The Economic Impact of the Wisconsin State Legislature’s Plan to Cut Income Tax Rates

Junjie Guo, Kim Ruhl and Ananth Seshadri

Executive Summary:

Wisconsin State Legislature recently unveiled a tax cut plan which (among other initiatives) expands the state’s second income tax bracket to cover higher earners. 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 the expansion of the second income-tax bracket would increase the state’s capital, labor, and output by 0.69%. This is an increase of about $2.73 billion to the state’s GDP. For the median-income household, the bill would cut income taxes by 10.3%, raise after-tax income by 0.9%, and raise consumption by 0.64%.

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