Monday, January 18, 2021

Wisconsinites continue to pay less in taxes. But is it enough for our budget?

In something Republicans view as a great accomplishment, Wisconsin's taxes are the lowest they've been in decades. That was reported in-depth in a recent report from the Wisconsin Policy Forum. The Policy Forum says it was the 9th straight year state and local taxes as a % of income dropped.
The effect of the coronavirus could be seen across many of the state’s major revenue streams, with gas tax collections falling for the first time since 2013 and driver’s license fees also dipping. One exception was corporate tax revenues, which remained surprisingly strong despite the downturn.

Local taxes rose more rapidly, hitting their fastest growth since 2010. The larger increase reflects the fact that the property tax – Wisconsin’s most important local tax by far – remains more stable in recessions and was increased by local officials on bills that went out a year ago prior to the pandemic. Among local taxes, the main pandemic-related impacts involved sales taxes – mostly at the county level – and room taxes on hotel stays.

Though both state and local taxes grew in the most recent year, their overall increase was outpaced by the income that state residents collectively receive from employers and many other sources. That left the tax burden slightly smaller when measured according to Wisconsinites’ ability to pay it – 10.2% in fiscal year 2020 compared to 10.3% in 2019 (see Figure 1). That was the lowest since at least 1970.
As the report mentions, this decline reflects incomes rising in a growing economy, and taxes paid not rising as much. It makes you wonder if those trends last in a recession with depressed employment. I also wonder if the state continues to benefit from the major increase in corporate taxes that we have seen in the last few years, including a jump of more than 20% in 2020.
The Forum has noted several factors that may have played a role in strengthening collections in recent years, from an increase in state auditors to federal and state legislation that may have led more business entities to file and pay their taxes at the corporate level. Like workers, businesses benefited as well from various efforts at the federal level to bolster the national economy amid the blows from the coronavirus.
It also gives an indication just how much of a break corporations have gotten at the federal level, if they're willing to pay more taxes at the state level. With the recession likely to lead to significant tax refunds for corporations in the coming months, it'll be intriguing to see if those high levels of collections continue for the rest of Fiscal Year 2021.

We've also seen individual income taxes decline at the state and federal levels in recent months as layoffs has grown.

Change in individual income tax revenues, FY to date
Wisconsin -0.3% July-Nov
Federal -10.9% Oct-Dec

It's not necessarily alarming at this point, as the estimates that the Wisconsin DOA put together in November counted on a decline of -2.3% in income taxes for the 2021 Fiscal Year. But it also counts on corporate taxes continuing to rise by 15.9% from their already high levels in FY 2021.

I bring this up because we will likely find out this week what the Legislative Fiscal Bureau will estimate for tax revenues over the next 2 years, which will be what Governor Evers and the Legislature will base as a method of figuring the amount of money that might be available for the 2021-23 budget.

Right now, it appears that Wisconsinites aren't paying all that much, but enough has come in from state taxpayers as well as through increased aid from DC to keep a significant budget crisis from appearing, even with the COVID-induced recession. But the recent layoffs and economic slowdown may change the calculus, as might the possibility of more stimulus coming as a result of complete Dem control of DC.

Lastly, let's not confuse a lower tax burden with a great overall situation in Wisconsin. We had exactly 1 quarter in that time period of lower tax burdens where we reached the top half of job growth in America, as measured by the Quarterly Census of Employment and Wages (QCEW), and were well behind the rate of growth in the rest of the country.
We also had a slowdown in population growth in the 2010s, and especially 2020, so the lower taxes didn't exactly get people to flock to Wisconsin. And frankly, more population, more jobs and a higher quality of life are things that should matter more than tax rankings when it comes to figuring how Wisconsin is shaping up. Especially as we need more services and supports given the rough circumstances of the COVID World.

1 comment:

  1. I seem to recall that the tax breaks for us working stiffs that were in the 2017 tax bill for millionaires expire now in Jan.,2021, giving us a "tax increase". Do I remember this correctly?