How Money Walks in Wisconsin

Wisconsin’s Population Migration

Wisconsin’s Income Migration

Numerous states are turning to their income tax codes to find an advantage as they try to lure jobs and people – and to maintain the wealth and residents that they currently have. Under the leadership of Governor Scott Walker, Wisconsin is keeping the tax-reform issue top-of-mind. Walker, a strong proponent of sensible, pro-growth tax cuts, understands that a lower income tax will keep the Badger State competitive.

Wisconsin is fortunate to have a reform-minded governor. The state’s relatively high top tax rate (7.85 percent) gives it the inauspicious distinction of having the 11th-highest tax burden in the nation, according to the nonpartisan Tax Foundation. Walker wants to change this and has offered a proposal that would lower income taxes by $343 million over the next two years. If the governor is successful, Wisconsin could significantly improve its economic future.

Each year, the IRS collects data of where people live and how much they earn – and using this data allows us to show the migration of wealth from state to state, and county to county. An examination of this data, collected over the 15-year period between 1995 and 2010, shows that Wisconsin lost more than $2.5 billion in adjusted gross income.

Wisconsinites may be surprised by this staggering figure. What should come as no surprise, however, is the fact that the state lost much of its wealth to states with no income tax.

Here’s how it breaks down.

Wisconsin Lost Wealth To:

• Florida (no income tax)          $208.9 million
• Arizona (no income tax)         $76.4 million
• Texas (no income tax)            $41.1 million
• Colorado                                $36.1 million
• North Carolina                        $25.4 million

Wisconsin can’t halt brutal winters. It can’t import a sunny beach. But chopping down the top income tax rate could attract more defectors from nearby high-tax states (such as Michigan, Illinois, and Minnesota), and keep earners who are more concerned about the tax climate.

While Wisconsin’s legislators will undoubtedly work hard to find the right balance that protects their state obligations with the cuts they hope to accomplish, it’s worth noting that slow or no growth has a fiscal cost, too. Over time, people’s choices of where to locate mean lower revenues, fewer jobs, and less investment for a state that is not competitive.

For a state with a diverse economy and a number of publicly traded companies (including Northwestern Mutual, Harley-Davidson, and Kohl’s), Wisconsin could find a great advantage in relying more on sales tax. Governor Walker supports a sales tax on Internet purchases, which would be a far more stable source of revenue than income tax, which is one of the most volatile revenue sources.

In order to be competitive, Wisconsin must work toward real reform that does not disproportionately punish work. The state’s diverse economy and world-class institutions should make it an attractive place for families and businesses, and dynamic approach to real tax reform would expedite Wisconsin’s success. Governor Walker and likeminded leaders are laying the groundwork. At How Money Walks, we are looking forward to seeing what the Badger State can accomplish.