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Breaking with Tradition in Wisconsin: Taxes and Budgeting

8:55 am in Uncategorized by WI Budget Project

Over the next week, the Wisconsin Budget Project will be highlighting a different piece each day from our larger publication Breaking with Tradition: How Wisconsin Lawmakers Have Shortchanged a Legacy of Investment in the State’s Future. You can access the full report on our website.


Wisconsin lawmakers have passed dozens of tax cuts since 2011, many aimed at people who earn the most. Low income taxpayers have received much smaller tax cuts, and some may even be paying higher taxes than they did before 2011. The emphasis on tax cuts has thrown the state’s upcoming budget out of balance, contributed to rising debt, and diverted money that would otherwise go to the state’s rainy day fund to cushion the blow of the next economic downturn or some other unforeseen event.

Many tax cuts, but those with the lowest incomes miss out

Wisconsin lawmakers have cut taxes 43 times since 2011, draining $1.9 billion in revenue for education and other priorities over that period.1

Few of the tax cuts require businesses to create jobs in order to qualify.

 Among the largest tax cuts were:

  • An income tax rate reduction, included in the state’s two-year budget that passed in 2013, which reduced revenue by $648 million over two years;
  • A 2013 property tax cut of $100 million; and
  • A 2014 tax package that further cut income tax rates and also included another property tax cut. The combined package reduced revenue by $507 million over two years.


Those three tax cuts didn’t do much to lower tax bills for Wisconsin’s lowest-wage earners. The 20% who earn the least – a group with an average annual income of $14,000 – received an average tax cut of only $48 in 2014. In comparison, taxpayers in the top 1% of earners in Wisconsin, who had an average income of more than $1.1 million, received a tax cut of $2,518 on average.2

Fully half the value of the three large tax cuts went to the top 20% of taxpayers by income, and the remaining 80% of taxpayers shared the other half. The bottom 20% of taxpayers by income received only 4% of the value of the three large tax cuts.

It’s also important to note that Wisconsin taxpayers with the lowest incomes pay a larger share of their income in state and local taxes than do taxpayers with the highest incomes. In other words, under our state’s tax laws, those who can least afford it devote a bigger share of their income to pay for services such as schools, roads and bridges, and public safety.


It’s also important to note that Wisconsin taxpayers with the lowest incomes pay a larger share of their income in state and local taxes than do taxpayers with the highest incomes. In other words, under our state’s tax laws, those who can
least afford it devote a bigger share of their income to pay for services such as schools, roads and bridges, and public safety.

Tax hikes on working families and seniors
Policymakers raised taxes on working families and low-income seniors.

In 2011, the Governor and Legislature made significant cuts to two tax credits: one aimed at helping working parents lift their families out of poverty, and one that keeps property taxes affordable for people with low incomes, particularly seniors. Those cuts effectively raised taxes by reducing tax refunds for people who qualified for the credits. Combined, these tax increases resulted in an additional $170 million in taxes paid over the last four years by working families and people with low incomes.3

Rising debt levels
By borrowing money, the state can spread out the costs of big road, building, and other capital projects over many years. But if the state issues too much debt, future repayments will rise, it will be more difficult to balance future budgets, and high debt repayment costs will leave fewer resources for making other investments in Wisconsin.

In 2011, state lawmakers delayed debt payments and pushed those borrowing costs into the future. As a result of decisions like that over the last four years and even earlier, debt repayments reached a record high in 2014. The state has traditionally tried to keep principal and interest payments under 4.0% of tax revenues, but in 2014, they consumed 5.26% of General Fund tax revenues.4

Some progress, but state’s budget cushion still too low
Over the past four years, Wisconsin has made significant progress toward establishing a meaningful budget reserve, but levels are still too low. Lawmakers used money that would normally be deposited in a budget reserve to fund tax cuts.

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Corporations to ALEC: Stop Us before We Extort Again

8:16 am in Uncategorized by WI Budget Project

Conservatives Critique “Tax Cronyism,” and Progressives Critique the ALEC Report

Protester with sign: ALEC Buys Legislators

ALEC wants corporations to pay even LESS taxes.

