For the first time in a decade, the state taxes paid by Wisconsin residents and businesses in 2021 grew as a share of income in the state. Yet the historically low levels of federal and local taxes in recent years have meant that the overall tax burden – and related spending on public services – have kept dropping for Wisconsinites. The increased state tax burden did not result from higher tax rates, but instead reflected factors such as a surge in economic activity as the state emerged from the worst of the pandemic. In fiscal year 2021 (the 12 months ended on June 30), state sales tax revenues rose by more than 9% – the most in 37 years. Corporate income and franchise tax collections rose by 59.2% – the most in our records going back to 1960. Individual income tax revenues for the state rose by 6.2% – the most since 2013. In fact, total state tax collections from all sources grew 9.2% in 2021, the largest annual increase since 1984.... Not surprisingly, the growth in state tax collections outpaced the 5.2% increase in personal income in Wisconsin in calendar year 2020 (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 – a major factor during the pandemic. As a result, state taxes grew to 7% of personal income in 2021, up from 6.7% the previous year.So much of that increased tax burden came due to Wisconsinites spending more, and corporations paying more due to their higher profits, which caused the percentage of taxes as a percentage of overall income to be higher. The Policy Forum goes on to note that Wisconsinites continued to pay a lower tax burden when it came to local taxes. And then when you combine it with federal taxes, Fiscal Year 2021 featured Wisconsin having their lowest tax burden in decades.
As a share of income, property and other local taxes fell in 2021 to 3.5%, down from 3.6% the previous year to the lowest level since at least 1970. Overall, combined state and local taxes rose to 10.5% of income in Wisconsin in 2021, up from 10.3% in 2020 but still the fourth-lowest year in our records (see Figure 1).A lot of this will likely reverse in FY 2022. Unemployment claims and benefits have plummeted, and income tax cuts at the state level will likely translate into the state tax burden falling again. The booming tax revenues are especially remarkable due to the fact that Wisconsin's GDP is still below its pre-COVID peak. In fact, the Bureau of Economic Analysis said Wisconsin saw inflation-adjusted GDP fall this Summer.
Retail trade -0.95%
Every other sector +2.28% And yet tax revenues have stayed strong in Wisconsin, with sales and income taxes growing well above last year's already-large numbers. And even though corporate taxes are lower, remember that it's off a year that they went up by nearly 60%. Change in Wis tax revenues, July-Nov 2021 vs July-Nov 2020
Income tax +12.5%
Sales tax +12.9%
Corporate tax -9.0
TOTAL GEN FUND TAXES +9.1% That's well above the rate of inflation so far, but the income tax cuts and higher refunds are going to kick into the revenue numbers in the coming months, so it seems likely the growth won't end up being that high. Still, it seems well above what the GDP and even employment numbers would tell you, which makes it difficult to figure the true situation of our state's economy in 2022. Is it possible that we are already at capacity in Wisconsin, and that the COVID era has caused that much of a decline in available workers/population? Or is there is some other reason that tax burdens went up solely due to higher economic activity driving more profits and spending in Fiscal Year 2021?