Opinion: Eliminating state income tax would be game-changer for Wisconsin residents, drive economic growth

Jan 3, 2023 | In The News

The following piece authored by Chris Reader originally ran in the Milwaukee Journal Sentinel on January 3, 2023.

So much of the tax reform conversation at the national level is aimed at corporate America, but right now we actually have an opportunity at the state level to send money back to families and businesses on Main Street.

This is why a year ago, the Institute for Reforming Government (IRG) and our allies at the UW’s Center for Research on the Wisconsin Economy (CROWE) developed the first-ever proposal to eliminate the state’s individual income tax, making Wisconsin the 10th state overall – and the only state in the Midwest – without a personal income tax. Since then, our plan has quickly picked-up traction, gaining support from business and community leaders, small businesses, and influential groups like WMC, Americans for Tax Reform, Americans for Prosperity-Wisconsin, and the National Taxpayers Union.

Eliminating the income tax has momentum, we just need our leaders to not let up. The stakes are too high. We have historic inflation and are well into a recession. With a $6.6 billion state surplus, the time is now to cut taxes and advance the ball towards transformational tax reform. Other states are taking action to lower taxes to pull workers and families into their states, and Wisconsin must keep pace.

And while Wisconsin has made gains in tax reduction since 2011, we still have one of the highest top marginal tax rates in the nation at an astounding 7.65 percent. Paired with an aging population and a projected workforce shortage of 130,000 by 2030, our state’s economy is driving out good companies and good paying jobs, while not doing enough to attract new businesses and workers.

The proposal we launched with CROWE last year would completely eliminate the income tax while offsetting some of the reduced revenue to the state with a 3% sales tax increase. Combined, that would result in more money in your paycheck. Even with the sales tax considered, the economists at CROWE found that the plan would result in a $3.5 billion statewide tax cut and save the average household net $1,700 each year.

If we do nothing, Wisconsin’s economy will fall behind. While other states move forward and draw in workers through reduced taxes, existing businesses here will continue to struggle to hire. Without action, Wisconsin will struggle in an increasingly competitive and global economy, leading to eventual job closures and struggles for workers as jobs disappear.

For better or for worse, the times, and our economy, are changing. In the decade ahead, states will continue to aggressively compete for new job creators and workers. We can already see this happening with the massive influx of people and companies to states like Texas, Tennessee and Florida – all states without an income tax.

A number of states across the country are actively improving their tax competitiveness by reducing, flattening, and eliminating their income taxes. By acting now, Wisconsin could become the only state in the Midwest to have no income tax – giving us a much needed competitive advantage over our neighbors.

It’s not only that we can do better, but for the sake of future generations, we have to do better. And we know this is what the people want. IRG spent the last year driving over 5,200 miles, visiting over 40 rural and urban communities, talking to as many people as we can about what issues matter most to them. In addition to education, the economy and loss of purchasing power was a top issue talked about at every single meeting.

Ultimately, eliminating the income tax is about economic freedom. It’s about empowering everyday Wisconsinites to choose how they want to spend and invest their hard-earned money, rather than special interests in Madison. After hearing of our vision to eliminate income taxes, the plan has support. A local baker in Appleton told us that eliminating the income tax would mean bigger paychecks for her employees. A young tech entrepreneur in Milwaukee said the plan would allow him to attract more talent and capital investment that would allow him to hire more employees. In short, eliminating the personal income tax will help drive the American Dream for families and small businesses all over Wisconsin.

As we begin the 2023 legislative session, lawmakers in Madison have an opportunity to seize this short but important window of opportunity to unleash Wisconsin’s full economic potential. Keeping money in the hands of families, innovators, and community leaders by eliminating the state income tax will put Wisconsin on a powerful footing for decades to come.