Thursday, October 27, 2022

Professors crunch the numbers, and Michels flat tax scheme would screw a whole lot of us

Earlier this month, Tim Michels opened up his yapper at a Tavern League event in Baraboo, and mumbled about how he wanted to look into instituting a flat income tax in Wisconsin, should the state be so stupid to elect him governor.

At the time, I went over how this would screw over a lot of Wisconsinites, but some actual economic pros went further than I did, and used state data to break down the numbers.

Marquette University professors Phil Rocco and Sam Harshner wrote the linked Op-Ed that Shafer printed in his excellent Recombobulation Area site, and the professors note that most us would be paying up under Michels’ flat tax scheme.
A new analysis prepared by Wisconsin’s nonpartisan Legislative Fiscal Bureau (LFB) shows why. In order to enact a flat tax without significant spending cuts (a “revenue neutral” plan), the LFB estimates the new flat tax rate would have to be 5.22%.

Were the state’s current tax code replaced with a 5.22% flat tax, the LFB projects that some 2.35 million Wisconsin taxpayers (72.5% of all filers) would see their taxes go up by $249 per year, on average. By contrast, only 2% of filers would see their taxes go down (see the dark blue bars in the chart below).

While the majority of Wisconsinites would pay more in state income tax under this proposal, those at the top of the income distribution will pay less. As the chart below shows, those who benefit most handsomely from the proposal are filers with annual incomes in excess of $1 million. By contrast, as the LFB reports, “the largest estimated tax increase is incurred by filers with Wisconsin AGI between $20,000 and $25,000 (55.2%).”
(If you want to check out the LFB’s analysis for yourself, here it is.)

Those numbers are based on the 2022 income tax brackets. Given that many Wisconsinites are likely to get a back-door tax cut due to inflation and tax indexing in 2023, there likely would be even more Wisconsinites that pay higher taxes, with a higher increase.

When the reality of higher taxes on most Wisconsinites was mentioned to Michels at the Tavern League event that he rambled about the flat tax at, he basically did an “Oops”, and said he wasn’t planning to raise anyone’s income taxes.

For that to be true, and in order to have a flat tax still be put in place in Wisconsin, Rocco and Harshner point out that would mean cutting the state’s income tax rate to the current lowest rate, which is 3.54%. And if that happens, then major budget cuts are going to have to happen in a lot of places.
Assuming the state legislature is unwilling to pass significant new regressive sales or property taxes, financing a flat tax would require massive spending cuts. To put this in context, let’s consider what it would mean to cut $3.86 billion from the state budget. Today, $3.86 billion accounts for nearly half of the individual income taxes the state collects each year. As the table below shows, this is also equal to 18% of total general purpose revenues in Fiscal Year 2023.

This amount is also half the size of aid to K-12 schools, and four times greater than the total amount of shared revenue that supports all county and municipal services each year.
And I’ll remind you that schools and municipalities are already struggling to make ends meet due to the lack of shared revenues from state government and heavy restrictions on property taxes. This would worsen an already-unsustainable situation, and also would likely result in a sizable amount of people in need being cut off from health care and other community services.

If wrecking community schools and services even further is not an acceptable outcome (and it won’t be), then there’s going to have to be some kind of way to make up those lost revenues within a year or so. And naturally, Michels hasn’t revealed what those higher taxes would be…if he even has thought about it that far (unlikely).

Tim Michels likes to throw out a lot of words and half-baked ideas, but he has zero clue about how those ideas would affect the 99% of us that live in the non-oligarch world. He’s the epitome of the clueless CEO who never earned his way to the top, but thinks his status means that he knows more than the people who have bills to pay, and didn’t get their jobs through inheritance.

Details? Consequences? That’s for the little people to sort out. And it allows the CEO to blame those people when his stupid plan inevitably goes wrong.

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