Note: An oral version of the following prepared testimony was presented, by invitation, in person to the Wisconsin Assembly Committee on Ways and Means during an informational hearing on April 26, 2023.
Chairman Macco and Members of the Committee:
Thank you for the opportunity to join you today to talk about fiscally sound tax policy and how Wisconsin can improve its tax competitiveness.
My name is Katherine Loughead, and I am a Senior Policy Analyst with the Tax Foundation, where I specialize in state tax policy. The Tax Foundation is a nonprofit, nonpartisan, tax policy research organization that has been around for 85 years working to advance sound tax policy at the state, federal, and international levels.
While many organizations focus on how much revenue is raised, our primary focus is on how revenue is raised. There are better and worse ways to raise a dollar of revenue, so our goal is to provide research and analysis to help states raise the necessary revenue in a manner that minimizes economic harm and avoids imposing undue burdens on taxpayers. We believe state tax codes should be simple, transparent, and neutral while generating a stable source of revenue, so the recommendations I offer today will be in line with those four key principles of sound tax policy.
As some of you know, the Tax Foundation has been actively engaged on the topic of tax reform in Wisconsin, especially over the past five years. In 2018, we partnered with the Badger Institute to write a 100-page tax reform options guide for Wisconsin that was published in February 2019, and the recommendations in that report are still relevant today. But the state tax reform landscape and the broader economy have changed quite a bit since then, so in July 2022, we released an updated report that extrapolates the most important reform recommendations from the 2019 publication and applies them to the ongoing tax reform discussions that are occurring here in Madison, with special emphasis on income taxes.
I will highlight recommendations from both reports, but for today’s conversation, I will focus my remarks on the tax policy discussions that are most relevant to you right now as you work on the next biennial budget.
Wisconsin’s Revenue Outlook
First, it is important to keep Wisconsin’s current and projected revenue outlook in mind when considering various tax policy changes.
Wisconsin is projected to end the current biennium in June 2023 with a $7.1 billion budget surplus, the largest in state history, and to have another large budget surplus of approximately $5.3 billion at the end of the upcoming fiscal year 2023-25 biennium.
Wisconsin has brought in large surpluses year after year, and while surpluses are certainly better than deficits, large surpluses mean the state is over-taxing its residents. Wisconsin’s current tax rates are consistently bringing in substantially more revenue than is needed to fund already agreed-upon spending priorities.
Given these large current and projected surpluses, there is plenty of room to reform the tax code in a manner that would reduce taxes on net. But as this committee, and the legislature as a whole, thinks about tax reform, it is important to keep in mind that not all tax cuts are created equal; some tax cuts are much better at promoting long-term economic growth than others. There are numerous economic studies showing that corporate income taxes are the most harmful to economic growth, followed by individual income taxes, while well-structured sales and property taxes are less harmful to economic growth and cause fewer economic distortions.
If policymakers return some of the projected continued revenue growth to taxpayers in a structurally sound and pro-growth manner, those tax cuts will benefit businesses and individuals throughout the state, leading to more innovation, more job and wage growth, more economic opportunities, and more vibrant communities. All these things are good not just for taxpayers but also for state coffers, because when wages grow and businesses invest in Wisconsin, state tax revenues will grow as well. On the other hand, if tax relief is provided in less-than-strategic ways, the economic benefits will be much smaller and more likely felt only in the short term rather than the long term.
As such, we at the Tax Foundation would strongly encourage Wisconsin policymakers to be strategic about any tax cuts or reforms, and to prioritize structurally sound, growth-oriented tax reforms that will benefit the state’s economy in the long run, like reducing taxes on labor and investment in Wisconsin.
Why Tax Reform?
In addition to having plenty of room in the budget, now is the ideal time to enact pro-growth tax modernization because Wisconsin cannot afford to wait any longer: the state tax reform landscape has never been more competitive than it is now.
