Wisconsin residents are facing a potential tax cut based on recent proposals in the state legislature. While there is a bipartisan effort to introduce this cut across the state, Democratic and Republican legislators diverge in regard to what form of tax cut they support.
State Democrats advocate for a progressive tax cut, in which the wealthier classes are taxed at a higher rate than low-to-middle income classes. The GOP, by contrast, sees an opportunity to collapse the century-old progressive system in the state and implement a flat tax rate of 3.25% for all residents, according to the Wisconsin State Journal.
Despite the precedent Wisconsin set as one of the most progressive tax rates in the nation, it has become less so over time. Between 1980 and 2020, the bottom 20% of earners in the state have seen their tax rates increase, while the wealthier classes’ rates have decreased, according to the Wisconsin Policy Forum.
With two plans up for debate and a flat tax increasingly supported by state Republicans, the argument to continue Wisconsin’s progressive tax precedent has to be made.
This is not to wholly discredit the appeal of a flat tax system. Most supporters of a flat tax name three key advantages — ease, equality and economic stimulus. First, flat tax proponents argue that a single tax rate set across all socioeconomic classes makes the process of filing taxes significantly less complicated than one which is tailored to income. Other expenses that could come with a difficult tax form, such as money paid to tax preparers or accountants, could even be reduced for individuals with a straightforward tax rate, according to supporters.
Second, there is the argument that a flat, universal tax rate is more ethical than a progressive tax system because it is completely equal. This is particularly favorable for individuals who view a progressive system as paternalistic and is often advocated for by proponents of limited government and welfare.
The final advantage of a flat tax is that it is set up to support economic growth and stimulus. For example, a flat tax rate is appealing to business owners, who might relocate to Wisconsin for the tax break.
To each of these points, however, is a critical counterbalance that has to be said in favor of a progressive tax. To look first at the argument of ease, it should be ardently clear that while a progressive tax rate requires more nuance to set than a flat one, it is very difficult to argue that the complicated nature of a progressive tax would be more unfavorable to a low or middle income resident than a system in which they can easily file but pay a higher tax rate. Further, this argument does not so much point to the need for a flat tax but to the need for a tax filing system that is more accessible and understandable to the average citizen.
Second is the ethical question of a flat tax. Here, it is important to make the distinction between an equal tax and an equitable tax. A flat tax is undeniably equal, as it determines one universal tax rate that every resident adheres to regardless of socioeconomic status. An equal tax, however, does not acknowledge differences or historical contexts which consistently limit or disadvantage certain communities over others. While equality presents the same opportunities to everyone, equity demands that every individual has the same ability to fully participate in these opportunities. Equality, thus, must come after equity.
In the third quarter of 2022, 68% of America’s wealth was concentrated in the top 10% of earners. To compare, the bottom 50% of earners owned only 3.3% of the nation’s wealth. When this much of the national wealth is held in the hands of a handful of earners, a flat tax will impact middle and lower class individuals at a distinctly higher rate than the higher classes. Further, this extreme disparity in earning potential is inextricably linked to discrimination in the workplace due to race, ethnicity and gender, among other demographic and situational factors.
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“When those at the bottom of the income distribution are at great risk of not living up to their potential, the economy pays a price not only with weaker demand today, but also with lower growth in the future,” economist Joseph Stiglitz wrote in his research on inequality and economic growth.
Until our nation addresses these discriminations in the workplace that impact earning potential, it is not fair to impose a flat tax that equally affects everyone in an unequal society.
Finally, there is the question of how a flat tax could support economic growth. Here, there is again nuance that needs to be explored. While high-earning businesses would benefit from relocating to a state with a flat tax, the employees these businesses hire do not.
A progressive tax allows middle class workers to put money back into the economy by having enough excess income to spend rather than save. Wealthier individuals who are taxed more in this system tend to spend less of their income than middle and lower classes in any case, meaning the switch to a flat tax would decrease spending in the classes that need to spend the most without necessarily putting money back into the economy through the wealthy.
In a progressive tax system, those who earn less are taxed less, and those who earn more are taxed more accordingly. This means that since those who pay a higher rate of taxes also have larger sums of money, a progressive tax would bring in higher tax revenues.
This increase in government revenue through taxes has the potential, if proportioned accordingly, to invest more in education, infrastructure and green energy. In the case of a cut, like the one being considered in Wisconsin, a progressive tax cut that keeps more money in the pockets of the working and lower classes might actually stimulate the economy even more.
The proposed tax cut in Wisconsin presents an opportunity to continue expanding the progressive tax precedent set by the state. With Wisconsin’s tax system being one of the most progressive in the country, a tax cut that expanded rather than abolished this system would promote equity and put more money into the hands of the citizens that need it the most.
Fiona Hatch ([email protected]) is a senior studying political science and international studies.