I was pleasantly surprised to learn recently that the American Legislative Exchange Council (ALEC) has issued a report calling on policymakers to end the wasteful subsidies given to corporations by state and local governments. Their report titled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth criticizes special tax breaks for certain companies, which it points out tend to increase the tax burden on other companies and put them at a competitive disadvantage.

Corporations are very good at extorting costly subsidies from state and local officials, but some of those corporations and a growing number of policymakers are realizing that these incentives aren’t an effective way to promote economic growth. A number of businesses in the Kansas City area have prevailed on Missouri legislators to call a ceasefire to the use of incentives for pirating corporations across the border with Kansas. The ALEC report reflects that many other large corporations have also come to realize that selectively handing out incentives to businesses is an inefficient and inequitable use of government resources.

Although I’m pleased that a conservative group like ALEC is speaking out against “tax cronyism,” the group that has been leading the fight against wasteful subsidies, Good Jobs First is leery of the report – which it says was written by an organization that “is essentially a front for powerful corporations to transmit their state legislative wish lists to business-friendly legislators.” In a recent blog post, Phil Mattera of Good Jobs First wrote a critique of the report that makes a number of interesting and important points.

Mattera notes that ALEC is guided by corporate backers, including 10 companies represented on its Private Enterprise Advisory Council. The Subsidy Tracker database maintained by Good Jobs First indicates that all but one of those 10 companies have received state and local subsidies – including $89 million to Koch Industries, $133 million to United Parcel Service, $202 million to Pfizer, $278 million to Peabody Energy, and $340 million to Exxon Mobil.

Mattera criticizes the ALEC report for blaming policymakers for “tax cronyism” without faulting the recipients of the subsidies or even acknowledging their role in extracting giveaways from state and local lawmakers. He wrote that “the report also fails to acknowledge that big subsidy giveaways are common in states celebrated in the Rich States, Poor States,” which is an annual report written for ALEC by supply-side economist Arthur Laffer.

The other major criticism leveled by Good Jobs First at the ALEC report is that: “their alternative to ‘tax cronyism’ or targeted corporate tax giveaways is generalized corporate tax giveaways. That is, after decades of declining corporate tax rates and corporate contributions to state treasuries, they want big business to pay even less of a fair share of the cost of public services.”

There seems to be a growing number of policymakers on both the left and the right who agree that special corporate tax breaks are wasteful and inequitable. As that agreement broadens, so does the argument about alternative uses for the revenue that is at stake. Let’s have a robust debate about that topic (in the context of broader tax and budget challenges and priorities), but let’s not allow that debate to become an intractable obstacle to the elimination of wasteful subsidies.


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Job Growth in Wisconsin Still Slow, Despite Numerous Tax Breaks

11:35 am in Uncategorized by WI Budget Project

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Wisconsin continues to perform poorly in private sector job growth, according to new employment figures released today.

The number of private sector jobs in Wisconsin grew by 1.2% in 2013, compared to 2.1% nationally. The new jobs figures come from the Quarter Census of Employment and Wages, which this Milwaukee Journal Sentinel article calls “the most credible and comprehensive” figures available.


Wisconsin job growth has been slower than that in neighboring states, according to the Journal Sentinel:

In the first three years of Walker’s term, the data show that Wisconsin ranked 35th of 50 states in the rate of private-sector job growth. That puts it behind the nearby states of Michigan (sixth of 50), which is bouncing back from a searing downturn in the auto industry; Indiana (15); Minnesota (20); Ohio (25); Iowa (28), and Illinois (33).

State lawmakers have passed dozens of tax cuts since 2011, but that hasn’t spurred job growth. Despite nearly $2 billion in tax cuts over four years, job growth in Wisconsin continues to be slower than anyone would like, and our growth in gross domestic product is also well below the national average.

Tax Cut Passes Wisconsin Legislature, but Tax Increase Stays in Place

2:33 pm in Uncategorized by WI Budget Project

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A dollar bill cut into shreds, with a calculator

The Wisconsin legislature’s tax cuts don’t help the working poor as much as the alternatives.

On the same day that the state Assembly passed a substantial property and income tax cut package, it declined to reverse a recent tax hike for parents who work at low-wage jobs.

