Sure, we're paying lower taxes vs 20 years ago. But maybe we should change the mix of taxes, too.

I wanted to dive into an interesting analysis from the Wisconsin Policy Forum that noted how state residents pay a much smaller percentage of their income in state and local taxes than they did 20+ years ago, and now pay less than a majority of other Americans.

In 1999, state and local governments took in $17.4 billion from taxpayers - about 12.2% of total personal income in the state (the fourth–highest percentage in the country) and $3,288 per capita (sixth-highest). By 2019, the $30.6 billion in total taxes accounted for just 10.3% of personal income (23rd in the nation) and $5,275 per capita (24th). Under both metrics, the 2019 tax burden was below the national average…..

From 1999 to 2019, no other state saw a decrease in state and local taxes as a share of personal income that was larger than the 1.87 percentage point drop in Wisconsin (see Figure 1). If instead we look at the percentage drop of 15.4% in Wisconsin’s tax burden over those 20 years, then only Florida (-18.5%) and Michigan (-15.5%) had larger decreases. Under both methods, Wisconsin’s decline is either the largest or nearly so. If the state’s tax burden were as large today as it was in 1999, taxpayers in Wisconsin would be paying billions of dollars in higher taxes to fund additional state and local services.

But what did we get out of this lower tax burden? According to the Quarterly Census on Employment and Wages (QCEW), Wisconsin was 28th in the nation for average weekly private sector wages in the middle of 2001, and we fell to 31st for wages by mid-2019. There had only been a real increase in average weekly wages of 11.2% over those 18 years, despite significant increases in productivity. But hey, your taxes are lower so….yay? Also, the Policy Forum notes that even with that declining tax burden, Wisconsin taxpayers still pay a higher share of their income in property and income taxes than most other states.

Local governments in Wisconsin are particularly reliant on property taxes. In 2019, property owners paid $9.7 billion in local property taxes, plus just under $100 million at the state level (the small state property tax has since been eliminated). That equated to 3.3% of total personal income in Wisconsin (17th-highest in the country), or $1,689 per capita (22nd), and was down from 3.9% of personal income in 1999 (11th).

In 2019, tax filers in Wisconsin paid about $8.8 billion in individual income taxes to the state, accounting for 2.9% of personal income (13th-highest) and $1,508 per capita (also 13th). Though relatively high, this was a decrease from the 3.6% of personal income (7th highest) that tax filers paid the state in 1999. Corporate income taxes have held steady at around 0.5% of personal income, moving from 14th-highest in 1999 to 12th in 2019.

Since then, Wisconsin’s finances have strengthened, leading to income taxes being cut further in the current state budget, and legislators deciding to throw even more K-12 funds into property tax relief over classroom needs. So we may well drop further when these rankings are updated in a couple of years.

Maybe we also should use this time of full government coffers to look at Wisconsin’s whole system of taxation, especially at the local level. A recent report from the Government Finance Officers Association (GFOA) says that local governments are not being funded in a manner that fits 21st Century life, which leads to major inequities that hurt the poor and middle classes. And the property tax is a main culprit.

Foremost, our outmoded revenue system can result in unfair tax and fee burdens for citizens. Often, who pays the tax does not line up with who can afford to pay or who benefits from public services. For example, people whose wealth is primarily invested in property pay more than those whose wealth is located elsewhere (e.g., financial instruments). Most significantly, lower-income people often end up paying a disproportionate burden of local taxes. For instance, lower-income people spend a larger portion of their income on taxable goods than higher-income people, so the sales tax often places a disproportionate burden on low-income people. Also, local governments have come to rely more on fees and fines. These fees and fines typically aren’t scaled to the citizen’s ability to pay. Even the property tax can disproportionately burden low-income people. One study found that the burden of the property tax falls disproportionately on the owners of the least valuable homes. To illustrate, property valued in the bottom 10% pays an effective rate that is double that of property in the top 10%, on average across the United States.

The disparities created by the existing revenue system are not limited to taxpayers. It creates disparities between local governments, where those governments fortunate enough to have wealthy taxpayers within their jurisdiction can have higher revenues than those that don’t. For example, in a state where local sales taxes are important, the city that has the regional shopping center gets all the revenues, even though people from around the region shop there. The communities that send shoppers to the mall have many of the same public service needs but don’t get the tax revenue. Another example is where commuters go to jobs in one city but pay little taxes to support public services there.

That last sentence sounds like the business model that a whole lot of Milwaukee suburbs used for decades, doesn’t it?

They might come here, but they don't pay the taxes here.

By comparison, the Wisconsin Policy Forum notes that we have a relatively low sales tax at both the state and local levels.

The state and 68 of the 72 counties in Wisconsin impose a general sales tax on the purchase of certain items (5% for the state and 0.5% for counties), with additional state taxes placed on certain goods such as motor fuel, alcoholic beverages, and tobacco products. In total, consumers paid $9.0 billion in sales taxes in 2019, or 3.0% of personal income in the state (38th highest) and $1,557 per capita (38th). As was the case for property and income taxes, the sales tax burden has declined since 1999, when residents paid 3.6% of their personal income (30th) in these taxes.

The changes of the last 20 years in the economy has been damaging enough for Wisconsin, but we also could do more to adjust to fiscal realities beyond cutting taxes and limiting spending. Changing the mix of how we fund schools and local governments into using more state funding and sales taxes over local property taxes seems like an easy solution, and Governor Evers asked for this in his 2021-23 budget where he wanted more Wisconsin cities and counties to be able to put in a sales tax. Naturally, the gerrymandered WisGOP Legislature voted it down.

If we continue to go on with this outdated taxation system and continual cycle of tax cuts that don’t translate into a better life for Wisconsinites, we will continue to slog around in mediocrity. Republicans may be fine with this, because it leads to us being a generic Midwestern state wracked with bitterness where people grumble about “the way things used to be”, which leads many to vote on stupid cultural reasons because there isn’t much of a future to believe in.

We need to build upon the dwindling advantages that Wisconsin has left (still-OK schools, great natural beauty and resources), and get back to the “pro-worker, high quality services” model that made this state special in the 20th Century.

The boost of infrastructure work in the recently-passed BIF bill would be a nice first step, particularly because federal projects require prevailing wages to be included (unlike state ones, due to Walker/WisGOP "reforms"). But having state lawmakers pass bills that reflect the will of Wisconsinites (see Medicaid expansion) and changes the outdated funding structure that we have in funding local governments would go a long way toward restoring Wisconsin to the state that we used to take great pride in being from.