This is the third year in a row that many states have enacted numerous rate reductions and other pro-growth reforms, and the number of reforms we have seen these past few years has been unlike any other three-year period in state tax history in terms of the sheer size and scope of the reforms being enacted.
In 2021 and 2022 alone, 24 states enacted or implemented individual income tax rate reductions, corporate income tax rate reductions, or both. And, so far this session, West Virginia, Michigan, and North Dakota have newly joined the list of states enacting or implementing income tax rate reductions, in addition to several other states that have reduced rates further after already reducing them at least once over the past couple of years.
It is important to keep in mind that the tax rates states have now are not necessarily the rates they will have next year or the year after because many of the reforms that have been enacted are continuing to phase in over time or are contingent upon revenue meeting certain targets.
In many of the states that have enacted rate reductions in recent years, tax reform is not being treated as a one-time project but as a continuous effort, where a little bit of progress is made year after year so that five or 10 years from now, states are where they want to be.
For Wisconsin, it is crucial to keep in mind that in such a competitive landscape, states that stand still for even a couple of years are automatically falling behind, especially since Wisconsin already has some tax competitiveness disadvantages compared to other Midwestern states and the country as a whole, including having the ninth highest top marginal state individual income tax rate and the 13th highest state corporate income tax rate in the country.
One of the factors contributing to the state tax competitiveness races we are seeing right now is that, for many companies, remote and hybrid workplace arrangements are here to stay. Many people are eager to keep their city-based jobs but live in lower-cost-of-living areas where owning a home is more affordable and the quality of life is more in line with their preferences. For states that otherwise have had a historically difficult time attracting and retaining residents or attracting new business investment, the rise in workplace flexibility presents new opportunities to carve out different types of competitive advantages for themselves. Wisconsin, in particular, has an opportunity to attract people who may want to live within driving distance of their Chicago-based jobs but do not want to live in Chicago all the time, especially if they commute to the office only occasionally.
Attracting and retaining residents and businesses is, of course, about far more than just tax policy. The quality of the education system, robust and efficient infrastructure networks, weather, recreational opportunities, quality of life considerations, and plenty of other factors also play a role.
But taxes are a key factor in businesses’ and individuals’ location decisions, and, unlike some of the other factors, tax policy is one factor that is directly within policymakers’ control. And not only is it within policymakers’ control, but it is an area in which policy changes that happen this year can start producing real economic benefits this year, whereas certain other types of policy changes affecting education and infrastructure, for instance, can take years before their benefits are felt throughout the state or translate into increased economic growth.
With hard work, intentionality, and dedication, states can turn burdensome tax codes into competitive tax codes, producing effects that are almost immediate and last for years to come. North Carolina is a prime example of this, adopting numerous reforms over the past decade that have truly overhauled the state’s tax structure and have led to higher rates of job growth and GDP growth. Indiana has also made its income taxes far less burdensome while reducing its reliance on business personal property taxes, and Iowa is well on its way to a competitive tax code.
Wisconsin’s Current Tax Landscape
To understand what Wisconsin’s tax landscape looks like compared to other states, it is important to look at a variety of metrics, including rates, collections per capita, and structure.
When it comes to tax structure, apples-to-apples comparisons of state tax codes are difficult because states have so many structural variations, but the Tax Foundation strives to cut through some of that complexity with our State Business Tax Climate Index, a report we have published for 20 years that uses over 120 tax policy variables to compare states according to the competitiveness of their tax structures.
States that adhere well to widely agreed-upon principles of sound tax policy—simplicity, transparency, neutrality, and stability—perform well on the Index, while states with highly complex, nonneutral, and distortionary tax policies rank poorly on the Index.
In the 2023 edition of the Index, which is based on a snapshot of state tax policies that were in effect as of July 1, 2022, Wisconsin ranks 27th overall, slightly below average. When it comes to the Index’s five tax components, Wisconsin ranks in the bottom half of states on individual income taxes, corporate income taxes, and unemployment insurance taxes, and in the top half of states on sales taxes and property taxes.
