The Flat Income Tax: the Worst of Many Bad GOP Proposals on the Docket in Wisconsin

Is cutting taxes for the wealthy, while increasing them for the middle class and working poor, a good idea?

Well, that’s exactly what many Republican gubernatorial candidates are suggesting. Most egregiously, the idea is being floated in Wisconsin by GOP gubernatorial candidate Tim Michels who proposes resuscitating the idea of a “Flat Tax” for Wisconsin. Much US government policy since Ronald Reagan has waterboarded the rich with money in hopes of it leading to their investing it, thus creating more growth for all. At least, that has been the supply-side argument in its favor. A flat income tax is one more failed policy step in that direction. A flat income tax is used in neighboring Illinois, which is perpetually in fiscal trouble and has a higher sales tax (inherently regressive) than Wisconsin. Yet, Wisconsin’s wealthy want another pass at the all you can buffet that comes at the expense of the state’s working people.

The flat income tax in fact is a “Republican In Name Only” (RINO) plan. The Republican Party’s first President, Abraham Lincoln, certainly knew this. In 1862, Lincoln needed revenue to develop the nation’s infrastructure and pay for the Civil War against the Confederacy. So, he and Congress jettisoned the US flat tax, which he considered an unfair burden on the nation’s workers and insufficient for raising needed revenue, passed the Revenue Act of 1862.

This historic legislation left impoverished workers untaxed while taxing better-paid workers at a lower rate than the nation’s wealthy.  This was and is called “progressive taxation.”

However, after Lincoln’s assassination and the end of the Civil War, the extremely wealthy consolidated their power, repealed the progressive income tax, and the US entered the most corrupt period in our history, known as the “Gilded Age.”  The eventual growth of the labor union movement and the middle class around the turn of the century resulted in citizens rejecting the excesses and corruption of the time and ushered in what is called the “Progressive Era.”

Wisconsin was the nation’s leader during the Progressive Era and was known at that time for clean government and  the nation’s “laboratory of democracy” that among other innovations, was developing Social Security, a program that current Wisconsin Senator Ron Johnson, wants to privatize. In 1911, despite feverish attempts by wealthy special interests to stop it, Wisconsin’s Republican Governor, Francis McGovern, in signed into law a progressive income tax that became a model for the entire United States.

This progressive tax model has been periodically attacked by the uber-wealthy, often with a “flat tax” as the proposed solution. For example, Republican billionaire Steve Forbes proposed a flat tax a few years ago that would shift the tax burden to the already overtaxed middle class and working poor, while handing the wealthiest citizens a tax cut.

Following the lead of his Republican primary opponent Rebecca Kleefisch, multi-millionaire Tim Michels says he is open to replacing Wisconsin’s mildly-graduated income tax with a flat tax. Let’s see at how a flat tax would look in Wisconsin. Setting the flat tax at 5.22% would raise the same revenue as our current tax rates in order to remain “revenue neutral.” Doing so would result in a tax increase for the 96.6% of Badger State taxpayers with “adjusted gross income” (AGI) between $20,000 and $300,000.

In sharp contrast, such a flat tax would present the state’s 3.3% of filers with an AGI of $500,000 and above an estimated average tax cut of $22,280. So a “revenue neutral” flat tax would be a boon for Michels and his ultra-wealthy campaign funders, while the rest of us would be stuck paying higher taxes to fund this welfare for the wealthy.

Michels now says he’s only interested in the flat tax if it doesn’t raise taxes on anyone.  For that to happen, the flat tax rate would need to be 3.54%.  Such a low rate — while being a windfall for the state’s richest taxpayers — would reduce our state’s revenue by $5.59 billion in the first year, and $3.855 billion per year thereafter. It would also almost surely require raising the sales tax.

A flat tax would essentially bankrupt Wisconsin and require draconian cuts to state services including public safety, K-12 education, healthcare, environmental protection, the University Wisconsin and Technical College systems.

The flat income tax has also been used by failed states and autonomous regions such as, Abkhazia, Bosnia and Herzegovina, Bulgaria, Belarus, Uzbekistan, and Transnistria. The only result has been them becoming rich in oligarchs, but poor in democracy and development.”

Republicans like Abraham Lincoln and Francis McGovern had a better idea. Wisconsin should follow their lead of a progressive income tax rather than Michels’ proposal that would be a huge gift to himself.

Jeffrey Sommers is Professor of Political Economy & Public Policy in the Department of African &African Diaspora Studies and a Senior Fellow, Institute of World Affairs, University of Wisconsin-Milwaukee. His book on the Baltics (with Charles Woolfson), is The Contradictions of Austerity: The Socio-economic Costs of the Neoliberal Baltic Model.