Republicans in Madison last month passed a two-year $100 billion budget that would have used half of the state's $7 billion surplus to reduce all personal income tax rates. Under their plan, the top rate would fall to 6.5% from 7.65% while the two middle brackets would collapse into a new lower rate of 4.4%. The bottom bracket would also decline to 3.5% from 3.54%.
Reducing the top rate is especially important for the more than 90% of Wisconsin small businesses that pay taxes at the individual rate. About 55% are taxed at the top rate, which is higher than nearly all of its neighboring states, including Michigan (4.05%), Iowa (6%), Indiana (3.15%) and even Illinois (4.95%). Only Minnesota's 9.85% top rate is higher.
Iowa last year passed tax reforms phasing out its nine-bracket progressive tax that had a top rate of 8.53% to a flat 3.9% in 2026. Even Democrats who now control Michigan this spring backed off their plan to stop the state's flat income tax from falling to 4.05% from 4.25% under legislation Republicans passed in 2015.
According to a University of Wisconsin analysis, the Madison Legislature's plan would have boosted capital investment by 1.5% and economic output by 1.25%. This would certainly help the Badger State amid a manufacturing slowdown. The Institute for Supply Management reported this week that its manufacturing index dropped to the lowest level since May 2020.
Mr. Evers surrendered to progressives who claim tax cuts for middle and higher earners will reduce money for education, never mind that the Legislature's budget increased funding for public schools by $1 billion. While vetoing reductions to Wisconsin's two top rates, he kept the cut for individuals earning less than $27,630. This will help few small businesses.
The only beneficiary of Mr. Evers's veto will be Illinois Gov. J.B. Pritzker, who won't have to worry as much about businesses and people in his state moving north.
Except for businesses that don't want to deal with the endemic corruption of Illinois.
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