Regarding tax rates, Wisconsin’s individual and corporate income tax rates are high regionally and nationally. As of January 2023, Wisconsin has the 9th highest top marginal state individual income tax rate and the 13th highest state corporate income tax rate in the country.
On a positive note, when it comes to overall tax collections and burdens, Wisconsin uses its revenue fairly efficiently. Wisconsin’s total state and local tax collections per capita is slightly below the national average—at $5,269 compared to a national average of $5,616. When looking at the sources of revenue Wisconsin uses, however, Wisconsin over-relies on taxes on productivity and under-relies on taxes on consumption compared to the national average.
Shifting to a Flat Tax Structure
One of the main topics I’d like to address here today is the idea of moving to a flat tax, as this has been a major topic of discussion in Wisconsin this session in both the Assembly and the Senate.
I want to start by commending Chairman Macco on his proposal to responsibly phase in a 4.5 percent single-rate individual income tax over time, subject to tax triggers. There are many different ways Wisconsin could go about moving to a single-rate tax structure, but this proposal would clearly benefit all income taxpayers.
Economic and Structural Benefits of Moving to a Flat Tax
In general, moving to a single-rate tax structure would yield many benefits for Wisconsin and its taxpayers in terms of promoting economic growth and making the tax code simpler, more neutral, and more transparent, while also generating a more stable source of revenue. Specifically, when it comes to promoting economic growth, it is well established in the economic literature that single-rate income tax structures are less harmful to state economic growth than graduated-rate tax structures because graduated-rate tax structures penalize important economic growth-inducing activities like labor and investment on the margin.
Wisconsin’s current graduated-rate structure treats lower levels of income favorably, but the tax structure reduces the value to Wisconsinites of working additional hours, finding a higher-paying job, or making additional income-generating investments.
Economic literature shows progressive tax structures put a damper on wage growth and upward mobility. For example, Gentry and Hubbard (2002) found a statistically significant negative relationship between the progressivity of individual income tax structures and the probability of workers transitioning to a better job within a year. In other words, the more progressive an income tax structure, the less likely workers were to transition to a better job within a year. The same study shows progressive tax structures are associated with slower rates of growth in real wages.
One way of thinking about a flat tax structure is that Wisconsinites would bring home the same amount of take-home pay for every dollar of taxable income earned, whether their first dollar of taxable income, their most recent dollar of income, or any future dollars of income. This would result in greater neutrality between taxpayers—since there would be less variance in effective tax rates—and this would achieve complete neutrality in the tax treatment of a taxpayer’s first dollar of taxable income versus their last dollar of taxable income. Now, certain deductions and exemptions would still be in place that would exclude certain types of income from taxable income altogether, but under a single-rate structure, all taxable income would be subject to the same rate. This would create an environment that naturally incentivizes innovation and upward mobility.
In addition to single-rate structures being more neutral and conducive to economic growth, flat tax structures are also simpler and more transparent. Under a single-rate structure, taxpayers can quickly estimate their effective state income tax rate without even using a calculator, and they can more easily estimate how a proposed rate change would affect them. But under the current structure, effective tax rates are more easily disguised. For policymakers, revenue forecasters, and researchers, single-rate tax structures simplify the process of estimating how proposed tax changes would affect overall revenue, as well as how changes would affect individual taxpayers.
Additionally, under a single-rate tax structure, any proposed rate increase would affect all income taxpayers, so if future policymakers wanted to raise the income tax rate, they would have to make a convincing argument to obtain buy-in from their constituents. Under graduated-rate structures, policy design can more easily place a disproportionate share of the tax burden onto only a small subset of the population, which can lead to unnecessary tax increases. Flat tax structures, however, help prevent unnecessary tax increases and promote the more efficient stewardship of taxpayers’ resources over time.
