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Flat Tax Helps Rich Get Richer and Solves Zero Problems

Posted by Jeff Smith, State Senator District 31
Jeff Smith, State Senator District 31
Jeff Smith, Senator District 31 (D - Eau Claire)
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on Wednesday, 11 January 2023 in Wisconsin

executive-moneySenator Smith writes about Republican flat tax proposals. Instead of providing tax relief for those who need it the least, Wisconsin has an opportunity to invest our surplus in targeted programs and put money in the pockets of the middle class.

MADISON - In the last year, Republicans talked a lot about a flat tax. They call a flat tax a “simplification” of our tax system, but that’s a simplification of the truth. They make it sound good, but in reality it shifts a bigger share of the tax burden onto middle class families.

So why do Republicans want it? Just last week, Senate Republican Majority Leader Devin LeMahieu (R-Oostburg) said, “We have the resources to do this.” Just because you can do something doesn’t mean it is a good idea. Why spend our hard-earned surplus on the wealthy when we face so many challenges?

Our income tax system only applies higher rates to “marginal” income, or income in excess of the base tax rate. This means wealthy residents pay the same as the rest of us on a certain amount earned, any income in excess of that is taxed at a slightly higher rate. Lowering the rate at which marginal income is taxed provides a windfall to the wealthy, while passing the middle class and the working poor by.

working-poorIt seems intuitive that the same tax rate across the board makes everything “equal,” but “equal” does not mean “equitable.” The working poor and middle class already pay a greater percentage of their total income when it comes to sales and property tax. These types of taxes concentrate the tax burden on the very poorest.

Let’s do some quick math for the Republicans’ 3.54% flat tax scheme. According to the U.S. Bureau of Labor Statistics, Wisconsin’s average estimated individual income is $53,120 per year. That equates to roughly $2,076 in taxes paid for single filers (adjusting income to reflect the state sliding scale standard deduction and personal exemptions). Someone making $1 million per year is paying $69,537 in income taxes. With a flat tax, someone earning the state average income would see a $484 tax cut, or about a 23% cut. Someone earning a million would see a $34,161 tax cut which equals just under a 50% tax cut.

The broader numbers further illustrate this. As cited by the Milwaukee Journal Sentinel, Wisconsin’s nonpartisan Legislative Fiscal Bureau (LFB) projected the effect of Wisconsin moving to a 3.54% flat tax. This proposal resulted in enormous gains for the richest taxpayers, with a corresponding dramatic drop in state revenues. Under this tax shell game, state revenue would drop by $5.59 billion in the first year and $3.86 billion per year after the first.

Spending $5.59 billion of Wisconsin’s hard-earned $7 billion surplus on a big tax break for the rich doesn’t curb inflation. It doesn’t add more workers to Wisconsin businesses. It solves zero problems Wisconsin currently faces. We must maintain an equitable tax system and make the investments Wisconsin needs.

door-county-peopleThankfully, Governor Evers continues to advocate for a tax cut targeting the middle class. Wisconsinites want a middle class tax cut and problems solved, not handouts to the wealthy.

Accepting the $5.59 billion hit to state revenues means less funding available for roads, bridges, public education, higher education and healthcare. Rather than disinvesting in local communities, we should provide them with the resources they need. This means fully funding our public schools and making sure local governments have the money they need to run essential emergency services. We can do this – as long as we don’t give tax breaks to those who need them the least.

jeff-smithUsing the surplus for targeted investments and putting the money in middle class pockets with progressive tax reform will keep our dollars here, not in some off-shore hedge fund for rich people. We must look to the future. If wealthy people weasel their way out of their fair share with a flat tax, that leaves the middle class picking up the pieces when revenues fall.

We haven’t seen specifics on this proposal as of the writing of this column. As details of this proposal are released, it’s my hope these issues are examined thoroughly. I look forward to working alongside my colleagues to fully vet this legislation and ensure taxpayers get fairness when they file their state taxes in coming years.

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