How low will it go? 50-year low in Wis tax burden set to drop even more

With nearly $7 billion projected to be available in the State of Wisconsin's bank account on June 30, it looks almost certain that there will be some kind of income tax cut at the state level in the next state budget. What's caused that massive surplus is an unprecedented increase in tax revenues while spending has often been able to be offset by Federal assistance due to COVID aids and other initiatives.

But what's even more incredible about Wisconsin's situation is that the Wisconsin Policy Forum released a report this week saying that Wisconsinites have their lowest amount of state + local tax burden in at least 50 years.

In fiscal year 2022 (the 12 months ended on June 30), state and local tax revenues fell as a share of personal income in the state to just under 10.1%, down from 10.3% in 2021 (see Figure 1). That was the lowest level in Wisconsin Policy Forum records going back to 1970. State taxes as a share of income also fell, though they remain just slightly above a record low. For their part, federal taxes on Wisconsin residents and businesses have risen somewhat as a share of income but also remain near their historic low....

One major cause of the drop in 2022 – though far from the only one – is the $1 billion a year cut in state income taxes approved as part of the 2021-23 budget. Another is the state’s policy of limiting most property tax increases by local governments in the state – from towns and cities to school districts.

Also critical, however, was the strong 6.7% growth in personal income in Wisconsin in calendar year 2021 (the most recent year available). The figures on personal income include wages and salaries, interest and dividend income, and transfer receipts to individuals from the government. Collectively, these various sources represent the available income that state residents can use to pay the taxes they owe.

2021 income growth could prove a bit misleading in this regard, because the stimulus checks that Wisconsinites received in that year are included in that number. But you get the idea, and you can also see how that burden has declined at both the state and local levels (although the drops often happened at different times between the two levels of govt).

But does the growth in tax revenues prove that recent "tax cuts have paid for themselves" in Wisconsin? Not necessarily. In fact, the Policy Forum notes that the individual income tax collections in Wisconsin fell in Fiscal Year 2022, and that the increase in revenue happened due to a massive increase in sales and (especially) corporate taxes.

The sales tax increases are reflective of the state capturing more sales tax on online sales right before the pandemic hit, combined with the economic recovery and higher prices boosting those numbers. You can see the corporate taxes jump starting in 2018, and if you recognize that as the start date of the GOP Tax Scam, that explains a lot. As the Policy Forum noted in 2019.

Because of that federal law, corporations in Wisconsin and nationally shifted taxable income from 2017 into 2018, the tax year in which the corporate rate cut took effect. That had the effect of lowering their taxes in 2017 and increasing them in 2018 beyond what they would have otherwise been. (The state’s 2019 fiscal year includes the final six months of calendar year 2018.)

In response to the federal legislation, then Gov. Scott Walker and lawmakers changed state law in December 2018 to allow certain business entities to pay income taxes at the corporate level rather than pass their profits on to shareholders for them to pay individual income taxes. Paying taxes at the corporate level could help these businesses gain more federal tax deductions, but also means they would be taxed at the state corporate rate of 7.9%, which is higher than any of the rates in Wisconsin’s individual income tax brackets.

Think about how much of a tax break Wisconsin corporations are getting at the federal level if they've continued to willingly pay higher corporate taxes at the state level.

What's also cut into Wisconsin's burden is a decline in gas taxes, partly due to lower amounts of driving due to pandemic and the increased amount of people working at home, and partly due to higher fuel efficiency in recent years. Less gas consumption = fewer taxes, since it's paid on a per-gallon basis, and illustrates the problem with relying on that as a source of WisDOT funding as the costs to repair roads continues to climb.

Likewise, the lower local tax burden helps explain why so many schools and local governments are struggling these days. Scott Walker and the WisGOP Legislature have insisted on holding down the ability of schools and local governments from raising taxes, and have prevented those communities from installing their own sales taxes (outside of a handful of tourist towns that are mostly represented by Republicans).

The Policy Forum notes the contrast from the 2000s, when state tax revenues didn't grow much during a decade that had 2 recessions and mediocre growth in between them, but local revenues were allowed to keep growing. The exact opposite has happened since the Age of Fitzwalkerstan began after 2010.

Seems more than a little unfair, especially since the state has refused to shared much of that expanded revenue with the locals in that same time period. And given the low tax burden and the almost-obscene amount of money in the state's bank account these days, it seems very cruel and stupid not to give a boost in shared revenue and available resources to the locals, or at least allow the locals more of a chance to raise their own funds via sales tax or other means.

It's good info from the Policy Forum, as we enter a budget session that seems likely to have taxes and tax burdens be a main topic, along with how to help local governments that are struggling to make ends meet while the state's coffers get fat. Because while some may applaud the drop in tax burdens that we have seen in Wisconsin over the last 40-50 years, we have to ask if what we've got has truly left us better off. And how can we and our communities become better off for the rest of the 2020s over what we have today?