Taxpayers seem to recognize this intuitively, and we saw this play out recently in Illinois, when, in November 2020, Illinois voters strongly rejected the so-called “Fair Tax” constitutional amendment that would have permitted a graduated-rate income tax structure even though the initial rate schedule proactively passed by the General Assembly would have kept rates at or below the current 4.95 percent level for the first $250,000 in taxable income.
Voters seemed to understand that if a graduated-rate structure were authorized, their income tax rates would be more likely to increase in the future even if the initial legislation granted them a tax cut. Maintaining a flat rate, on the other hand, would provide some safeguards against income tax increases and provide more predictability as to what income tax rates would look like in the future.
Some proponents of graduated-rate income taxes tend to view them as a way to mitigate income inequality, but there are plenty of barriers to this at the subnational level because people and businesses can, and often do, relocate to states where the tax environment is more favorable for them. A study by Feldstein and Wrobel (1998) shows that higher marginal tax rates lead to a relocation of capital and higher earners to more favorable tax environments, reducing the income of the lower-income individuals who remain, due to fewer job opportunities and a more sluggish state and local economy. States should want to attract and retain higher earners who help create and sustain good jobs, have the money to invest in the betterment of local communities, and generate substantial tax revenue for state and local governments, even under a flat tax.
Even under a single-rate individual income tax structure, Wisconsin’s tax code would continue to contain elements of progressivity through various deductions, exemptions, and credits that exclude certain income from taxation altogether or reduce effective rates for lower-income taxpayers. These provisions include the progressive, sliding-scale standard deduction, as well as the refundable earned income credit and the refundable homestead credit, among others.
Even under a hypothetical scenario in which no deductions or exemptions exist and everyone pays a truly flat rate, as former Governor Scott Walker pointed out on Twitter recently, someone making 10 times more than you would pay 10 times more in taxes than you, and someone making 10 times less than you would pay 10 times less than you. This is a neutral way to structure a tax code.
But, given Wisconsin’s sliding-scale standard deduction and various credits—some of them refundable—lower-income individuals would still often pay much lower effective rates than higher-income individuals.
It is also important to remember that, when it comes to questions of progressivity and equity, taxes tell only one side of the story. Even with a less progressive tax structure, Wisconsin’s tax and transfer system as a whole would continue to be quite progressive, given state and local spending on food and nutrition assistance programs like SNAP and WIC; affordable housing; Medicaid and other healthcare assistance, childcare, and utilities payment assistance; vocational education and training; and other income-tested programs providing financial support to lower-income residents.
A study my colleagues published at the end of March shows that, when federal, state, and local taxes are combined, the bottom quintile of income earners receive $6.17 in gross government transfers for each dollar of taxes paid. Meanwhile, the top quintile receives only 11 cents in gross government transfers for each dollar of taxes paid.
How the state of Wisconsin spends its revenue is up to policymakers, but when it comes to how revenue is raised to fund the state’s spending priorities, it would make sense to reduce some of the complexity in the current system and create a system that promotes, rather than penalizes, upward mobility. Ultimately, the purpose of the tax code is to raise a stable source of revenue to fund the desired level of government services, and to do so without unduly hindering economic opportunity for taxpayers and economic growth throughout the state. Once that revenue is raised, policymakers can do with it as they see fit, but raising it in a structurally sound, pro-growth way is important, and a flat tax would be an improvement over current law.
The Flat Tax Revolution
Wisconsin is far from alone in contemplating moving to a flat individual income tax structure. In the past two years alone, five states—Arizona, Iowa, Mississippi, Georgia, and Idaho—have enacted laws to convert their graduated-rate individual income taxes into flat income taxes. This means more states have enacted laws to shift to a flat tax in the past two years alone than in the entire history of state income taxation before 2021. Of the states that acted recently, Arizona, Mississippi, and Idaho’s flat taxes were implemented in January 2023, while Georgia’s is scheduled to take effect in 2024 and Iowa’s is scheduled to take effect in 2026.
