The Economic Implications of a Flat-Rate Income Tax for Wisconsin

average of 39.7% across all states (plus the District of Columbia) regardless The Federation of Tax Administrators also gathers and of whether they have an individual income tax, and it ranks tabulates data on key features of state individual income as the 17th-highest reliance on the individual income tax in taxes.4 Looking at tax rates for the 2023 tax year as of Jan. [...] And the fairness of a tax should certainly To be sure, fairness is in the eye of the beholder. [...] The specific shift to a flat-rate income tax reducing the top two marginal tax rates would have the direct that is the focus of the present analysis certainly would re- effect of increasing the after-tax return to work effort and duce tax revenues, and the emphasis here is on the economic investment, which should result in greater economic activity, impact of returning those dollars to the taxpaye. [...] GDP A vast literature has explored the impact of taxes on econom- To calculate the weighted average marginal tax rate re- ic growth.6 To be sure, the impact of a tax reduction (or a duction, I first examine the distribution of households by revenue-reducing shift to a flat-rate income tax) on econom- total income using distributional tables from the Wisconsin ic growth would depend critically on w. [...] While they are some- About the author what larger than the individual tax reform components in their Donald Bruce is the Randy and Jenny Boyd earlier report, the Wisconsin flat tax would affect a broader range Distinguished Professor in the Haslam of taxpayers rather than the pass-through entities that are the College of Business at the University of Ten- focus of the Bruce, Gurley-Calvez and Murr.