The $537 million tax cut package, which diverts money that would otherwise go to the state’s rainy day fund, has already been approved by the Senate and now goes to the governor for his signature. (For more about the tax cut, read our March 4th blog post, Five Things to Know about Wisconsin’s Proposed Tax Cut Package.)  ”That’s exactly what taxpayers want — giving their money back to them rather than keep their dollars here in Madison,” Assembly Speaker Robin Vos said in this Milwaukee Journal Sentinel article.

Despite the Assembly’s enthusiasm for cutting taxes, it missed a chance yesterday to roll back a recent tax increase for families with low incomes.  The Assembly failed to advance a bill that would repeal changes made the Earned Income Tax Credit in 2011 that resulted in working parents with low incomes paying higher taxes. The bill to improve the EITC would have cost $54.5 million over two years, or about 1/10 of the amount of the larger, untargeted tax cut package.

That 2011 tax increase on low-income families is particularly harmful because Wisconsin taxpayers with the lowest incomes pay a higher share of their income in state and local taxes than taxpayers with the highest incomes.  As a result of the 2011 tax increase, a single mother who has three children and works full time at minimum wage has paid about $1,500 more in taxes over the last three years than she otherwise would have.

The budget surplus has presented Wisconsin with a number of opportunities to invest our state’s workforce needs, close budget holes, set aside money for an economic downturn, as well as roll back tax increases on working families. Instead, lawmakers have chosen to pass an unaffordable tax cut that gives a great deal of the benefit to the top earners, and digs a deep hole in the next budget.

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Are Tax Cuts the Way to Attract Start-ups to Wisconsin?

12:43 pm in Uncategorized by WI Budget Project

Insights from a New Survey and the “Epic” Growth in Dane County

A dollar being cut with scissors

Can states attract business without corporate welfare and tax cuts?

In recent years, many policymakers have set their sights on trying to attract entrepreneurs and new start-ups to their communities and states. In some cases they have used that goal to justify tax cuts, which some lawmakers think will be an inducement for innovative entrepreneurs. Scott Walker is among the Governors who are seeking to promote development of new businesses and employing tax cuts as a tactic to pursue that goal.

But are tax cuts an effective strategy for attracting entrepreneurs and boosting the number of start-ups?  A new report adds to the evidence that reducing taxes is not what entrepreneurs are looking for, and is likely to be a counterproductive strategy. And if we turn our attention to the Dane County economy, the extremely dynamic growth of health care IT companies, led by the explosive growth of Epic, reinforces the conclusion that the playbook of conservative politicians pushing for lower taxes and reduced regulation is not what drives the growth of small businesses.

The new report was released a couple of weeks ago by Endeavor Insight – the research department of the non-profit Endeavor, which strives to foster and mentor “high-impact” entrepreneurs. Their report is based on surveys and interviews with 150 founders of some of the fastest-growing American companies. Some of the report’s key findings include the following:

  • The top rated factor by far was access to talent, which was mentioned by nearly a third of those surveyed as a key factor in their decisions for where to live and work. Many specifically cited access to technically trained workers.
  • Similarly, many said they were drawn to places with cultural amenities and a strong quality of life, which will attract a larger talent pool.
  • Two other key factors in the location choices of entrepreneurs are major transportation networks and proximity to customers and suppliers.
  • Very few said taxes were a factor.  In fact, only 5% of those surveyed mentioned low taxes.
  • A mere 2% named business-friendly regulation as a factor in their location decisions.

The report says the top business creators generally gravitate towards cities with at least a million residents in the metro area. Madison appears to be an exception in that regard, but it offers the amenities and vitality of many larger urban areas.

Another finding is that a city needs to be able to appeal to the young and the restless because entrepreneurs are highly mobile in the early phases of their careers, “following personal ties or certain lifestyle amenities while also seeking the right environment to launch their enterprises.” However, the report says 80% of respondents had lived in their current city for at least two years before starting their companies, and once they launched their first company they rarely moved.

The report concludes: “The magic formula for attracting and retaining the best entrepreneurs is this: a great place to live plus a talented pool of potential employees, and excellent access to customers and suppliers.”

I was reminded of the report’s findings when I read an article in the latest Isthmus about the tremendous boom in employment in Dane County from EPIC and the numerous health IT companies created in recent years by former EPIC employees.They are starting and expanding those businesses in the Madison area for all of the reasons cited by the entrepreneurs interviewed for the Endeavor report. Our state and local taxes and spending contribute to the quality of life, the pool of talent, and the growth of well-paid jobs in the IT sector.