Currently, 11 states have implemented, and two other states are in the process of implementing, a flat individual income tax structure. In addition to those 13 states, several other states have had serious conversations this year about converting to a flat income tax, including Kansas, North Dakota, Missouri, Ohio, and Oklahoma, among others.
In addition to the 13 states that have implemented, or are in the process of implementing, a flat tax structure, nine other states do not levy an individual income tax on wage or salary income at all. Beyond the 22 states that have a flat income tax or do not levy a wage income tax, other states have structures that technically are graduated but are effectively close to flat. Specifically, Alabama, Arkansas, Georgia, Missouri, and Oklahoma have top marginal rates that kick in at or below $10,000 in taxable income.
Another advantage of converting to a flat income tax structure is that this could be done in a manner that eliminates the marriage penalty that currently exists in Wisconsin’s individual income tax brackets, where the income thresholds for married couples are less than double the thresholds for single filers. While Wisconsin has a married couple credit to offset at least part of this penalty, the credit is not a perfect fix, and it adds complexity to the tax code. When considering moving to a lower, flatter income tax structure, policymakers should consider doing so in a manner that eliminates the marriage penalty.
Policymakers Should Prioritize Reducing the Top Marginal Rate
Short of moving to a flat tax, Wisconsin and its taxpayers would benefit greatly from including a reduction to the top marginal individual income tax rate in any tax relief plan.
The Income Tax Landscape Is Growing More Competitive
Currently, Wisconsin’s top marginal individual income tax rate of 7.65 percent is the 9th highest top marginal state individual income tax rate in the country, lower than only California, Hawaii, Oregon, Minnesota, Massachusetts, New Jersey, New York, and Vermont, as well as Washington, D.C. Looking at this geographically, apart from Minnesota, Wisconsin has the highest top marginal individual income tax rate of any state from New York to California.
Since 2019, Wisconsin has made improvements to its three lowest marginal individual income tax rates, and those reductions are benefitting all Wisconsin income taxpayers already, but the top marginal rate of 7.65 hasn’t changed since 2013, when it was reduced slightly from 7.75 percent.
For the sake of comparison, of the 24 states that have enacted or implemented individual income tax rate reductions since 2021, Wisconsin and New York are the only two that reduced only the lower rates without touching the top marginal rate.
By standing still on the top marginal rate, Wisconsin has fallen behind its peers, especially in the highly competitive Midwest region, where Illinois, Indiana, and Michigan already have low, flat income taxes; Ohio has a low top marginal rate and is considering flattening it; and Iowa is in the process of implementing a low, flat rate of 3.9 percent by 2026.
Nationally, the trend over the last decade has been strongly toward increased tax competitiveness. In fact, 25 states have lower top marginal individual income tax rates now than they did in 2014, while only six states and the District of Columbia have higher top marginal rates now than they did then.
Benefits of Reducing the Top Marginal Rate
There is good economic reasoning behind the trend toward lower, flatter income taxes. Numerous economic studies show reductions to top marginal rates yield economic benefits for states and their taxpayers, while high top marginal individual income tax rates reduce returns to labor, putting a damper on hours worked and workforce participation rates.
It is important to keep in mind that high individual income tax rates directly affect most of Wisconsin’s businesses, 95 percent of which are structured as pass-throughs, including sole proprietorships, partnerships, LLCs, and S corporations, where business profits “pass through” to the owners’ individual income tax forms. In fact, we estimate that approximately two-thirds of Wisconsin pass-through business income is exposed to the 7.65 percent top marginal rate.
High tax rates mean business owners have less money to reinvest in their businesses, and this results in less hiring, less capital investment, and less economic output. Alternatively, reductions to Wisconsin’s top marginal individual income tax rate would yield positive effects on entrepreneurship, business investment, and job growth for years to come.
From an economic growth standpoint, the top marginal rate is the most important rate to reduce because it has a far greater negative effect on economic growth than lower rates. That is because business decisions are made at the margin, based on how taxes will affect the next dollar of income earned or invested, not previous dollars of income.
