Wisconsin’s “flat tax” proposal is unserious but seriously destructive

It’s not a real plan for the state’s government or economy, but would fuel a cycle of political payoff for the right.
Illustration: Ghosts and ghouls are shown swarming about the Wisconsin Capitol. Illustration by Maggie Denman.
Illustration: Ghosts and ghouls are shown swarming about the Wisconsin Capitol. Illustration by Maggie Denman.

It’s not a real plan for the state’s government or economy, but would fuel a cycle of political payoff for the right.

Each week in Wisconsin politics brings an abundance of bad policies, bad takes, and bad actors. In our new recurring feature, Capitol Punishments, we bring you the week’s highlights (or low-lights) from the state Legislature and beyond.

Republicans love to talk about cutting taxes, and Wisconsin’s Republicans are no exception. So it’s no surprise that with an now estimated $7 billion state budget surplus, their first and foremost priority is—you guessed it—cutting taxes. 

What’s different this time around is that Wisconsin’s GOP legislators are fearlessly open about the wealthy disproportionately benefiting from their proposed flat tax. This would have earners at all income levels pay 3.25% in state income tax. 

To a middle- or lower-income person, Republicans would like you to believe that this sounds great! More money in your pocket, right? 

Not really, unless you’re making over $100,000 annually. Carl Davis, research director for Institute on Taxation and Economic Policy (ITEP) in Washington, D.C. told the Wisconsin Examiner that the tax plan would actually increase the percentage of income taxed for everyone under $100,000, and the benefits would really spike for the 1% of Wisconsinites earning over $512,000.

That’s because ITEP calculates not just income tax, but all local and state taxes and fees. Even at our current tax rate, everyone earning less than $198,000 (which is 95% of the population) pays about 10% of their income in total taxes. That rate drops the higher you get on the income ladder. 

When Republicans cut income taxes for the highest-income earners, it cuts one of the state’s major sources of revenue. Those cuts trickle all the way down to counties and municipalities. Those cuts don’t actually reduce the cost of supplying services, so state agencies, counties, and municipalities all have to increase fees. Those fees are not proportional to income; everyone pays the same amount, which means those fees eat up a bigger portion of people’s income the lower they are on the income ladder.

By contrast, if legislators cut income tax for lower-income households, it would cost the state very little in revenue, so that money would actually stay in people’s pockets. And when lower-income people have more money, that adds fuel to the economy. Because instead of hoarding it in savings accounts or donating it to politicians like the wealthy, lower-income people spend that money. The more they have, the more they can afford in rent, groceries, transit, or discretionary items—goods and services that make life more enjoyable and often provided by local businesses, giving them a boost as well.

(The highest earners would also see a modest tax cut for their earnings at those lower levels! A little something for everyone! If you’re asking, “what does that mean?” there’s a quick tax brackets 101 at the bottom of this story.)

Why would Wisconsin Republicans be so gung-ho about a proposal that will stifle local economies, hurt small businesses, and put further financial strain on 95% of the population? 

One, they’ll deflect that blame onto the local governments and school districts for raising local taxes and fees. It’s actually killing two birds with one stone. They get to say “Don’t blame us. We cut your income tax to 3.25%, remember?” Then, they’ll get to sit back and eat popcorn while property owners duke it out with their local government bodies and school boards. With the devastation of government employee unions by Act 10, those government workers will see their incomes and benefits slashed (except police unions) and service quality will drop.

Wisconsin Republicans also know that they are safe from repercussions thanks to their super-gerrymander. More millionaires and billionaires with more spare cash laying around, and Republicans will happily remind them who put that in their pockets when soliciting donations. And those funds will flood statewide elections. Remember all those annoying and/or racist attack ads last year? Expect more of that.

How do we stop this? This spring’s Wisconsin Supreme Court election is key. If the court no longer has a conservative majority, it would no longer enable shenanigans like allowing a previous Governor’s appointees to stay in their seats months after their terms end, or allowing legislative Republicans to draw heavily gerrymandered voting districts.

Also crucial is getting vocal and organizing, especially in Republican districts. Gov. Tony Evers will be able to hold off on any radical plans with his veto pen, but he needs allies in the Legislature if we want to stop the backsliding and actually see this state move forward. 

Even if we see the gerrymander overturned, we will need people to run against the incumbents pushing these bad policies, which will require an infrastructure to organize and fund those campaigns. We can’t keep ramping up our organizing in election years and then letting all that energy and work go dormant during off-election years. The next generation of politicians, policy wonks, and organizers need to step into the arena, but they can’t do it alone. 

Tax brackets 101

A common misconception is that someone’s total earned income determines how they are taxed for all of their income. For example, Wisconsin’s highest tax bracket is taxed at 7.65%. Many assume that means that if you earn that much, your entire income is taxed at 7.65%

It is not! The first bracket, from $0 to $12,760 is taxed at 3.54%, regardless of how much you make. If you make $12,761, your first $12,760 is still taxed at 3.54%. If you make $2 million, your first $12,760 is taxed at 3.54%.

At the other end of the spectrum, the highest tax bracket (7.65%) for individual earners starts at $280,950. If you earn $280,951, your income will be taxed at the lower rates except that last dollar; you will have exactly $1 taxed at 7.65%. (Which is also incredibly low for the highest tax bracket.)

So if you cut taxes for the lower brackets, people with higher incomes will also reap the benefits. If we cut the lowest tax bracket down to 0%, it doesn’t matter if someone earns $12,761 or $2 million, they will pay zero income tax on that first $12,760.
The Wisconsin Department of Revenue also has a nice little explainer if you want to see a breakdown of the numbers and the rates for married taxpayers filing separately or jointly.

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