Start-ups and other small businesses account for a large percentage of job growth, so it makes sense for state and local policymakers to want to assist them. But some lawmakers have a bad habit of assuming that entrepreneurs want the same low tax, small government agenda advocated by people like the Koch brothers. The Endeavor report and the health care IT growth in Dane County indicate that not only is that a mistaken assumption, it could also be a counterproductive way of trying to court new entrepreneurs and the well-paid jobs that those small businesses can generate.

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Wisconsin: Increased Tax Revenue Creates Opportunities to Close Budget Gaps and Invest in the Future

2:17 pm in Uncategorized by WI Budget Project

A big jump in state revenue that will be announced soon gives lawmakers an excellent opportunity to invest in Wisconsin’s economic future and to put the state on a sounder fiscal footing by filling budget holes.

Wisconsin State Capitol

Wisconsin State Capitol

In an interview today, Governor Walker said that new revenue estimates for the 2013-15 budget, which will be released soon by the Legislative Fiscal Bureau, will be hundreds of millions of dollars above the projections that the current budget bill was based on.  According to a Journal Sentinel article today, sources said the revenue increase “could approach $1 billion through mid-2015.”

A big increase in revenue is very welcome news, but not a huge surprise.  State tax collections reported by the Dept. of Revenue have been strong in recent months, and as I noted in a previous blog post, Minnesota announced in early December that it now anticipates an increase of about $1 billion in its budget surplus.

Under current statutes, after the Wisconsin budget is passed, half of any revenue increase has to be allocated to the state’s Rainy Day Fund, and the Governor acknowledged today that some of the increase would be used to build up that fund.  However, Governor Walker said he will propose a plan next week to cut income and property taxes, and to adjust the state’s income tax withholding tables (to reduce the amount withheld, which would also reduce tax refunds).

Before lawmakers decide to use the increased revenue for tax cuts, some other ideas merit their attention.  First, legislators and the Governor should start by putting the state’s fiscal house in better order by reducing debt and filling holes in current budget commitments.  For example, the state has a deficit of about $93 million in its Medicaid budget, and a potential hole of at least $19 million in funding for the welfare to work program.  Lawmakers could also use the increased revenue to pay down state debt, which has increased by more than a fourth during the last five years.

The improved revenue picture also provides an opportunity for lawmakers to make responsible investments that will improve our state’s future economic competitiveness.  In particular, we should invest in the K-12 and higher education systems, and also in early education where the long-term payoff is the greatest.

Another high priority should be to reverse the tax increases for low-income families enacted in the 2011-13 budget, when lawmakers cut the state Earned Income Tax Credit and ended the annual inflation adjustments for the Homestead Tax Credit.  (Read more here about the need to reverse those tax increases.)

In short, let’s seize this opportunity to develop a bipartisan, fiscally responsible approach that helps all Wisconsinites.  That approach should close budget holes, invest wisely in Wisconsin’s infrastructure and our people, and undo recent tax increases for some of our state’s most vulnerable households.

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Proposed Wisconsin Income Tax Cut Leaves Out Many with Lowest Incomes

8:11 am in Uncategorized by WI Budget Project

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The income tax cut proposed by Governor Walker would cut taxes for many Wisconsinites, but more than three-quarters of a million Wisconsinites would not receive any benefit from the tax cut. Nearly all the people who would not receive a tax cut make less than $30,000.

The proposed income tax cut would reduce income taxes for 73% of tax filers, according to an analysis from the Legislative Fiscal Bureau. The remaining 27% of tax filers – an estimated 757,000 people – would not receive any benefit from the income tax cut.

Nearly all of the tax filers who would not receive an income tax cut are low-income. More than half a million Wisconsinites who earn less than $10,000 a year would not benefit from the income tax cut. Another 166,000 people earning between $10,000 and $20,000 would not receive a benefit, as would 32,000 people who earn between $20,000 and $30,000. About 9,000 people who earn $30,000 and more a year would not receive an income tax cut.

