There are nine states in the US with no personal income tax. A new study released today finds that Wisconsin would benefit from becoming the tenth no-income-tax state. The new study, “Fundamental State Tax Reform: Eliminating the Income Tax in Wisconsin,” was researched and written by University of Wisconsin Professor of Economics Noah Williams, who leads the Center for Research on the Wisconsin Economy (CROWE). Dr. Williams’ report finds that eliminating Wisconsin’s income tax would yield a significant boost in economic growth and job creation.
If Wisconsin eliminated its income tax, according to this new report, Wisconsin residents would save $2,800 per household. After accounting for a three percentage point sales tax increase to partially offset the revenue lost through income tax repeal, household savings would still be $1,700. This boost in take home pay would provide needed relief to Wisconsin families, who currently face uncompetitive income tax rates.
Eliminating the personal income tax also helps small businesses, since most of them file under the individual income tax system. In fact, Dr. Williams’ report points out that 90% of employers in Wisconsin are small “pass-through” businesses which file their taxes as individuals. These businesses employ 50% of workers in the state. Eliminating the personal income tax will greatly expand the job creating capacity of Wisconsin small businesses, allowing them to hire more workers, give raises to existing workers, or invest in the expansion of their business.
The proposed state income tax repeal would also generate massive economic growth and create more jobs in Wisconsin, Dr. Williams finds. According to CROWE’s analysis, if the state income tax is eliminated GDP would grow $25 billion in the first eight years above current projections. Dr. Williams notes that this would be a “transformative impact on the state economy.” During those eight years, 170,000 new jobs would be created, both due to higher paychecks bringing workers off the sidelines, as well as out of state workers moving to Wisconsin for better opportunities.
Under the plan outlined by the CROWE report, Wisconsin would be the only no-income-tax state in the Midwest. Repealing the state income tax would make Wisconsin more able to compete for jobs and investment with the likes of Florida, Texas, Tennessee, and other low-tax states. Such a reform would make Wisconsin a beacon for sound fiscal policy in the Midwest. Though the plan proposed by CROWE partially offsets the income tax cut with a sales tax increase, Wisconsin’s sales tax would still, as Dr. Williams notes “remain lower or on par with state and local sales taxes levied in neighboring states and communities.”
Finally, the study’s proposed reforms to Wisconsin’s tax code would help shrink the government. According to the Kaiser Family Foundation, Wisconsin is the 12th highest per capita spending state at $8,629 per year. The average spending for states without an income tax is $6,427 per capita and all of them, barring Alaska, spend less per capita than Wisconsin. Eliminating the income tax combined with some fiscal discipline from lawmakers would incentivize the government to trim its fat and eliminate unnecessary spending.
“States across the country are taking action to join the ranks of the no-income-tax states,” said Grover Norquist, president of Americans for Tax Reform. “I applaud the CROWE study for illustrating the economic benefits that would come with making Wisconsin the nation’s next no-income-tax state. Doing away with the state income tax would make Wisconsin more economically competitive both nationally and globally. In addition to making Wisconsin a much more prosperous place to live and work, repeal of the state income tax would also increase the job-creating capacity of small businesses, most of whom file under the personal income tax system.”
The report released by CROWE is not the first proposal to improve Wisconsin’s tax code. The plan to get to a 3% flat tax that was published by the MacIver Institute in 2017 is another proposal that represents a vast improvement over the status quo. Wisconsin lawmakers would do will to pursue legislation that will phase out or at least continue to chip away at the state’s uncompetitive top income tax rate. As recent months and years have demonstrated, failing to take action to improve a state’s tax code is to fall behind.