When “Tax Reform” Means a Tax Cut for the Richest, and a Tax Increase for Others

Wednesday, October 15, 2014 at 7:29 AM by

When you hear a policymaker advocating for “tax reform,” it’s worth checking the fine print.

There’s nothing wrong with the goal of improving Wisconsin’s tax structure. But two recent “tax reform” proposals would shift the responsibility for paying taxes away from those who are well-able to pay and toward everyone else, according to a new report from the Wisconsin Budget Project. Instead of true tax reform, these proposals are actually tax shifts – shifts that would require families with low and moderate incomes to pay more in taxes so we can give tax cuts to the highest earners.

The most recent tax shift proposal comes from the Wisconsin Policy Research Institute, which recommends extending the sales tax to a number of goods and services that are not currently taxed and using the revenue to lower other taxes. Among the 24 things that would be newly taxed are basic necessities such as food, water, and fuel for residential use. Extending the sales tax to these necessities would make it harder for struggling Wisconsin families to put food on their tables and keep their children warm and safe.

This move would give an average tax cut of nearly $7,000 to taxpayers in the top 1%, a group with an average income of $1.1 million. In contrast, taxpayers in the bottom 20% – a group with an average income of $14,000 – would pay $110 more in taxes.

Effects of expanding sales tax, in dollars

Governor Walker raised the idea of an even more extreme tax shift at the end of last year, when he floated the idea of eliminating the state’s income tax, and substantially raising the sales tax rate to make up the difference. Such a radical change would result in extremely large tax cuts for the rich and corresponding tax increases for many other taxpayers. The top-earning 1% would have received an average tax cut of nearly $44,000 if this tax shift had been implemented in 2013. In contrast, a taxpayer in the lowest 20% of the income scale would pay nearly $750 more in taxes, on average.

Wisconsin taxpayers with high incomes already pay a smaller share of their income in state and local taxes than do other taxpayers. Recent tax shift proposals, masquerading as tax reform, would cut the share of income wealthy residents pay in taxes even further, requiring other taxpayers to make up the difference.

For more on how tax shifts harm middle- and low-income families, read our new analysis: Tax Shifts Would Cut Taxes for the Richest, Raise Taxes for Others. The analysis is based on figures from the Institute for Taxation and Economic Policy.

Tamarine Cornelius

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