Katherine Loughead, a senior policy analyst with the nonpartisan Tax Foundation, recently made recommendations to improve Wisconsin’s tax structure and competitiveness in her testimony before the state legislature’s Committee on Ways and Means.
She emphasized the importance of sound tax policy that minimizes economic harm and avoids imposing undue burdens on taxpayers, according to a May 5 news release.
“In general, moving to a single-rate tax structure would yield many benefits for Wisconsin and its taxpayers in terms of promoting economic growth and making the tax code simpler, more neutral and more transparent, while also generating a more stable source of revenue,” Loughead said in the release.
Wisconsin is expected to end the current biennium in June 2023 with a $7.1 billion budget surplus, the largest in state history, according to the release. Given these large surpluses, Loughead said there is plenty of room to reform the tax code in a way that would reduce taxes on net.
The Tax Foundation encourages policymakers to prioritize structurally sound, growth-oriented tax reforms that will benefit the state’s economy in the long run, like reducing taxes on labor and investment in Wisconsin, according to the release
A Tax Foundation report said Wisconsin ranks 27th overall in tax competitiveness among states, slightly below average, the release reported. Wisconsin’s total state and local tax collections per capita are slightly below the national average, but the state relies too heavily on taxes on productivity and too little on taxes on consumption compared to the national average.
Wisconsin’s individual and corporate income tax rates are also high compared to other states, the release said. As a result, there has been a proposal to phase in a 4.5% single-rate individual income tax over time, which would make the tax code simpler, more neutral and more transparent.
More states are contemplating a switch to a flat individual income tax structure, with five states enacting laws to make the change in the past two years alone, the release reported. This brings the number of states with a flat tax structure to 13, with several others having serious conversations about making the switch.
The change to a flat tax structure could eliminate the marriage penalty that exists in Wisconsin's current tax brackets, where the income thresholds for married couples are less than double those for single filers, the release said. This move could simplify the tax code and provide a more stable source of revenue while promoting economic growth.