Most people earning under $30,000 would not receive an income tax cut under the plan that Governor Walker has proposed. Just 41% of tax filers who earn under $30,000 would receive a tax cut. In comparison, more than 99% of tax filers earning more than $100,000 would receive a tax cut.

Although many low-income earners have no income tax liability and would not receive any benefit from the income tax cut, they typically pay a higher share of their income in state and local taxes than do Wisconsinites with the highest incomes. People in the bottom fifth of earners, who on average earn about $13,000, pay 9.6% of their income in state and local taxes. That’s a bigger chunk of their income than people in the top 5% of earners pay in taxes, yet most of those low-income earners would not receive an income tax cut under the current proposal.

If lawmakers want to implement a tax cut that would primarily benefit moderate and low-income families, they should beef up the Earned Income Tax Credit. The EITC encourages work, helps families lift themselves out of poverty, and reduces taxes paid by the lowest-income earners. The current budget surplus means we have an opportunity to undo the very significant cuts to the EITC that were included in the 2011-13 budget.

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Tax Issues Fly under the Radar in Mining Controversy

9:32 am in Uncategorized by WI Budget Project

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Mining Bill Reduces Resources for Local Governments to Address Impact of Mine

Local governments affected by a proposed mine in northern Wisconsin might not have sufficient resources to offset the increased public costs associated with the mine. That’s because the proposed mining bill, which has passed the Joint Finance Committee and heads to the Senate Wednesday, diverts part of the revenue from the mining tax away from a fund set to offset mine-related costs of local governments, and instead sends it to the Wisconsin Economic Development Corporation.

Under current mining tax law, all proceeds from the mining tax are set aside to provide financial assistance to local governments experiencing social, environmental, or economic impacts from the mine.

The mining bill currently under consideration in the Senate changes the law and instead allocates only 60% of the proceeds from the mining tax to the fund to address local impacts. The remaining 40% of proceeds would be sent to the Wisconsin Economic Development Corporation, with no specific requirements as to how the money must be spent. As a result of this change, fewer resources will be available to compensate local governments for mine-related costs, such as the additional wear and tear on roads from heavier traffic loads.

The mining tax may not even generate much revenue in the first few years of the mine’s operation. That’s because the mine will be required to pay a tax on its net proceeds, and the significant investments in machinery and equipment required at the beginning of the mine’s operations will reduce the mine’s proceeds and therefore the amount of tax owed by the mine. Some other states, such as Minnesota, tax mines based on their output.

A proposal by Senators Tim Cullen, Bob Jauch and Dale Schultz to create a tonnage tax here got the attention of anti-tax crusader Grover Norquist, president of “Americans for Tax Reform.” He sent a letter to 21 Wisconsin legislators warning that they would be breaking their pledge not to raise taxes if they support Cullen’s proposal for a more robust mining tax.

In addition to the mining tax, the proposed mine would also be subject to the Wisconsin corporate income tax – at least in theory. But a new tax credit for manufacturers, agricultural producers, and mines gradually reduces Wisconsin income tax rates for corporations in these industries from 7.9% down to 0.4% in 2016. That means a corporation, such as a mine, with $10 million in taxable Wisconsin income would go from paying $790,000 in 2012 in corporate income tax to paying just $40,000 in tax in 2016.

Advocates have already raised significant concerns about the environmental impact of the mine. We should also be concerned about the social and economic effects the mine will have on local communities. Generating mining tax proceeds and keeping them in communities affected by the mine would help offset negative effects. And undoing some of the changes to corporate income taxes would help the state make the sorts of investments in training and infrastructure that will produce sustainable economic growth.

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“Middle Class Tax Cut” Will Mostly Wind up in the Pockets of the Highest Earners

8:47 am in Uncategorized by WI Budget Project

Governor Walker has proposed an income tax cut that would benefit the highest earners the most, and would result in insignificant tax cuts for low-income Wisconsinites.

The Governor has been talking about his plans for an income tax cut for several weeks now, but the details of his proposal were revealed just last night, when Walker unveiled his two-year budget recommendations.  He has proposed reducing the tax rate for three of the five income tax brackets, as shown in the table below. (The income amounts reflect the brackets for a married couple filing jointly; most of the brackets are lower for people filing singly or as head of household.)

