State flat tax proposal falls flat

“If it ain’t broke, don’t fix it,” — Bert Lance, former director of the federal office of management and budget.

The amount of tax burden on Wisconsin residents as a percentage of their household incomes is the lowest it has been in the past 50 years. According to the Wisconsin Policy Forum, which has been analyzing the state’s taxes going back to 1972, rising real wages among Wisconsin workers and a historic billion dollar a year tax cut in the last biennial budget are credited as being major contributors to this drop. Since 2010, even with the recent large income tax cut, state tax revenues have grown by 56.9%. By comparison, local tax collections have only grown 23.7% since 2010.

That is not enough for Senate Majority Leader Devin LeMahieu. Last month he introduced a proposal to scrap Wisconsin’s four-tier progressive income tax in favor of a so-called flat tax rate of 3.25%. LeMahieu and other proponents of the measure are banking on people finding the surface-level simplicity appealing and not recognizing that it is ultimately unsustainable as well as disproportionately benefiting those in the highest tax bracket at the expense of the working poor.

“I think the concern that many people have about big tax cuts now is that we need to have sustainable tax policy that sets our state on a good trajectory we will be able to maintain, not one where we’re going to have wildly oscillating tax policy every few years when we realize that we cut taxes too much and our state’s going bankrupt,” said Associate Professor Ross Milton of UW-Madison’s LaFollette School of Public Affairs in a recent interview with PBS Wisconsin.

Milton’s concern is well-founded. The state is sitting on an $8 billion budget surplus, which immediately leads some, such as LeMahieu, to suggest that Wisconsinites are being overtaxed. While this may be true, if the state wasn’t systemically starving local governments of the revenues they need to maintain basic services and infrastructure, the state is not fulfilling its obligation to service residents.

LeMahieu’s flat tax proposal works while there is a fat budget surplus to keep increases in the standard deductions high enough to offset the negative impacts on those in lower tax brackets while giving billionaires deep tax cuts. When Wisconsin burns through the surplus, residents will be faced with an impending fiscal cliff. Judging by past practice, it is a sure bet that local government will take the hardest hit when the state falls off that cliff.

Rather than making drastic changes to a system that is working well, Wisconsin should stay the course and make incremental adjustments to the state’s tax codes for targeted tax reforms — such as providing relief for the smallest of small business owners whose incomes are inflated due to their business revenues.

Wisconsin should stick with what has been working and focus on ensuring a sustainable tax system that is fair for all Wisconsin residents.

Members of The Star News editorial board include Publisher Carol O’Leary, General Manager Kris O’Leary and News Editor Brian Wilson.