by Joseph L. Bast, Charles Breeden, Robert J. Genetski, William J. Hunter, George P. Lephardt, and John W. Skorburg
Introduction and Summary
Tax policies in Wisconsin are often the subject of long and frequently acrimonious debates. People disagree as to how high taxes are, who pays them, and what effect they have on economic development in the state.
The authors’ goal in this paper is to answer these questions, and more, with an objective and factual review of the evidence. We do not attempt to review all possible measures of tax burden or recite all of the reasons for Wisconsin’s current tax system. Rather, we present as succinctly as possible the facts, theories, and explanations we believe to be the most valid and meaningful.
Whether taxes in Wisconsin should be increased or decreased, reformed or left untouched, are ultimately political questions. This paper can only provide the facts and analysis needed to assure that the decisions made are informed ones.
Findings
Our findings can be summarized as follows:
- Business opposition to state tax policies in Wisconsin is much stronger and more widespread than in other states.
- By almost every measure, Wisconsin is a high-tax state. The initial incidence of the tax burden is on individuals, rather than businesses. This leads some observers to conclude (improperly) that taxes have no harmful effect on Wisconsin’s business community.
- State taxes have, in fact, had an adverse impact on per-capita income and employment growth in Wisconsin since 1976. Although Wisconsin has performed better than many other states in the Midwest during the past two decades, recent trends suggest that tax burden must be reduced if the state is to be competitive nationally in the years ahead.
- While overall tax burden has been shown to be negatively related to economic growth rate, new evidence also suggests that the structure of tax systems affects economic growth. Wisconsin’s relatively high personal income tax rates make recruiting or attracting highly skilled professionals into existing firms difficult, and affect the decisions of Wisconsin firms considering expansion.
Conclusions
We draw the following conclusions from these findings:
- More important than any change in tax rates or tax incidence will be a reduction in overall tax revenues collected. Because of the revenue enhancement effects of federal income tax reform, the state’s tax burden relative to other states will automatically increase in 1987 unless reforms are made now.
- Tax relief, if enacted, should be as broad as possible, rather than extended only to certain groups. Across-the-board tax reductions are more likely to promote broad-based economic development while at the same time being politically attractive. The only exceptions to this strategy should be made when an existing tax targets an industry or class of individuals without regard to the level of public services used by that industry or class.
- The personal income tax has an adverse impact on entrepreneurship, and therefore on economic development. State policy makers should consider a low flat-rate income tax similar to that of Illinois.
- Institutional changes, including constitutional reforms, could assure spending reductions and tax changes once made will not soon be lost. Such changes will assure the business community that Wisconsin is, and will continue to be, a good place in which to conduct business.
- Privatization proposals that completely remove services and facilities from public control, and utilize proven ways to accommodate public employees and other interest groups, should be solicited and thoroughly examined.
