Should Wisconsin keep striving to have a progressive tax system? WPRI and the Wisconsin Way suggest regressivity is the route to prosperity.

Thursday, October 7, 2010 at 5:25 PM by

New figures on income released last week by the U.S. Census Bureau reveal an unprecedented level of income equality. This week as we were still digesting that news, the Wisconsin Way initiative unveiled a new draft of its “Wisconsin Prosperity Strategy,” which includes a recommendation that would widen the gap between the rich and the poor even more. Their plan proposes reducing income and property taxes and relying more heavily on sales taxes and user fees, thereby making our tax system more regressive.

An op-ed column that I wrote for last Sunday’s Milwaukee Journal Sentinel argues against shifting a larger share of Wisconsin’s state and local taxes onto low-income taxpayers, and the new data we reported on yesterday – regarding where millionaires live – also undercuts a central premise of the conservative argument for easing taxes on the wealthy.

My column was a response to a recent report and a Journal Sentinel opinion piece by Richard Chandler of the Wisconsin Policy Research Institute (WPRI), who argues that Wisconsin needs to “reform” and modernize its tax system by relying more heavily on sales taxes and fees. That proposal would shift a larger share of taxes onto the poor, but WPRI contends that it’s time for Wisconsin to set aside the long standing goal of having a progressive distribution of taxes because they view that as a hindrance to economic growth.

A key theme of the WPRI arguments and the October 5th Wisconsin Way forum is that many people think the sales tax is a fairer tax. Unfortunately, the groups citing that polling data are confusing equity and political expediency. Although the more favorable public attitudes about sales taxes might be a reason for policymakers to put that option on the table, the polling results don’t mean that Wisconsin lawmakers should reject the goal of developing a balanced package of tax reforms that narrows rather than widens the growing divide between the rich and the poor.

Many organizations in Wisconsin agree that our state needs to reexamine the financing of state and local services and find ways to reform and modernize the tax system. But we can accomplish those goals without making our state and local tax system even more regressive. My op-ed column outlines a common sense agenda for improving Wisconsin’s revenue system while also emphasizing tax equity.

A couple of days after I wrote that column, new data emerged that undercuts the premise of conservative groups like WPRI that the wealthy gravitate to places with low taxes. As I noted in a blog post yesterday, the new figures show that the five states with the highest proportion of millionaires are all in the top ten states for state and local taxes per capita, whereas the 5 states with the lowest proportion of millionaires all rank near the bottom in per capita taxes. It appears that the rich, like the most of the rest of us, want to live in places with good schools and universities, strong transportation systems, and quality public services.

Our next commentary in this series will examine polling data that sheds a different light on this issue – public sentiment across the political spectrum in favor of a more balanced distribution of wealth.

Jon Peacock
Budget Project director

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