Proposed Income Tax Cut Likely to Hurt, Rather than Help Wisconsin Economy
The income tax cut proposed for Wisconsin is more likely to hurt, rather than help the state economy, if past history in other states continues to hold true.
Critics of the income tax cut have raised a number of concerns about the proposal, including:
- Half of the benefit of the tax cut accrues to the top 20% of earners, even though its proponents have described the tax cut as being targeted at the middle class.
- Most workers earning $30,000 a year or less would not receive an income tax cut. These workers pay a higher share of their income in state and local taxes than the best off.
- The tax cut reduces state revenue by about $170 million per year, and is partly responsible for the projected re-opening of the state’s structural deficit in the coming years.
Added to this list of concerns is the fact that the tax cut is not likely to help Wisconsin’s economy, and in fact could do the opposite. A new report by the Center on Budget and Policy Priorities examines the track record of states that cut personal income taxes in the 1990s and 2000s and found that those states lagged the rest of the country in economic growth.
In the 1990s, the five states with the deepest tax cuts grew at less than a third the rate of all the other states over the next economic cycle. Colorado, Connecticut, Delaware, Massachusetts, and New York made deep income tax cuts in the 1990s. Employment in those states grew more slowly in the period 2000 to 2007 compared to other states, as shown in the chart below.
In more recent history, six states made significant income tax cuts in the 2000s, prior to the recession. Once again, income tax cuts did not lead states to greater prosperity, according to the report:
“Of the six states that cut income taxes sharply between 2000 and 2007 (when the recession hit), three grew more slowly than the rest of the country in the years that followed. The other three saw above-average growth, but they are major oil-producing states (Louisiana, New Mexico, and Oklahoma) that benefitted from a sharp rise in oil prices.”
Income tax cuts like the one Governor Walker has proposed come with hefty opportunity costs: they take resources away from public services that are crucial to building the foundation for future economic growth. And if history continues to hold, then Wisconsin will receive little or no economic boost from the tax cut.
If we want to promote real, long-term economic growth in Wisconsin, then we should invest in quality schools to create a skilled workforce, an efficient transportation network, and safe communities. The cost of the income tax cuts mean that Wisconsin will have a harder time affording those investments in the future.