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Mandate for Madison: Tax Reform Options to Improve Wisconsin's Competitiveness

New report from Badger Institute and Tax Foundation offers comprehensive tax reform options to enhance Wisconsin’s tax competitiveness

By Katherine Loughead

Over the past two years, a wave of tax reform has swept the country, with a historic number of states enacting laws to improve tax competitiveness. In 2021, Wisconsin was among 13 states to enact laws reducing individual or corporate income tax rates, and as of this writing, 11 states have enacted legislation in 2022 to reduce income tax rates. Six of these tax-cutting states sit within a 200-mile radius of Wisconsin, creating an intensely competitive regional tax environment.

In 2019, 2020, and 2021, Wisconsin reduced its second-highest individual income tax rate once and its lowest two rates twice, targeting tax relief toward low- and middle-income taxpayers. But Wisconsin’s top marginal individual income tax rate—which applies to approximately two-thirds of pass-through business income—has been left unchanged for a decade, and the state income tax landscape has grown dramatically more competitive during that time. In fact, 25 states have lower top marginal individual income tax rates now than they did in 2012. As of 2023, when Iowa’s top rate drops to 6 percent (with further reductions to 3.9 percent), Minnesota and Wisconsin will be left with the highest top marginal individual income tax rates of all the non-coastal states stretching from California to New York.

Adding to the urgency of reform, the COVID-19 pandemic quickly accelerated a trend toward more flexible workplace arrangements, and many workers now find themselves free to live in a state of their choosing while working for an employer in another. With enhanced workplace flexibility and with inflation at its highest level in four decades, many people are leaving high-tax, high cost-of-living jurisdictions in favor of states with lower costs of living, including lower taxes—specifically, states with low or no income taxes.

Individuals and businesses weigh many factors when deciding where to locate or invest—such as family and weather, as well as infrastructure, quality of life, and a suitable workforce. Not many of these factors are within policymakers’ control, and, even when they are, economic growth generated from educational improvements or infrastructure investments, for example, may take years to manifest. But tax policy is within policymakers’ control, and policy changes can yield real economic results much more quickly.

Even with the improvements Wisconsin has made since 2019, the state is quickly falling behind on income tax competitiveness, and this has implications both for business investment and for Wisconsin’s ability to attract and retain a highly skilled workforce.

Read the report.

Grover Norquist, one of Washington D.C.'s most influential voices for free markets and limited government, will keynote a Badger Institute luncheon on August 3 in Milwaukee. 

Norquist is founder & president of Americans for Tax Reform, a group that works to limit the size and cost of government and opposes higher taxes at all levels. An advocate for lower, simpler taxes, Norquist will discuss what’s going on with the push to raise taxes in Washington, the drawbacks of higher taxes at the federal, state and local level, and the need for reform in Wisconsin. There will also be a question-and-answer opportunity on policy issues facing the country. 

Click here to register.

Viewpoint: Wisconsin’s Increasingly Uncompetitive Tax Structure

By Mike Nichols

You don’t have to think Wisconsin’s trailblazing 100-year-old progressive income tax was always a bad idea to know that it’s worse than a bad idea today.

At the time it was adopted in 1911, it was a logical remedy to an obvious problem.

Before it was passed into law in June of that year, Wisconsin raised revenue almost exclusively through property taxes – a system that was inherently unfair to farmers, inefficient and wasteful.

“The wastefulness and looseness of the present system are such as no businessman would tolerate in his own business for a moment,” wrote the authors of a Wisconsin State Tax Commission report in 1898. “That such abuses are allowed to continue is not creditable to the intelligence and good sense of the people of the state and can only be accounted for on the theory that the actual conditions are not known or understood.

“Even when officials are honest and faithful a large amount of money is annually lost by methods which are a part of our system…”

The question, of course, was whether there was a better alternative.

Read  more.

Badger Institute adds managing editor, three visiting fellows

The Badger Institute continues to develop its reporting capacity and grow its research team with the hiring of seasoned journalist Mark Lisheron as full-time managing editor and the addition of another visiting fellow who will contribute to the institute’s Mandate for Madison.

Mark Lisheron, an award-winning journalist with a long reporting and editing history in both Wisconsin and Texas, is joining the Badger Institute team as full-time managing editor.

Benita Cotton-Orr, a new Badger Institute visiting fellow who conducted research and served on the leadership team of the Georgia Public Policy Foundation for 19 years, will co-author a report examining more efficient ways to fund the construction and maintenance of Wisconsin highways.

The Institute this month is also extending fellowships with two more long-time policy experts who will also contribute to the Mandate:

Eloise Anderson, an internationally recognized leader on welfare- and workforce-related policies, will contribute a chapter on the importance of civil society in addressing economic and cultural challenges.

Andrew Hanson, economist and associate professor at the University of Illinois at Chicago, will author a Wisconsin report assessing the Badger State’s economic standing in relation to its neighbors and states with comparable populations.

Read the full release. 

Weekly Survey: Would a flat tax encourage economic and population growth in the Badger State?

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What We're Reading

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• Forbes: How Democrats and Republicans Can Rally Behind an Education Freedom Bull Market
• The Hill: Canceling student debt for everyone is bad policy and bad economics

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