Last month, the Wisconsin Legislature passed its biennial spending plan, sending the 2023-25 budget bill to Gov. Tony Evers for approval. The $99 billion budget would have prioritized taxpayers by providing relief to the tune of $3.5 billion and reduced the number of income tax brackets from four to three, and established a future path toward implementing a flat tax.
Unfortunately for middle-class Wisconsinites, Evers vetoed much of the proposed income tax cut, reducing the figure to a mere $175 million with one swipe of his misguided pen — only 5 percent of the Legislature-approved plan. Astonishingly, the broad elimination of tax cuts appears completely unrelated to any actual perceived need for revenue or connection to any crucial spending proposals, making the governor's decision all the more perplexing.
The Wisconsin Legislature proposed that the $7 billion-dollar surplus should largely be used to reduce the income tax burden, returning the unneeded tax revenue to Wisconsinites, where it belongs. "If the government takes too much money, we think the public, the taxpayers of this state, will spend these additional dollars better than bureaucrats," state Rep. Terry Katsma said.
Under the final budget bill signed by Evers, the income tax will be reduced from 3.54 percent to 3.5 percent for those with the least income. The two middle-income brackets, currently at 5.3 percent and 4.65 percent would have been reduced to 4.4 percent under the Legislature’s plan, but now only the lower one will. Finally, the reduction for high-income earners, which would have lowered the rate from 7.65 percent to 6.5 percent, was also removed by Evers.
So, who do Evers’ vetos impact? Anyone single-income filer making more than $25,520 or any dual-income filer making more than $34,030 is left with very little relief due to Evers’ desire to continue taxing the “rich.”
Increasingly, states such as Wisconsin are forcing taxpayers who assume the largest portion of the tax burden to consider moving to states that view growing revenues as a reason to cut taxes and improve upon their competitive edge, rather than remain in a state focused on maintaining the tax-and-spend status quo. Evers' choice to foolishly slash the tax cut is likely to accelerate the migration to states that choose to provide aggressive relief to taxpayers by providing a more competitive tax environment.
While Evers plays politics, Wisconsin's top-income bracket remains the nation's tenth highest, and its bottom-income bracket is the nation's fourteenth highest. He also ignores 67 percent of Wisconsin employers that are pass-through entities subject to the top-income bracket.
Given this landscape, what incentivizes individuals or small business owners to remain in Wisconsin? Not much! Meanwhile, our neighbors to the south in Illinois enjoy a flat tax rate of 4.95 percent. This is embarrassing, to say the least.
The Legislature shouldn’t sit by and watch Evers ignore any relief for the middle-class during times of high inflation. Since the state will continue collecting this money, it remains unassigned for any purpose, it will stay in the general fund. This means that the next budget’s surplus is likely to be large.
Wisconsin lawmakers should consider proposing a constitutional amendment that would ultimately go to the voters via a referendum to create a taxpayer relief fund where a certain amount of surplus funds go, similar to neighboring Iowa. Then when massive surpluses are realized, lawmakers have no choice but to cut taxes rather than grow the size of government.
It’s clear Wisconsin has made tax policy progress in recent years, there is far more to do if the state wants to remain competitive. The Wisconsin Legislature appears to understand the urgency, particularly as several states move to reduce or eliminate their income tax – it's too bad Gov. Evers does not share their sentiment.