Ananth Seshadri
Executive Summary:
- Inflation is a tax. No legislature passed it, no governor signed it, and no one voted for it, yet for five years Wisconsin households have paid it, and a share of what they paid has piled up, automatically, in the state’s own treasury. This paper asks two questions:
- The first is fiscal: after five years of inflation, how much of the state’s budget surplus is simply the mechanical result of higher prices, and what should be done with revenue collected that way?
- The second is economic: with the national price level beyond the reach of any governor, what can Wisconsin actually do to reduce the cost of living for the families who must pay those prices?
- The two are connected. Since January 2021, the cost of a Wisconsin week has risen 28.1 percent. Washington declared victory when inflation slowed, but the inflation rate is only the speedometer; the price level is the odometer, and it does not roll back. The portion of that increase above the Federal Reserve’s 2 percent target costs roughly $153 a week for a household spending about $60,000 a year, and roughly $31,000 in total since the surge began. Most of that money never reached the state. Families paid it out across the economy, at the grocery store, the gas pump, the utility bill; only a fraction reached state coffers, as higher prices automatically generated higher tax collections, without a rate increase and without a single vote.
- All of it is the tax no one voted for. A legislated tax can be repealed, and the legislator who passed it voted out. By contrast, inflation’s tax offers neither: no campaign, no statute, no name on the bill. It falls hardest on the savers, retirees, and working families least able to absorb it.
- On the fiscal question, the surplus is in large part a windfall from higher prices rather than legislative action. Above-target inflation lifted sales-tax collections alone by roughly $2.7 billion over the past five years, a figure that rivals the remaining surplus. That money belongs to the taxpayers who bore the brunt of inflation, not the state. Because the windfall is one-time money, the relief should be one-time, too. On the economic question, no governor can move the national price level, but the prices a family actually pays are set partly at home, through zoning, utility rate design, and occupational licensing. Behind each lies the same force: regulation that throttles supply. Loosen it and the state grows cheaper to live in; leave it and the state grows more expensive.
- The question is not whether prices return to their 2021 levels. They will not. It is what Wisconsin does next: whether it returns the windfall the price level handed it, and whether it uses the levers it still holds to bring the cost of living down rather than let it climb.