Junjie Guo, Kim Ruhl and Ananth Seshadri
Executive Summary:
Wisconsin’s individual income tax rates are higher than the rates in most other states. The state’s income tax structure has become more progressive over the past two decades. Wisconsin has a low rate of entrepreneurship, and has been losing population to other states. High tax rates have a negative impact on business formation and investment, especially since income from pass-through businesses is highly concentrated among households at the top of the income distribution. We present a comprehensive model of the Wisconsin economy and its tax system to account for the behavioral responses from households and firms. We find that JFC’s plan to cut income tax rates would increase Wisconsin’s output by 1.25% in the long run. Low income households benefit from the higher wage rate induced by JFC’s plan.