How would Wisconsin pay for a progressive legislative agenda?

AI assisted in researching this article.

Progressive legislation requires more than political support. It requires money, administrative capacity, and a sustainable revenue strategy. This could become one of the most important constraints on a Wisconsin Democratic trifecta.

Wisconsin has a substantial state economy, established public institutions, and a history of budget surpluses. However, maintaining existing programs while introducing new initiatives creates competing financial demands. The central fiscal question is whether Democrats could finance their priorities with existing resources or would need to raise taxes and expand government revenue.

Four principal mechanisms are worth examining: existing budget surpluses, changes to income taxation, corporate taxation, and modifications to local government financing.

Using the existing budget surplus: The most politically attractive option

A budget surplus would be the easiest revenue source for a new Democratic government to defend politically.

Wisconsin has periodically benefited from stronger-than-expected tax collections, relatively favorable fiscal conditions, and budgetary reserves.

For Democrats, using available surplus funds could provide an opportunity to restore public programs without immediately introducing unpopular tax increases. Potential uses include: Expanding healthcare coverage, increasing public education funding, restoring certain public employee benefits, supporting rural hospitals, funding infrastructure and clean-water initiatives, and improving local government services.

However, a surplus does not mean all available money can be spent permanently. A one-time surplus is fundamentally different from recurring annual revenue. A responsible Democratic administration would need to distinguish between temporary investments and recurring expenditures.

Consider the difference between paying for a building renovation and establishing a permanent statewide paid family leave program. The former can be funded through a one-time allocation. The latter creates continuing financial obligations.

There would also be competing demands. Wisconsin’s public schools, universities, transportation system, local governments, and healthcare institutions could all request additional funding. The legislature would have to establish priorities rather than treating the surplus as unlimited money.

Another consideration is the state’s existing fiscal reserve. Wisconsin maintains a budget stabilization fund, commonly known as the rainy-day fund. Adequate reserves can protect the state during recessions, emergencies, or unexpected revenue declines. A Democratic government that spends too aggressively could face criticism if economic conditions deteriorate.

Likelihood: Using available surplus funds for initial investments and restoring previously reduced programs would be politically attractive and relatively plausible. Financing permanent new programs entirely through temporary surplus revenue would be fiscally less responsible.

Creating new income tax brackets: A potentially controversial revenue strategy

A more ambitious Democratic fiscal agenda could involve changing Wisconsin’s income tax structure. Wisconsin already has a progressive individual income tax system, meaning higher portions of taxable income are generally subject to higher marginal rates.

A Democratic legislature could add tax brackets for higher-income households or adjust existing rates. The political argument is that higher-income households should contribute more to public investments, particularly when those investments improve education, infrastructure, healthcare, and economic opportunity. This approach would resemble policies adopted or considered in other Democratic-led states.

However, Wisconsin’s political environment makes tax increases complicated. The state has a substantial population of middle-income households, manufacturing businesses, farmers, retirees, and small-business owners. A new tax proposal could become politically unpopular if voters believe that the burden extends beyond the wealthiest households.

Tax competitiveness is also a concern. Wisconsin competes with neighboring states for businesses, workers, entrepreneurs, and retirees. Tax policy can influence decisions about where individuals establish businesses or relocate. Democrats would therefore have to balance revenue generation against economic competitiveness.

A targeted increase affecting only the highest-income households might be easier to defend than a broad increase affecting most taxpayers. Nevertheless, the actual revenue generated would depend on the applicable tax thresholds, rates, taxpayer behavior, and economic conditions.

A legislature should not assume that introducing a higher marginal rate automatically produces a predictable amount of revenue.

Corporate taxes and closing tax preferences

Corporate taxation could also become part of a progressive fiscal strategy.

Democrats might examine existing business tax credits, deductions, incentives, and exemptions to determine whether they are producing the intended economic benefits. This does not necessarily mean increasing the corporate income tax rate.

There are several ways a state can generate additional revenue through business taxation:

1. Reviewing tax preferences that no longer produce measurable economic benefits.
2. Strengthening enforcement against tax avoidance.
3. Adjusting selected business tax incentives.
4. Revising the treatment of certain high-income business structures.
5. Expanding economic development programs that generate measurable long-term returns rather than providing unconditional subsidies.

The distinction between raising tax rates and reforming tax preferences matters politically. A Democratic governor might argue that the objective is not to punish businesses but to ensure that public subsidies and tax incentives generate genuine economic benefits. This approach could appeal to voters who support stronger public services but are uncomfortable with broad tax increases. Business organizations would still oppose it, arguing that additional taxation reduces investment and makes Wisconsin less competitive.

The ultimate outcome would depend on how broadly Democrats define corporate tax reform.

Local government revenue caps: An important but overlooked issue

One of Wisconsin’s most consequential fiscal issues could involve local government funding. Wisconsin municipalities and counties operate under state-imposed restrictions that limit aspects of property tax levy growth. These restrictions have created longstanding disputes involving local government budgets, police and fire services, public infrastructure, and municipal staffing.

In 2023, Wisconsin enacted bipartisan shared-revenue legislation that increased certain state payments to municipalities and counties while modifying aspects of local government financing. A Democratic trifecta could revisit these arrangements.

Possible reforms could include: Increasing shared revenue payments, modifying property tax levy limits, expanding local revenue flexibility, providing additional support for public safety, improving funding for local roads and infrastructure, and allowing municipalities to respond more effectively to population growth. This is potentially more important than it initially appears.

A state government can announce ambitious educational, environmental, and social initiatives, but municipalities often provide the services that residents encounter daily. If local governments lack sufficient revenue, the state may struggle to implement its broader policy objectives. However, removing local government revenue restrictions entirely would create another problem. Property tax increases can be politically unpopular, especially among homeowners on fixed incomes.

A Democratic legislature would need to balance municipal flexibility with taxpayer protection. A more moderate approach could involve increasing state assistance and modifying specific restrictions rather than eliminating every existing limit.

Which fiscal strategy is most likely?

The most plausible approach would combine several funding mechanisms rather than depend on one major tax increase.

Cannabis taxation is particularly interesting because legalization could create a new revenue source. However, Democrats should not assume that marijuana taxes could finance major statewide healthcare or education programs. Revenue estimates would depend on market size, tax rates, consumer behavior, and competition from neighboring states.

Federal matching funds could matter much more for healthcare. The state would also need to consider federal policy changes that affect Medicaid eligibility and reimbursement.

A Democratic administration would probably begin with available reserves, federal matching opportunities, and targeted budget reallocations. More extensive tax changes would become increasingly likely if the legislature pursued permanent spending commitments involving healthcare, education, labor benefits, and local government funding.

Part 3: Wisconsin’s Democratic Trifecta: Will the state follow Minnesota, Michigan, and Illinois in a new era of Progressive Legislation?