Senate Republicans want to phase in a flat 3.5% income tax

MADISON - Senate Republicans are working on a plan that would create a flat income tax in Wisconsin of 3.5%, according to Senate Majority Leader Devin LeMahieu.

The proposal, similar to a plan floated by one Republican candidate for governor during the midterm election cycle, could run into roadblocks with Democratic Gov. Tony Evers, who has promoted a separate tax plan of cutting income taxes by 10% for middle class taxpayers.

Wisconsin’s income tax rates start at 3.54% and rise to 7.65%. Republicans who control the state Legislature over the past decade have focused their income tax rates on the middle brackets but largely left in place the top rate, which is levied on individuals for income of $267,000 and up.

LeMahieu told the conservative MacIver Institute on Thursday he is working on a plan that would phase in a flat tax over two to four years, moving the state's income tax rates down to the state's bottom tax rate of 3.54%.

"You will see a flat tax proposal," he said of Senate GOP proposals in the upcoming legislative session. "We can't keep ignoring the fourth tax bracket in Wisconsin."

"We have the resources to do this," LeMahieu said, referring to a projected budget surplus of more than $6.6 billion. "If we do this in Wisconsin it will just be huge."

Evers said in November he likely would not sign a state budget plan that would lower the state’s top income tax rates.

According to the Department of Administration, lowering income tax rates to a flat 3.54% would reduce state revenues by about $4 billion each year without raising revenue through other means. DOA officials contend that lowering the individual income tax rate could lead to calls from the business community for lowering the state's corporate tax rate, leading to an impact of about $1 billion.

Evers has backed progressive income taxes, as have his fellow Democrats who argue those who make more should pay a larger share of their income to the state.

As governor, Evers has signed two rounds of Republican-authored income tax cuts. He has touted the tax cuts after pledging during his 2018 run to cut income taxes for the middle class by at least 10%.

Assembly Speaker Robin Vos, R-Rochester, said Friday he also wants Republican lawmakers who control the state Legislature to take advantage of the state's budget surplus to implement a "significantly higher" tax cut than the $3.4 billion in reductions approved by the GOP-controlled legislature and Evers in 2021. He did not mention a flat tax specifically and a spokeswoman said Senate Republicans have not shared their ideas with Assembly leaders.

“I can’t see us doing a lower tax cut than we did last time,” Vos said Friday.

State lawmakers and the governor will begin negotiating a new two-year state spending plan early next year after Evers and Republicans who control the state Legislature introduce their proposals. Evers is scheduled to release his plan in mid-February.

Wisconsin was the first state to impose a workable income tax in 1911. The federal government adopted its current income tax system two years later.

Thirty-two states have progressive income taxes, according to the Tax Foundation. Eleven states have flat income taxes and seven have no income taxes.

Minnesota’s income tax rates start at 5.35% and go up to 9.85%. Illinois has a flat income tax rate of 4.95% and Michigan has a flat income tax rate of 4.25%.

Iowa’s income tax rates start at 0.33% and rise to 8.53%. Republican Gov. Kim Reynolds recently signed a law that will give the state a flat tax of 3.9% in 2026.

This article originally appeared on Milwaukee Journal Sentinel: Wisconsin Senate Republicans eyeing 3.5% flat income tax