Wisconsin Capitol Rotunda
Wisconsin lawmakers have made considerable progress in reducing the state tax burden over the past decade, but many recognize that further reform is still needed. With a top rate of 7.65%, Wisconsin still imposes a higher income tax rate than all of its neighbors.
Even Illinois, where state officials are famously hostile to free enterprise, levies a much more competitive income tax rate than Wisconsin, with a flat rate of 4.95%. Many lawmakers in Madison, however, would like to change that this year.
2023 began with a proposal from state legislative leadership to reduce and flatten Wisconsin’s state income tax. But with less than a month before a new state budget must be enacted, time is running out to approve a reduction in income tax rates, as has occurred in more than 20 states over the past two years.
Moving to a lower, flatter income tax, as many states have done in recent months and years, would be the best outcome for Wisconsin taxpayers. But even if they can’t get all the way to a flat tax, Wisconsin legislators should be able to enact some degree of income tax rate reduction this year, perhaps as part of the new budget.
Increased State Subsidization of Local Governments Also Proposed
Crafting a new budget and reaching a deal on tax relief aren’t the only issues Wisconsin lawmakers are trying to resolve in the coming weeks. State legislators have reportedly been negotiating with Governor Tony Evers (D) on legislation to increase the amount of money that state government sends to local governments every year.
In addition to increasing the degree to which state taxpayers subsidize local governments, the prospective “shared revenue” package would also authorize new taxing authority for local governments. In particular, permitting higher local sales taxes is something that is reportedly on the table.
Americans for Tax Reform scores any legislation that empowers local governments with greater taxing powers as a violation of the Taxpayer Protection Pledge, a written commitment that many legislators have made to “oppose and vote against any and all efforts to raise taxes.” Since any shared revenue proposal that permits greater local taxing powers is objectively part of an effort to raise taxes, albeit at the local level, a vote for such a deal would violate the Taxpayer Protection Pledge.
In order to make any shared revenue proposal compliant with the Taxpayer Protection Pledge, it would need to include offsetting tax relief equal to or greater than the increase in local taxing powers. ATR will be monitoring these developments in Madison, urging Wisconsin lawmakers to enact additional income tax relief this year while rejecting any proposal that would violate the Taxpayer Protection Pledge.