Flat Tax Won’t Help Economy

Wisconsin Republicans are arguing that we need a flat income tax — and a huge tax break for our wealthiest citizens that would go with it — to remain economically competitive. There’s no evidence to support that.

Let’s look at the states sharing a border with us — Minnesota, Michigan, Illinois and Iowa.

Minnesota has a much more progressive income tax than we do and their unemployment rate is the second lowest in the nation at 2.2%. Iowa also has a progressive income tax and it ranks 17th with a rate of 3.1%. Wisconsin sits at 18th with an unemployment rate of 3.3%. Two of our adjacent states have flat taxes. Those are Michigan with a 4.3% unemployment rate, ranking 43rd and Illinois, which has 4.7% unemployment and ranks 50th.

If flat taxes in the Midwest were all you looked at you’d have to conclude that it’s actually a progressive income tax that produces lower unemployment.

Next let’s look at median income. The ranking among our neighbors goes like this: Minnesota, Illinois, Wisconsin, Iowa, Michigan. So, once again the state with the most progressive tax (Minnesota) comes out on top, but a flat tax state (Illinois) comes in second followed by two progressive states (Wisconsin and Iowa) followed by a flat state (Michigan) at the bottom. Mixed results, but generally better for progressive tax states.

If a low flat tax is good for state economies then it’s fair to conclude that Republicans think that no state income tax would be great. Eight states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. None of those states has a lower unemployment rate than progressive Minnesota and only two are lower than Wisconsin. Only two have higher median incomes than progressive Minnesota. Four, half of them, have higher median incomes than Wisconsin.

In other words, again the numbers are mixed, but generally Minnesota and Wisconsin with our progressive income taxes do better than or at least as well as states with no income tax at all.

The conclusion: A flat tax — or even abolishing the income tax altogether — won’t help the Wisconsin economy. It’s just a big giveaway to the rich.

Published by dave cieslewicz

Madison/Upper Peninsula based writer. Mayor of Madison, WI from 2003 to 2011.

4 thoughts on “Flat Tax Won’t Help Economy

  1. If I understand correctly, the GOP would ultimately like to completely eliminate the income tax with a 20 – 30% sales tax?? Gee, that wouldn’t hurt lower income people disproportionately, would it? Talk about regressive!

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  2. Just for grins, I did a little research on the sale tax rates in our surrounding Midwest states.

    WI – 5 percent; counties may levy up to .6 percent. All but four counties levy a .5% local sales tax.

    IA – 6 percent; local jurisdictions may levy up to 1 percent 834 local governments, including 108 cities, levy local sales tax.

    MN – 6.875 percent; local jurisdictions may levy up to 1.5 percent. 278 local governments levy local sales tax. (Duluth is among the highest at 8.875% total sales taxes)

    IL – 6.25 percent; local jurisdictions may levy up to 4.75 percent. 489 local governments levy local sales tax. (A handful of communities are at 11.5 percent total sales taxes!)

    MI – 6 percent. No local option sales tax.

    Bottom line is – local government services cost money and it HAS to come from somewhere!

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  3. Agreement for most part, however: there is a way a flat tax can avoid being regressive. The math would involve eliminating every deduction and tax credit at Federal level and the outcome would be roughly similar to the current bell shape curve and not be a wealthy giveaway or supply side insanity. You can also beef up the EITC to mediate any inequity. Trouble is: that kind of Federal reform is never going to get through Congress and in Wisconsin, the way we treat income for: self-employed, LLC, sole propreitorship, other small businesses is too complicated and could be made better. Cutting state tax rates at a time of high inflation and Federal spending (of borrowed money) is not only risky in short term, it will wreak havoc during the next significant recession. Feds just made things worse, by continuing the public health emergency.

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