In Wisconsin, taxpayers who have income taxed at the top rate see a significant reduction in the benefit they receive from engaging in additional work. When the marginal benefit of additional labor is reduced, taxpayers pursue less work than they would otherwise, which reduces economic output and gross state product over time.
Numerous economic studies show that reductions to top marginal individual income tax rates encourage productivity and promote long-term economic growth, while increases to top marginal rates hurt economic growth. In a study of state tax changes from 1969 to 1986, Mullen and Williams (1994) found higher marginal rates reduce gross state product growth, even after adjusting for overall state tax burdens. Separately, a study by Mertens and Olea (2013, updated 2017) found marginal individual income tax rate reductions led to an increase in the aggregate number of hours worked due to the employment of those who had previously been unemployed and an increase in the number of hours worked by those already employed. They also found reductions in income tax rates were associated with higher wages for both higher-income and lower-income workers. Interestingly, they found a notable distinction between the effects on economic activity of reducing marginal rates versus reducing average tax liability through other means. As such, this study helps explain why reducing marginal tax rates tends to be more economically beneficial than reducing income tax liability through other means, such as by carving out large portions of the tax base through various exemptions, deductions, and credits. To individuals and businesses making labor and investment decisions, tax rates send a far more visible signal than base provisions as to the relative attractiveness of a state’s tax environment.
A separate study by Mertens and Ravn (2013) found reductions in average individual income tax rates had a positive effect on real GDP per capita and led to increases in durable goods consumption and private sector investment. Mertens and Olea (2013, updated 2017) found that the benefits of reductions to the top rate affect more than just those whose income tax liability is directly reduced. Specifically, they found rate reductions benefit those with lower incomes through positive effects on wages, employment, and overall economic conditions. Specifically, they found cutting income tax rates for even just the top 1 percent of the income distribution would increase real GDP, reduce unemployment, and have a positive effect on the incomes of those not in the top 1 percent of the income distribution.
Designing Tax Triggers to Ensure Revenue Stability
As this committee considers any major structural changes to the tax code, such as converting to a flat tax structure or reducing rates, tax triggers can be a useful tool to ensure enacted tax cuts are implemented only if actual tax collections achieve desired levels. As such, tax triggers can help limit the uncertainty that changes to the tax code can bring, while also providing an efficient way for states to dedicate a portion of revenue growth to tax relief.
Designing tax triggers can be a bit tricky, so I want to share some best practices with you today.
One best practice is to make any tax triggers contingent upon actual general fund tax collections exceeding a specified target number. The key here is for lawmakers to first decide how much revenue they want to bring in in a given year to fund the desired level of spending. Then, once that amount is decided, the tax trigger language can specify that any tax collections that come in above that set amount will be used, for example, to reduce individual income tax rates across the board in proportion to how much each rate generated.
When determining what that revenue target will be, it would make sense to set that level not based on how much revenue the state is currently bringing in—because Wisconsin has a large surplus now and is expecting a large surplus again over the next biennium—but to set the number based on how much you actually want to bring in, so probably a lower number in order to provide a net tax cut to Wisconsinites. That number should be indexed to inflation to ensure the state is able to adjust for the higher nominal costs to the state that come with inflation.
Another best practice to keep in mind is that tax triggers should always be based on actual tax collections exceeding a specific target, not based on actual collections exceeding year-over-year revenue growth or forecasters’ projections alone.
In a recession, revenues could decline sharply one year and then grow back a bit the next, but still come in below baseline levels. If triggers are tied to year-over-year revenue growth, that could trigger a tax cut when revenue is technically up from one year to the next even if revenue levels are lower than desired.
Similarly, in a multi-year recession, forecasters could predict the following fiscal year’s revenue will come in at a certain level, and actual revenues could very well exceed projections. But just because revenues exceed projections does not mean the state is in good fiscal standing.
