GOP bill looks to phase down, eventually eliminate, state income tax

The bill, authored by Sen. Roger Roth, R-Appleton, coincides with a growing call among some conservatives to do away with Wisconsin’s income tax, the oldest in the nation, in order to bolster the economy and make Wisconsin more attractive to out-of-state talent. Others have criticized the idea of eliminating a progressive income tax as one that largely benefits the state’s wealthiest individuals. Reducing or eliminating the tax also would reduce the state’s overall tax revenue.

Wisconsin is projected to close out the current biennium with more than $3.8 billion in the state’s general fund — $2.8 billion more than previously estimated, the state’s nonpartisan Legislative Fiscal Bureau reported last month. The bulk of the state’s increased revenue stems from an estimated $2.5 billion increase in tax collections by the end of the state’s two-year budget cycle in the summer of 2023, as well as a massive influx of federal dollars pumped into the state during the ongoing COVID-19 pandemic.

Roth said the bill would operate similarly to how the state automatically distributes a portion of excess revenue into the state’s budget stabilization, or rainy day, fund. Essentially, income tax cuts would only be triggered when tax collections exceed expenditures, he said.

“When the economy was doing well, when money was coming into the state, we would take that and have more or less automatic tax cuts going back to the people until that income tax is eliminated,” Roth said Monday.

While several Republicans have agreed to put the state’s surplus toward tax cuts, legislative leaders signaled last month that would not take place until the next budget process, which begins in 2023. Republicans, who control the Legislature, have also rejected Democratic Gov. Tony Evers’ proposal for those dollars, which included nearly $1.7 billion for tax cuts for caregivers, increased education spending and a $150 check for every resident in the state.

Roth said he’s hopeful his proposal can be passed by both chambers and sent to Evers’ desk before the Legislature adjourns as early as the end of this month.

“We’ve got a plan now on the table that puts in motion the elimination of the state income tax in the near future,” Roth said. “Every Republican, every proponent of shrinking the size of government and expanding opportunity and wealth for all Wisconsinites, I think that’s something we can all get behind.”

Reduced rates

Roth’s bill would reduce the state’s individual income tax rates for the 2022 tax year based on excess revenue in state coffers.

Currently, the income tax is 3.54% on the first roughly $13,000 of taxable income for individuals or about $17,000 for married filers. For income between about $13,000 and $25,000, and married filers making between about $17,000 and $34,000, the income tax rate is 4.65%. The state budget signed last summer brought down the income tax rate from 6.27% to 5.3% for income between about $25,000 and about $281,000 a year, or between $34,000 and about $375,000 for married filers. The state’s top income tax bracket, for all income above $281,000 for individuals and $375,000 for married filers, has a rate of 7.65%.

Under Roth’s proposal, the 3.54% bracket would drop to 2.15%, the 4.65% bracket to 2.85%, the 5.3% bracket to 3.2% and the top bracket to 4.5%.

If the amount of tax collections exceeds estimated revenues in future fiscal years, individual income tax rates in each bracket would be reduced for the next year based on the excess amount, according to a memo seeking co-sponsors for the bill.

Idea broached

A December report from the conservative Center for Research on the Wisconsin Economy, which was praised by Republicans including former Gov. Scott Walker and several business groups, broached the idea of increasing the state’s general sales tax from 5% to 8% to cover the reduction in tax revenue caused by striking the income tax.

Democrats and groups such as the Wisconsin Budget Project criticized the proposal to eliminate a progressive income tax while increasing a regressive sales tax as one that would shift the tax burden away from the rich and onto the backs of those with low and moderate incomes. Others have raised concerns that a dramatic cut to income taxes could result in major reductions to state tax revenue.

Roth’s bill does not include an increase in the state sales tax.