This was an interesting report that probably fell under the radar in the last few days. It comes from the Institute on Taxation and Economic Policy, and discusses who pays state and local taxes, and what measures are put in to combat poverty. Wisconsin's traditionally had a large number of poverty-fighting measures, and has generally stayed below the national average for poverty in no small part due to these measures. But this report shows that we are like most other states in another measure- the lower classes pay a higher percentage of their income in state and local taxes than the rich do. And with the age of Fitzwalkerstan starting up in 2011, that trend will probably accelerate.
First, the big numbers that come in at the end of the report, where all states are compared for state and local tax burdens for three classes of people: Those in the lowest 20% of income, those in the middle 20% and those in the top 1%. You will see that Wisconsin's tax burden is relatively high for the lower classes, rises a bit for the middle class, and drops off for the upper class.
State and local taxes as % of income, Wisconsin
Lowest 20% 9.2%
Middle 20% 10.6%
Top 1%ers 6.7%
When you compare Wisconsin to the 4 states bordering it, tax rates are similar to the Middle 20% (Wisconsin's slightly higher), but Wisconsin generally has a lower tax burden on the lower classes (especially compared to high-sales tax Illinois), and taxes the 1% a bit more than most of our neighbors (with "broke" Illinois having the lowest tax rates on the rich).
State/local tax rates for Midwest states
Wis 9.2% 10.6% 6.7%
Ill 13.1% 10.1% 4.1%
Iowa 11.0% 9.6% 6.0%
Minn 9.2% 10.0% 6.6%
Mich 8.9% 9.5% 5.3%
It shouldn't be too surprising to see the 1%ers have the lowest state and local tax rates of these 3 groups. The rich are more likely to be able to write off taxable income with tax credits, business write-offs, capital gains credits and federal tax offsets that states seem to have plenty of. It also illustrates how the middle classes get a larger burden on property taxes than the rich, because the home values aren't as different between these classes than the incomes are. It also illustrates how sales and excise taxes frequently hit the poor worse than the richer classes, as Illinois has relatively high sales taxes (especially in Chicago) and also has a sales tax on gasoline, while Wisconsin has no sales tax on gas and has a relatively low 5% overall sales tax with plenty of exemptions.
It's also interesting to note the poverty rates for these 5 states and see if there's a correlation. Note that the two states with the lowest tax burdens on the rich, Michigan and Illinois, are also the two states with the highest poverty levels.
Poverty rates by state
And that trend of low taxes on the rich and high poverty also is true for other states. Number 1 in poverty Mississippi (22.6%!) has a tax rate on the 1%ers at 5.5%, below all the Midwest states other than Michigan. New Mexico has 21.5% poverty and a 4.5% tax rate on the rich. Alabama taxes their 1%ers at a measly 4.0% and has poverty at 19%, Texas has 18.5% poverty and a 3.0% tax rate on its rich.
Now this connection is not absolute, as New Hampshire has the lowest poverty rate in the U.S. but also has a 2.0% tax rate on the rich. But that could also be geographic, as neighboring Vermont also has a low poverty rate below Wisconsin's, and taxes the rich at 7.5%- a rate above Wisconsin and any of our neighbors.
However, Wisconsin's status of being a state that has low taxes on the poor may be in jeopardy, as the report notes policies such as Earned Income Tax Credits and renter's or homeowner's credits are ways to reduce poverty through the tax code. Well, Walker's last budget reduced Wisconsin's Earned Income Tax Credit and Homestead Credits, and these effects weren't seen until taxes were paid this Spring. This might have the effect of raising the taxes toward the lower 20% toward that of the Middle Class in Wisconsin. On the flip side, Walker's corporate tax cuts and other specialty maneuvers that favored the rich might make the disparity between the 1%ers and the rest of Wisconsin even higher when it comes to taxes paid between the classes(or not paid, in the case of the rich).
So keep this report in mind when you consider comments like Mitt Romney's infamous "47%" comment, and realize that the rich pay less in taxes once you take out federal income taxes, and the poor and middle classes are often the ones paying the burden at those levels. What's remarkable is that Republicans like Scott Walker aren't merely OK with this, they want to INCREASE it. Unfortunately for Wisconsin, this would seem to make it likely to also increase our poverty rate, which has stayed low over time due to this state's more-balanced approach to taxes and spending on services- two trends that are going by the wayside in Fitzwalkerstan