Wisconsin is no longer a ‘high-tax state’

Report: Taxes take a smaller bite of income than ever in the last half-century

By: - January 13, 2022 7:00 am
Scrabble letters spell t-a-x

Getty Images Creative

Wisconsin is no longer a high-tax state, although it might not look that way to homeowners or middle-income residents.

A recent analysis from the Wisconsin Policy Forum finds that, on average, families and businesses in the state pay less of their income in taxes than at any time in more than 50 years.

That trend held in 2021 even as state and local taxes by themselves took a slightly larger share of household and business income, the report finds, largely because of “a surge in economic activity” after the slowdown early in the COVID-19 pandemic.

The Wisconsin Policy Forum report, which is produced annually, documents a trend that has been continuing for more than two decades as the share of personal income that goes to all taxes — the “tax burden” in the language of the report — has generally fallen.

Combined, the total federal, state and local taxes paid in Wisconsin in 2000 were 36.6% of the state’s total personal income. By 2021, that had fallen to 26.4%. State and local taxes, which were 12.5% of the state’s combined personal income in 2000, fell to 10.5% in 2021.

“If you look nationally our tax burden is below average, and our per-capita spending on state and local government is somewhat below that,” says Jason Stein, the policy forum’s research director and author of the report.

Total state and local taxes rose in 2021 to $33.86 billion, the report finds, a 7.1% increase from 2020, and the share of personal income spent on those taxes rose to 10.5% from 10.3%, the report found. The main reason for that shift was that state and local tax revenues bounced back on the strength of the economic revival, while personal incomes rose more slowly.

To be sure, for the average taxpayer, the state’s tax picture might not look so rosy.

Stein says that’s because property taxes — which are the primary revenue generators for local government, including schools — are higher than average for typical homeowners, while income tax rates for middle-income earners are higher than average as well.

“That contributes to some people’s perception that our taxes remain relatively high, although when you look at them in their totality, they’re not,” he says.

“Particularly in the Midwest, most other states rely less on homeowners to fund local services through property taxes,” he adds. “They’re assigning a little more of the property tax levy to business owners and other types of property, or they’re relying more on other types of local taxes, such as sales taxes or local income taxes.”

While reporting aggregate tax and income numbers shows that, as a group, Wisconsin taxpayers are paying less in taxes, the report acknowledges that “some individuals and businesses have benefited more than others” in the process.

Lower personal property taxes benefit commercial property owners, for example, not homeowners, and the state’s income tax credit for manufacturing and agriculture “has been limited to business owners and shareholders in those industries,” the report states.

How the tax burden is distributed is an important consideration, says Tamarine Cornelius, analyst for the Wisconsin Budget Project affiliated with Kids Forward, which studies and advocates for policies on behalf of families and children, particularly those of lower incomes.

The 2021-23 state budget enacted last year included a roughly $1 billion tax cut, for example, “yet almost half of tax filers won’t get anything, mostly because their incomes are too low,” Cornelius says.

Similarly, she says, previous tax cuts dating back to the administration of former Gov. Scott Walker “were very slanted toward people with the very highest incomes.”

When thinking about taxes, there’s also the question of what they support in society. “How well do we want to fund critical services that families and businesses need?” Cornelius adds. “And how well do we want to maintain public infrastructure? Do we want to fully fund our schools and have a school system that’s one of the best in the country and make sure they have the resources to do that, or not?”

The report makes a similar observation.

“In the long term, however, a continued focus on lowering Wisconsin’s tax burden may bring with it diminished public services, particularly at the local level. Already, for example, the state has seen its per-pupil spending on K-12 education fall from the top 10 nationally to below average,” it states.

The forum’s analyses don’t advocate for particular policy solutions, but present alternatives for policymakers to consider. In that vein, it concludes by noting that the state could aid local governments in sharing services or consolidating, or leveraging the state’s financial strength to provide “new or enhanced forms of state aid.”

The long-run alternative, the report concludes, “may be lowered service levels at a time when the pandemic has created new challenges at all levels of government.”

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

Erik Gunn
Erik Gunn

Senior Reporter Erik Gunn reports and writes on work and the economy, health policy and related subjects, for the Wisconsin Examiner. He spent 24 years as a freelance writer for Milwaukee Magazine, Isthmus, The Progressive, BNA Inc., and other publications, winning awards for investigative reporting, feature writing, beat coverage, business writing, and commentary. An East Coast native, he previously covered labor for The Milwaukee Journal after reporting for newspapers in upstate New York and northern Illinois. He's a graduate of Beloit College (English Comp.) and the Columbia School of Journalism. Off hours he is the Examiner's resident Springsteen and Jackson Browne fanboy and model railroad nerd.