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As Wisconsin’s gubernatorial election draws near, the spotlight is on a potential flat individual income tax—and its effects on the state’s taxpayers and economy.
Unfortunately, there has been much confusion, with bold claims being made based on plans that don’t exist, including claims that a flat tax “would increase taxes on the middle class and working poor.” It’s worth taking a step back to understand what is and isn’t under consideration in Wisconsin—and what the ramifications might be. It is especially important for stakeholders to know that a flat tax can indeed be adopted without raising taxes on low-income households.
Since gubernatorial candidate Tim Michels (R) first voiced his openness to a flat individual income tax, he has said he wants to avoid raising taxes on anyone. In early October, he told reporters,
I’m going to sit down with all the smart tax people; we’re going to figure out how low we can get the income tax. . . . Right now, it looks like we could get it somewhere just below 5%. If you had a flat tax at that number, the tax level would actually come up for those on the lowest income bracket. I do not want to raise the taxes on anyone.
Michels’ statement makes clear that (1) he is exploring the possibility of a rate just below 5 percent, and (2) because a rate just below 5 percent with no other changes would raise taxes for many Wisconsinites, other tax policy changes would be necessary to achieve his goal of protecting those who currently pay a lower effective rate.
This has not stopped critics from attempting to tie Michels to a specific tax plan, including a 5.22 percent rate with no other changes, which would raise taxes on many Wisconsinites—an outcome Michels specifically said he wants to avoid—or a flat rate of 3.54 percent (the current lowest rate) with no other changes, which would create severe and irresponsible budget shortfalls given the state’s current spending levels.
While Michels has not yet released a specific tax plan, it is clear that no one is proposing—and indeed that he has expressly ruled out—a 5.22 percent flat tax with no other changes, which is the assumption critics have run with to argue that only the wealthiest Wisconsinites would get a tax cut.
There are numerous ways Wisconsin could move to a flat income tax while benefitting Wisconsinites across the income spectrum. The most obvious solution is to flatten the rate while increasing the standard deduction, as proposed by the Tax Foundation and the Badger Institute in the July 2022 report Tax Reform Options to Improve Wisconsin’s Competitiveness.
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