Income  amount Current tax rate  Proposed rate 
Under $14,000  4.6%  4.5%
 Income over $14,000 and below $28,000  6.15%  5.94%
 Income over $28,000 and below $211,000  6.5%  6.36%
 Income over $211,000 and below $310,000  6.75%  No change
 Income above $310,000  7.75%  No change

If you’re among the fortunate Wisconsinites who have an annual income of more than $211,000 (after all deductions and exemptions) and you’re concerned you won’t enjoy any of the tax cut, you needn’t worry!  You’ll actually get the largest cut, $300, because the tax rate will be reduced for all of your income up to the $211,000 level.

Close up of George Washington a dollar bill

New "Middle-class tax cuts" in Wisconsin help the rich even more.

The estimated cost of the tax cut is $342 million over the two year budget period. To put that amount in context, that is more than the state plans to spend on the entire Wisconsin technical college system over that period.

Governor Walker has described the tax cut as benefiting the middle class, but most of the dollars will go to the pockets of the best-off.  Fifty-four percent of the tax cut will go to the top 20% of tax filers, according to an analysis of the proposal by the Institute on Taxation and Economic Policy.  The bottom 20% of taxpayers would get just 1% of the tax benefit.

In dollar amounts, people at the bottom of the income ladder will receive virtually no benefit from the income tax cut. The lowest 20% of tax filers would receive a tax cut of just $2 a year. People in the top 1% of filers would average a tax cut of $285.

The distribution of benefits could have been much worse; it would have skewed much more heavily in favor of upper income tax filers if the rates for the upper income tax brackets had also been reduced.  However, even an income tax rate cut aimed at income below about $220,000 primarily helps people near the top, since they get the full benefit.  Read more in this Capital  Times article by Mike Ivey.

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Tax Cuts or Tax Reform? (and the Implications for Inequality)

9:37 am in Uncategorized by WI Budget Project

Recent Tax Policy Choices Have Widened Disparities; More Cuts Could Do the Same

Photo of Joseph Stiglitz

Does inequality hurt economic growth? Nobel Laureate Joseph Stiglitz says yes.

Martin Luther King Day is a good occasion to think about disparities in income and wealth, and the policy decisions that contribute to the growing chasm between the rich and poor. We need to think carefully about which policy choices can reduce that gap, which will make it wider, and what the failure to address the problem means for the economy.

A new report issued by the Working Poor Families Project examines the widening economic gap. Their analysis of Census Bureau data found that the current economic recovery is leaving many working families behind. The number of working families who were low income (below 200% of the poverty level) grew to 10.4 million in 2011, which was 32% of all working families, and they included 23.5 million children.

In Wisconsin, there were 174,000 low-income working families in 2011, comprising 29% of all working families in our state.  A report we issued in late November, in conjunction with the Center on Wisconsin Strategy, uses Department of Revenue data to illustrate the widening chasm between the rich and the poor in Wisconsin.

Tax policy choices are one of the factors that have contributed to the growing rift. An op-ed column by Jack Norman in Sunday’s Journal Sentinel challenges state lawmakers to work on comprehensive tax reform, rather than simply a new tax cut.  He urges policymakers “to be tax reformers, not just tax panderers” seeking simplistic tax cuts.  His column lays out an excellent list of questions that lawmakers and the public should ask about proposed tax changes.

One of Norman’s recommendations is to “compare effects at the top and bottom of the income scale.”  He points out that the sort of income tax rate cut that has been suggested by Governor Walker and Assembly Speaker Robin Vos would provide no benefit to 40% of Wisconsin tax filers.

Inequality shouldn’t only be a concern among liberals, because it has very broad negative consequences.  Joseph Stiglitz, a Nobel laureate in economics, wrote a recent commentary in the New York Times explaining four important ways that America’s growing inequality “is squelching our recovery.”  He contends that “inequality stifles, restrains and holds back our growth.” Stiglitz adds:

When even the free-market-oriented magazine The Economist argues — as it did in a special feature in October — that the magnitude and nature of the country’s inequality represent a serious threat to America, we should know that something has gone horribly wrong.

The widening rift mustn’t be something that we only think about on Martin Luther King Day.  We need to keep it foremost in our minds as we contemplate budget choices Wisconsin lawmakers will make in the coming months.

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