Additionally, tax triggers should not be tied to specific years. It may very well take either more or fewer years than anticipated for revenue to reach desired targets. If a tax cut isn’t triggered in 2025, for instance, there is no reason the law should prohibit a cut from occurring in 2026 if there is enough revenue in 2026. Likewise, if tax revenues come in stronger than expected more quickly than expected, then there is no reason to wait for a specific future year to trigger a tax cut.
Similarly, when feasible, policymakers should avoid prescribing specific future rates and instead reduce rates as much as they are able as soon as they are able. If, for example, the year after an initial hypothetical reduction of the top rate from 7.65 to 7 percent, the state collects enough revenue to bring the rate down further to 6.7 percent, but not to 6.5 percent, it would make sense to phase in a rate reduction to 6.7 percent rather than create language that triggers a further rate reduction only once the state collects enough revenue to bring the state all the way down to a more visually appealing 6.5 percent.
Repealing the Personal Property Tax
The final reform I want to recommend Wisconsin adopt this year is a repeal of the personal property tax, also known as a tangible personal property tax.
As you know, a repeal of the personal property tax was written into the current biennial budget, and over $200 million in revenue was set aside to reimburse local governments for the forgone revenue, but the tax was not actually repealed due to relatively minor disagreements between the governor and legislators. Reaching a consensus to repeal this tax would benefit the state, as well as the Wisconsin taxpayers who still have to file and pay these taxes.
Wisconsin legislators have worked hard to reduce reliance on the personal property tax over time, and, as a result, there are now only a few categories remaining, such as office furniture, fixtures, equipment, and supplies, as well as boats and other watercraft.
One key reason to eliminate this tax is that, compared to the real property tax, tangible personal property taxes are more burdensome to comply with because taxpayers must proactively calculate and report the depreciable value of their taxable tangible personal property each year, which is a complex, taxpayer-active process.
Repealing this tax would relieve taxpayers of this compliance burden, saving them time and money, and the state would benefit by no longer having to administer and enforce a complex tax that generates only a small amount of revenue.
Several other states have reduced reliance on tangible personal property taxes over time, and repealing this tax would give Wisconsin the distinction of being a leader on this issue.
While Wisconsin has made modest improvements to its individual income tax rates in recent years, the top marginal rate—the rate that matters most to the state’s economic competitiveness—remains among the highest in the country. Moving to a flat tax would substantially improve Wisconsin’s tax competitiveness.
Short of a flat tax, however, reductions to the top marginal rate should remain a priority, and tax triggers can be a valuable tool to responsibly phase in one or both of these goals.
Separately, repealing the personal property tax would reduce compliance burdens for taxpayers and administrative burdens for the state. As policymakers work on the next biennial budget, each of these policy changes deserves thoughtful consideration.
Thank you again for the opportunity to testify, and I look forward to answering any questions.
 Katherine Loughead, Jared Walczak, and Joseph Bishop-Henchman, Wisconsin Tax Options: A Guide to Fair, Simple, Pro-Growth Reform, Tax Foundation, Feb. 13, 2019, https://www.taxfoundation.org/wisconsin-tax-reform/.
 Katherine Loughead, Tax Reform Options to Improve Wisconsin’s Competitiveness, Tax Foundation, Jul. 13, 2022, https://www.taxfoundation.org/wisconsin-tax-reform-options/.
 Harm Venhuizen, “Explainer: Disagreements on Size of Wisconsin Budget Surplus,” Associated Press, Mar. 6, 2023, https://www.apnews.com/article/wisconsin-budget-surplus-explained-7f3d70beed5f52a75e9e0822ac7d8d0b#:~:text=Wisconsin%20will%20start%20the%20two,time%20federal%20pandemic%20relief%20funds.
 Timothy Vermeer, “State Tax Reform and Relief Enacted in 2022,” Tax Foundation, Jul. 13, 2022, https://www.taxfoundation.org/state-tax-reform-relief-enacted-2022/.
