4% flat tax for Wisconsin: a lot to like

Give Rep. Dale Kooyenga and Assembly Republicans credit for thinking big about Wisconsin’s tax base.

dalekooyenga.com

His Assembly bill that addresses the biggest sore thumbs in the current tax posture of the state has drawn skepticism from Gov. Walker, some Republican legislators and, of course, Democrats.
Yet, the bill advanced by Kooyenga and fellow assembly members goes right at taxation issues that keep Wisconsin from being a more competitive state. That is no small matter because job and wage growth here are generally ranked in the bottom third of the 50 states.

Even though our unemployment rate is better than average, and Chief Executive Magazine just ranked Wisconsin 10th for business, we remain a slow-growth state.
The Kooyenga bill addresses these major competitive issues:

• Our state income tax is among the highest in the country. His bill would set a path over the next 12 years to replace the current three brackets with a flat 4% tax. That reduction and simplification would make our tax climate much more attractive. Wisconsin has an exodus of 10,000 college graduates every year, and taxes no doubt play a major role in that unacceptable loss of talent.

• Wisconsin’s economy relies heavily on manufacturing, agri-business, trucking and tourism – all dependent on a first-class state highway and local road structure. Kooyenga would lower the gas excise tax by about five cents, but apply the state’s 5% sales tax to gasoline. That would boost revenues for transportation projects and offer an inflation hedge in future years.
• His higher gas tax revenues would reduce bonding for transportation projects. Debt service already chews up one of every five dollars going into the state transportation fund.

There are lots of ins and outs to any major tax reform proposal, and there are always winners and losers. Those need to be worked out so there are way more winners than losers.

Under the Kooyenga plan, many tax credits – all sacred cows to some interests – would go away, but so would the state’s alternative minimum tax. These are all relatively obscure pieces of our tax labyrinth. They do nothing to define the perception of the state’s tax and business climate.

The Assembly Republicans But taxpayers and political leaders are keeping their eyes on the main prize. That would be the perception and reality of the state as a competitive economy. Prosperity of the people in the state is the end game.

That goal was clearly in the minds of GOP leaders when they built Gov. Walker’s first-term budget. They surprised the business world by creating an exemption from the state’s 7.9% corporate income tax for manufacturers and agri-business companies. That’s a huge positive when leaders in those two sectors consider expansions. That major tax break really does say that the state is open for business in those two industries.

That said, Wisconsin can’t rely on agri-business and manufacturing for major job creation in today’s world; both have become uber-productive, and that trend is not going to change. Production will rise, but their job totals will not grow much. The transition to automation and robots is real.

In that vein, the new budget is inert on the need to accelerate the reinvention of the state’s economic mix through entrepreneurs; major gains have been made on that front, especially in Milwaukee, but we need to go even faster.

There is another dimension to the Kooyenga initiative. What is being proposed by the Trump Administration at the federal level for tax reform reinforces the merits of a lower 4% flat tax at the state level.

The Trumpsters propose to pay for lower federal taxes in part by eliminating the deduction for state and local taxes. No longer will the high Wisconsin income tax (7.65% in the top bracket) be mitigated by deducting it against federal taxes.

On the plus side, Trump’s proposal to lower the federal corporate rate to 15%, including pass-through corporations where business taxes are paid at the personal level, will leave a lot more money in business coffers – capital that can be used for investment and expansion.

The same could be said of the Kooyenga 4%. It will leave more funds in pass-through corporations for reinvestment.

In short, the Trump reforms could work hand in hand with the Kooyenga reforms. Business could be doubly stimulated in Wisconsin.

As for the big picture, the state’s economy and business climate are in better shape than they have been for a decade. That acknowledged, we can’t just put them on cruise control. Remember the Great Recession just a decade ago? Who can forget?

There will be other downturns ahead. The best protection is a robust, diversified economic platform before a storm hits.

The Assembly GOP plan breaks new ground. It’s bold, and bold is what we need in a state that has long been behind the growth curve.

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  • Jerry

    Sorry John….you aren’t going to grow Wisconsin’s economy with tax breaks for the well off but $12 per hour wages for the rest of us. I’m proud of you though as you are the FIRST to admit that the Ag and Manufacturers tax credit was a total giveaway that did nothing to create jobs as their was no reinvestment. All it did is allow manufacturers to go to temp agencies for employees and thus reap even greater profits. With “BIG” box retailers like Walmart and Menards as our top employers and Walker and the Republican legislature passing everything they could get their hands on to drive down wages in this state we are now a low growth, low wage, low benefit state that most college graduates will not want to stay around. Couple less take home pay for teachers and public employees that set the stage for no wage growth in the private sector and many Wisconsinites have no discretionary money to spend and consequently since Wisconsin is a consumer driven economy….Bingo…when people have less money in their pocket….THEY SPEND LESS….and the economy goes no where!!!! Add to this our environment is covered in cow crap and Big AG WELLS ARE SUCKING THE WATER OUT OF THE STATE WITH NO REGARD TO NEIGHBORS OR ANYONE ELSE. Our schools are going to local taxpayers to keep going because state aid remains below 2008 levels and you have the perfect storm of why graduates are not staying here and no one else wants to move here. If you add in those who have given up looking for decent paying jobs, those employed part time and those with jobs far below their skill level you end up with a rate of 7.7%……not a sign of the robust economy Walker wants us to believe. The 4% flat rate will be good for those at the top but I doubt they will reinvest that windfall in expansion. Why would they…. there is no increased consumer demand for their product….when the consumer is no better off than they were 30 years ago!

    • Bob Dohnal

      It is amazing, the left wants more jobs and all they do is go after the companies and peel that own them and drive them down south.

    • Bob Dohnal

      Jerry all most all of what you re saying, especially about the schools is pure crap.

  • Bob Dohnal

    AS the leader of the CofC in West Allis I pushed for flat tax for companies in Wis.

  • Denny Caneff

    Disappointed to read of your support of a flat tax, John. It’s regressive and unfair. That 4% means a lot to a wage-earner making $40K, whereas Diane Hendricks of Judith Faulkner would hardly notice. As for the youth brain drain, none of my 4 adult children live in Wisconsin, and it has nothing to do with taxes, and everything to do with the political climate. 3 are just across the river in MN, where they can observe at a safe distance the dragging-down of this state on so many levels.

  • Jerry

    Bob Dohnal….Thanks for sharing . I always look forward to your insightful comments.

  • Bill Kraus

    I have often criticized my friends who moved to no income tax states when they retired and left their grandchildren behind for the rest of us to educate. Do you think a flat income tax is merely a step in the direction of these no income tax states they find so irresistible? If so, what is an appropriate mix to pay the bills? We are already disproportionately reliant on the property tax. The anti-income tax Republicans are partly responsible and are aided and abetted by the Dems who are sales tax averse. The Dems don’t seem to realize that property taxes are really sales taxes on shelter, wolves in sheep’ clothing as it were. I suppose it would be foolish not to look at the size and shape of the state taxes as a factor in economic attractiveness, but the fact remains that if tax burdens were really that important, Minnesota would be empty and Mississippi would be full. I, for one, think other factors are more important. Mountains in Colorado. Oppressive heat in Florida. A sterling, top to bottom, educational system and structure that trains brains for the less well served and is, in fact, a profit center more than a cost center in Wisconsin. Shouldn’t the legislative council or a blue ribbon commission be crafting a long range strategy that even the unrealistically ambitious and job protecting politicos can accept. it might embrace a flat income or no income tax, but its goal would be to create a place where we can and want to live.