New report touts benefits of repealing state income tax as jockey governors and lawmakers become nation’s 10th tax-free state
Tennessee became the nation’s eighth income tax-free state in first day 2021, when the phasing out of the voluntary state investment income tax was completed. Less than seven months later, New Hampshire lawmakers and Governor Chris Sununu (right) adopted a new budget that will make New Hampshire the ninth state in the country without income tax. While the number of states without income tax has increased by 28% over the past year, lawmakers in a number of other states are taking action or preparing legislation to become the 10th tax-free state on income.
It is in this context that a new study was published today by Professor Noah Williams of the University of Wisconsin-Madison, founder of the Wisconsin Center for Economic Research (CROWE), believing that Wisconsin taxpayers and the economy of the state as a whole would benefit if Badger State became the 10th non-income tax state, making it the only Midwestern state without income tax.
According to CROWE to study, repealing Wisconsin’s income tax would result in an additional $ 25 billion in GDP growth in the first eight years. Dr Williams notes that such growth would have a “transformative impact on the state’s economy.” During these eight years, the report estimates that 170,000 additional jobs would be created. The proposal to make Wisconsin the only income-tax-free state in the Midwest has been welcomed by the state’s business community and other stakeholder groups.
“In order to attract more people to our state, Wisconsin must be prepared to do something bold,” noted Kurt Bauer, President and CEO of Wisconsin Manufacturers & Commerce. âThe latest census data shows people are migrating to low-tax states, while they are fleeing high-tax states. Becoming the only Midwestern state with no income tax would serve as a beacon for workers and families looking for low costs, a high quality of life, and plenty of career opportunities. “
Eliminating Wisconsin’s personal income tax would directly increase the take-home pay for Wisconsin residents. Such an approach, as the report notes, would also benefit small businesses, since the vast majority of them file under the personal income tax system. In fact, according to the CROWE report, nearly 90% of Wisconsin employers are small businesses structured as flow-through entities that file under the personal income tax system. As such, most Wisconsin employers would realize a large increase in the capacity to create and maintain jobs if the state’s income tax were repealed.
Former Wisconsin Gov. Scott Walker, who enacted roughly $ 13 billion in state tax relief during his two terms as governor, much of which came in the form of relief from income tax, praised the new report and the goal of making Wisconsin the 10th non-state in income tax. While Governor Walker was successful in granting income tax relief during his tenure, even then he made it clear that the ultimate goal should be to eliminate state income tax altogether. . In a December 16 appearance on the Jay Weber radio show, Walker Noted that CROWE’s proposed income tax repeal plan “would focus on the things that stimulate the economy” and have “a ripple effect that will be incredibly positive”.
After former Governor Walker appeared on his radio show, Jay Weber taken to Twitter to endorse the proposal to eliminate Wisconsin’s income tax. âImagine us,â Weber told fellow Wisconsin residents, âsurrounded by high-tax states, as the onlyâ tax-free âstate in the Upper Midwest. “
The enacted tax relief and spending restraint exercised during the Walker years generated billions in savings for taxpayers and put Wisconsin in a place where lawmakers can now consider legislation that will begin to eliminate tax altogether. state revenue. Thanks to the more than $ 13 billion spending restraint facilitated by Bill 10, Governor Walker was able to pass reforms that allowed Wisconsin residents to keep billions more of their paychecks while the state achieves budget surpluses. A Wisconsin Policy Forum (WFP) report released in November highlighted the progress already made in reducing the state tax burden, noting that “lower local and state taxes in Wisconsin as part of the personal income was the most important or almost the most important at the national level. since 1999.”
âIn 1999, state and local governments collected $ 17.4 billion from taxpayers, or about 12.2% of the state’s total personal income (the fourth highest percentage in the country) and $ 3,288 per (sixth highest), âthe WPF report notes. . âIn 2019, the $ 30.6 billion in total taxes represented only 10.3% of personal income (23rd in the country) and $ 5,275 per capita (24th) “
Progress in recent years in reducing Wisconsin’s tax burden is remarkable, but the state’s highest tax rate of 7.65% is still relatively uncompetitive. In an era of heightened political innovation and competition, the past few months and years have made it clear that state legislators cannot rest on their laurels. Lawmakers in Tennessee, Texas, Florida, and other states with lower tax burdens and more hospitable tax climates than Wisconsin, for example, continue to pursue tax reforms that make their tax codes even less burdensome and more conducive to economic growth and job creation.
In many of the 14 states where income taxes have been cut this year, such as Arizona and North Carolina, lawmakers have also expressed a desire to potentially lower the state tax rate to zero percent. The new budget enacted in North Carolina with bipartisan support builds on significant progress made by lawmakers in Raleigh to bring the state’s tax rate closer to zero. Just eight years ago, North Carolina’s highest tax rate was 7.75%, the highest in the Southeast. The new budget promulgated by a Democratic governor will reduce North Carolina’s now fixed income tax rate to 3.99% by 2027 and eliminate the state’s corporate tax completely during the next decade.
Support for the elimination of state income tax is not limited to Republicans. Louisiana Governor John Bel Edwards (D) has approved an income tax cut coupled with an income trigger mechanism that will help gradually reduce Louisiana income tax over time. A month after Governor Edwards enacted this tax reform, which hinged on voter approval finally granted in November, his Colorado counterpart, Governor Jared Polis (D), announced that the income tax rate of the state of Colorado, which he has supported in recent years, “should be zero.”
If Wisconsin lawmakers implement a plan to phase out state income tax, they will join a list of states where lawmakers and governors are already working to become the 10th state without income tax. from the country. Legislation to phase out state income taxes is expected to be introduced in 2022 in at least two states, West Virginia and Mississippi. More states are expected to introduce legislation in 2022 to reduce state income tax, making progress on income tax elimination.
As last year demonstrated, failing to take action to improve the state’s tax code is falling behind. CROWE’s report today offers a path that Wisconsin lawmakers can take to stay on track. Arizona, North Carolina, Tennessee, New Hampshire, Florida, and other states also provide concrete examples of other avenues that can be taken to achieve the same goal. 2021 has been a banner year for state tax breaks, but 2022 could exceed it.