 The rate reduction in North Dakota was enacted the day after testimony was delivered and has been inserted into written testimony to provide an up-to-date list.
 Janelle Fritts and Jared Walczak, 2023 State Business Tax Climate Index, Tax Foundation, Oct. 25, 2022, https://www.taxfoundation.org/2023-state-business-tax-climate-index/.
 Timothy Vermeer, “State Individual Income Tax Rates and Brackets for 2023,” Tax Foundation, Feb. 21, 2023, https://www.taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/.
 Janelle Fritts, “State Corporate Income Tax Rates and Brackets for 2023,” Tax Foundation, Jan. 24, 2023, https://www.taxfoundation.org/publications/state-corporate-income-tax-rates-and-brackets/.
 Janelle Fritts, Facts & Figures: How Does Your State Compare? Tax Foundation, Mar. 23, 2023, Table 5, https://www.taxfoundation.org/publications/facts-and-figures.
 Id., Table 7.
 William M. Gentry and R. Glenn Hubbard, “The Effects of Progressive Income Taxation On Job Turnover,” Journal of Public Economics 88:9 (September 2002): 2301-2322.
 Jared Walczak and Katherine Loughead, Twelve Things to Know About the “Fair Tax for Illinois,” Tax Foundation, Oct. 6, 2020, 3, https://www.taxfoundation.org/illinois-fair-tax/.
 Martin Feldstein and Marian V. Wrobel, “Can State Taxes Redistribute Income?,” Journal of Public Economics 68:3 (1998): 369–96.
 Scott Walker, Twitter Post, Apr. 18, 2023, 9:35 PM, https://www.twitter.com/ScottWalker/status/1648500468933591041.
 Timothy Vermeer, Alex Durante, Erica York, and Jared Walczak, America’s Progressive Tax and Transfer System: Federal, State, and Local Tax and Transfer Distributions, Tax Foundation, Mar. 30, 2023, https://www.taxfoundation.org/who-pays-taxes-federal-state-local-tax-burden-transfers/.
 Timothy Vermeer, “State Individual Income Tax Rates and Brackets for 2023.”
 Katherine Loughead, Jared Walczak, and Joseph Bishop-Henchman, Wisconsin Tax Options: A Guide to Fair, Simple, Pro-Growth Reform, 40.
 Katherine Loughead, Tax Reform Options to Improve Wisconsin’s Competitiveness, 2.
 Dan Spika, “Individual Income Tax: Informational Paper #2,” Wisconsin Legislative Fiscal Bureau, January 2021, 31, https://docs.legis.wisconsin.gov/misc/lfb/informational_papers/january_2021.
 Katherine Loughead, Tax Reform Options to Improve Wisconsin’s Competitiveness, 14.
 Id., 1.
 John K. Mullen and Martin Williams, “Marginal Tax Rates and State Economic Growth,” Regional Science and Urban Economics 24:6 (December 1994).
 Karel Mertens and José L. Montiel Olea, “Marginal Tax Rates and Income: New Time Series Evidence,” Quarterly Journal of Economics 133:4 (November 2018): 1803–1884.
 Karel Mertens and Morten O. Ravn, “The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States,” American Economic Review 103:4 (June 2013): 1212-47.
 Mertens, Karel and Jose L. Montiel Olea, “Marginal Tax Rates and Income: New Time Series Evidence,” Quarterly Journal of Economics 133:4 (2018): 1803–1884.
 Jared Walczak, Designing Tax Triggers: Lessons from the States, Tax Foundation, Sep. 7, 2016, https://www.taxfoundation.org/designing-tax-triggers-lessons-states/.
 “Statement of Personal Property 2023,” Wisconsin Department of Revenue, https://www.revenue.wi.gov/DORForms/pa-003f.pdf.
 Garrett Watson, States Should Continue to Reform Taxes on Tangible Personal Property, Tax Foundation, Aug. 6, 2019, 9, https://taxfoundation.org/tangible-personal-property-tax/.
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