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.