewhere that doesn’t aspire to be more confiscatory than Sweden.
Patrick McIlheran is the executive editor at the Badger Institute.
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