A Flatter State Income Tax Would Take a Toll on Wisconsin

Wednesday, September 5, 2012 at 6:24 PM by

A proposal to change Wisconsin’s tax system could cut taxes for high earners, even though the well-off already pay a smaller share of their income in state and local taxes than lower-income taxpayers, according to a new analysis from the Wisconsin Budget Project.

Various lawmakers are proposing cutting or “reforming” the state’s income tax code, and a special committee staffed by the Legislative Council will be reviewing those ideas and developing recommendations. The Legislative Council’s next meeting is tomorrow, September 6th, 2012. One of the ideas the Legislative Council is likely to consider is flattering Wisconsin’s income tax so that big earners pay less.

The highest earners in Wisconsin already pay the smallest percentage of their income in state and local taxes. People in the lowest fifth of earners, who average $12,700 in income, pay 9.4 percent of their income in state and local taxes. In comparison, the top one percent of earners in Wisconsin — people with an average income of $1.1 million — pay only 6.7 percent of their income in state and local taxes, as shown in the chart below.

Decreasing the amount of income tax paid by the best-off could strip Wisconsin of the revenue needed to provide basic services, or result in higher taxes for those who are least able to afford it. Any tax cuts that the Governor and next legislature approve would come on top of $210 million in new tax breaks implemented during the current budget period, most of which went to well-off individuals and corporations.

If Wisconsin policymakers want to reduce the amount of taxes paid by the best-off even further, either lower-income taxpayers will have to pay more in taxes to make up the difference, or Wisconsin will have fewer resources to devote to purposes like educating school children and helping workers develop the skills they need for today’s economy. Either approach could harm the state’s economic recovery and low-income families.

Read the full Wisconsin Budget Project publication.

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