MADISON, Wis. — Wisconsin’s Republican Senate leader introduced a tax plan Friday that would reduce income taxes for residents over the next three years so that all Wisconsinites would pay a single rate of 3.25% by 2026.
That would lower the rates for all Wisconsinites but would have a higher impact on the state’s top brackets. The rates range from 3.5% for the lowest earners to 7.7% for those making above roughly $300,000 per year.
Senate Majority Leader Devin LeMahieu’s office said that the expected cost of the first two years of the tax plan would be $4.96 billion, which would take a sizeable chunk out of the state’s record-setting budget surplus. The state is expected to finish the current fiscal year ending in June with a more than $6.6 billion surplus — but that figure is expected to grow to $8.4 billion the next year and $9.8 billion by the end of June 2025.
LeMahieu said that this tax cut will be sustainable long term for Wisconsin and help drive the state’s economy.
“When you keep more money in the economy, sales tax will go up, people earn more money, and we think it’s going to have a net positive effect long term in Wisconsin,” LeMahieu said.
University of Wisconsin-Madison assistant professor of public affairs Ross Milton is wary, though, about the sustainability of any tax plan like that.
“I would caution that thinking about a long-term policy based off of what are likely to be short-term surpluses is fraught,” he said. “That’s true whether you’re talking about permanent tax cuts or permanent new spending plans; either way, these surpluses are likely to go away.”
That uncertainty can disincentive businesses from moving to Wisconsin, he said.
“I think for this to have a prayer at driving increased business growth in Wisconsin, it still needs to be a policy everybody knows is sustainable,” Milton said.
Part of what is driving the uncertainty for Milton is the decrease in revenue that the state will take in if these tax cuts remain permanent. He said the tax cuts would amount to roughly 50% less revenue the state is taking in from its income tax, and Milton said that makes a difference.
“Taxpayers that are making above $1 million, on average, according to estimates from the Legislative Fiscal Bureau, would get tax cuts on average at $116,000 per year,” he said of the proposed tax plan.
“A single taxpayer that has taxable income of $50,000 — if you are in that second highest tax bracket, most of your income is actually in a lower tax bracket than that, and so you won’t see a very large tax decrease,” he added.
The proposal would also place Wisconsin at a lower rate than other states with a flat income tax. Illinois moved to a flat tax within the last few years, but that state’s rate is higher — 4.95% — which is higher than the rate for the state’s second-lowest bracket.
Milton said a higher flat rate can stem off some of the lost revenue for a state like Illinois. That would, however, raise the tax rate on lower-income earners, but Milton added that a higher standard deduction could help balance that increase for those taxpayers.
Republicans are introducing the legislation as a standalone bill, which could be subject to the governor’s veto. Gov. Tony Evers pushed in his inaugural address for a tax cut targeting middle-class Wisconsinites and reiterated that in the wake of the news Friday.
“When we deliver tax relief, it should be targeted to the middle class to give working families a little breathing room—not to give big breaks to millionaires and billionaires who don’t need the extra help to afford rising costs,” the governor tweeted.
“The governor is going to need to work with us and we’re going to need to work with the governor to work on some of his priorities,” LeMahieu responded in an interview with News 3 Now.
“He could veto this if we pass it as a standalone bill, but right now I think it’s just important to start the discussion on real tax reform in Wisconsin and what that would look like,” he added.
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