A new version of the former governor’s proposal to eliminate state income taxes is even more short-sighted than the last.
Photo: Scott Walker, shown during a speech in Arizona in 2015. Photo by Gage Skidmore on Flickr.
In December, former Gov. Scott Walker made the rounds pushing a tax proposal so bad, he couldn’t pass it when he was in office and Republicans controlled all three branches of state government.
Recent analysis from the experts in Wisconsin confirms that, yes, it is a very bad idea. In fact, it’s even riskier than the initial plan Walker proposed in 2013, and there are good reasons why it didn’t get any traction then. And it has to do with my home state, Kansas.
Old is new
The current proposal would eliminate Wisconsin’s income tax and raise the sales tax to make up for the lost revenue. The 2013 proposal would have raised sales taxes to 13.5%, which the Wisconsin Budget Project found would have raised taxes on the lowest earners and saved money for Wisconsin’s wealthiest.
Under the 2013 proposal, the state’s top 1%, earning an average of around $1 million annually, would have saved around $44,000 per year. The average Wisconsinite’s annual income that year was around $30,000; the wealthiest would have saved $14,000 more than that.
Meanwhile, people earning around the average income would have been hit the hardest. Their tax burden would have gone up by $1,045.
In December, Walker decided to revive the proposal with an 8% sales tax. Tamarine Cornelius, director of the Wisconsin Budget Project, said that she didn’t think 8% would be enough to make up for the lost income tax revenue. Second, because a sales tax is a regressive tax—meaning it taxes lower earners and gives wealthier people tax breaks—she predicted the math would show the plan would have a similar impact to the 2013 plan.
The Wisconsin Budget Project did the math and found that, in many ways, Walker’s latest pet project is even worse than the 2013 proposal. The report found the proposal would raise taxes on people with low to moderate incomes, disproportionately benefit white filers, and cut billions in revenue the state needs to pay for schools, services, and infrastructure.
“[These are] the very things that Wisconsin businesses and families need to succeed,” the report read. “We can’t create broad-based prosperity for Wisconsin by raising taxes on the families who can least afford it, just to pay for tax cuts for the rich, while making it impossible for Wisconsin to afford to support its families and communities.”
How bad is it?
Wisconsinites earning about $15,000 would pay $460 more in taxes, while the state’s top 1%, with an average income of $1.7 million annually, would get a tax cut of $72,000.
In other words, the richest Wisconsinites would receive a bigger tax cut than what 60% of Wisconsinites earn every year according to Erik Gunn from the Wisconsin Examiner.
People earning $34,000 annually, which is Wisconsin’s average wage today, would see their tax burden increase by $250. The middle class would receive a tax break—but not much. People earning $58,000 would save $354 and those earning $93,000 would save $1,482.
The plan would also increase the disparities between white Wisconsinites and Wisconsinites of color. White filers would save an average of $2,394, Black filers would save $741 on average, and Latino filers would have to pay $282 more.
Remember, these calculations were made for an 8% sales tax. When Cornelius predicted that 8% wouldn’t be enough to cover the loss of revenue from the income tax, she was right. The Wisconsin Budget Project estimated state revenue would drop by $5.3 billion. So either the sales tax would have to go even higher, placing more of a tax burden on lower- and middle-income taxpayers, or the state would have to make major budget cuts.
Who would want this?
In 2012 and 2013, I was living in Kansas City when Kansas’ then-Gov. Sam Brownback and the Republican-led legislature implemented sweeping cuts to Kansas’ income tax, promising that it would give the state’s economy “a shot of adrenaline into the heart.” The goal was to prove the effectiveness of supply-side economics, commonly known as Reaganomics or trickle-down theory, which argues that if you cut taxes for the wealthy, they’ll invest those funds in their companies and workers.
Long story short, it didn’t. Year after year the state had budget deficits in the hundreds of millions of dollars. Brownback filled the gap by making drastic cuts to education funding. The public school district where I attended kindergarten through high school had to cut school days, sometimes only having classes four days a week to save money. It was so extreme that the Kansas Supreme Court—not a liberal institution—ruled the cuts were unconstitutional.
An estimated $2 billion was diverted from the highway fund and the state’s credit rating was downgraded. My Republican father would shake his head and point out that two of the main reasons people choose to live in Kansas were the good schools and good roads. And Brownback had managed to botch both of those to such an extent it was getting national media coverage.
But Brownback kept telling the people of Kansas to wait and any minute, an economic miracle was going to happen and the money would start to flow.
Why it doesn’t work
Conservatives like to point to the nine states that have eliminated their income taxes, but don’t give a complete picture of what impact that has. While they may not have imploded the way Kansas did, they are still subject to the reality that state revenue has to come from somewhere.
Some of those states (Alaska, Texas) have natural resources, such as oil and mining, that they can tax, and others lean heavily on gaming (Nevada). But that means those state revenues fluctuate, sometimes wildly, based on the market. And they are basing their states’ revenue models on finite resources.
Or they lean heavily on other taxes, such as property, sales, capital gains, or business taxes. Cornelius pointed to Washington State, where the lowest 20% of earners pay 17.8% of their income in taxes.
Aside from the humanitarian, moral reasons not to heavily tax the poorest, it’s also bad for the economy. When poor and middle-class people have more money, they spend it locally—at the grocery store, on their rent or mortgage, and at bars and restaurants. Those small businesses pay their workers and the money keeps moving, which is how an economy grows.
That is not what happens when you cut taxes for the rich. The money that S corporations saved—which were the largest beneficiaries of the Kansas tax cuts—did not trickle down to workers. The percentage of Kansans earning income from an S-corp from 2012 to 2015 grew by 4.1%; nationwide it grew by 5.4%. The state was outpaced by all of its neighbors except Missouri.
In Kansas, the end result was that the state fell behind the rest of the country. From 2012 until the income tax cuts were repealed in 2017, private-sector job growth was 4.2%; nationwide, it was 9.4%. Again, all of Kansas’s neighbors did better during that time period, except for Oklahoma.
Kansas was not an isolated case. In 2020, David Hope and Julian Limberg of the London School of Economics published a paper analyzing 18 countries over five decades to see what the impact is of cutting taxes for the rich. They found it had no impact on economic output (measured in gross domestic product) or unemployment rates. What it did do was increase income inequality.
So why would Wisconsin Manufacturers and Commerce (WMC) and other pro-business organizations cheer on a proposal that would hurt Wisconsin’s economy? Shawn Phetteplace, Midwest Regional Manager at Main Street Alliance, an advocacy group for small businesses, says that even though it would hurt Wisconsin’s overall economy, the tax proposal would line the pocketbooks of WMC’s richest members.
“[Wisconsin Manufacturers and Commerce] serves their billionaire benefactors and very large manufacturers,” says Phetteplace. “This plan is robbing small business, the poor and the middle class to make them even richer. It really is that simple. They don’t care about Main Street.”
And Walker? He knows what side his bread is buttered on. He’s not actively running for office, but he’s still involved in conservative politics and is probably hoping that after he tosses a little more spare change their way, his friends will feel generous.