State Tax Burden Lowest in 50 Years

A new report by the Wisconsin Policy Forum (WPF) finds that the state-local tax burden is now the lowest it has been in half a century — since 1970. And almost all of that decline has happened since the mid-1990s.

“There has been a very significant shift over the last 25 years,” says Jason Stein, research director for the WPF. 

To say the least. The report found that combined state-local taxes went down by 22 percent since 1994, an $8.5 billion per year savings for taxpayers (meaning total taxes would have been that much higher today without the reduction in average taxation).

That’s a stunning drop, all more so considering that federal taxes paid during that period by Wisconsin residents also dropped significantly, a decline of 25 percent since 2000, the study estimated. In short, state residents pay much less of their income to taxes than in past decades. 

Back in 1970 average state residents spent 14 percent of their income on state and local taxes, but by 2019 that had dropped to 10.3 percent. Most of that drop has come since 1994, when state residents still paid 13.2 percent of their income for state and local taxes. 

These statistics may leave people with “mixed feelings,” as Stein puts it. “People on the right might be pleased. People on the other side of the spectrum might point to the need to spend more on schools or other government services.”

Indeed, that is exactly what has happened since a Democrat, Tony Evers, was elected governor, returning divided government to Wisconsin. Evers has pushed for more spending on schools, roads and other programs, while Republicans have resisted. GOP legislators have recently suggested they may push for more tax cuts.

The decline in taxes has come as a result of numerous policy changes. In the late 1990s Gov. Tommy Thompson begrudgingly agreed with legislators pushing to index the state income tax to prevent automatic inflationary increases, which had fueled huge increases in taxing and spending under Thompson. He also pushed to impose spending controls on local school districts, which helped reduce property tax increases by schools. Over the years the Legislature has also imposed caps on property tax levies by municipalities, counties and technical colleges, which has helped cap tax increases. And Act 10, championed by Gov. Scott Walker, helped reduce the power and benefits of public unions, which helped drive down state and local spending.

All those state-imposed controls on local governments have done much to suppress their levels of taxation, even as state government seems to have resisted the trend. Local taxation has declined as a percent of total state local taxation, from 40 percent in 1970 to 36 percent in 1990 and 34 percent in 2019, extrapolating from statistics in the WPF report and for 1970 that Stein provided to Urban Milwaukee. If anything, that underestimates the change, as the state has dramatically reduced shared revenue to local governments since 2000, meaning spending by municipal and county governments has been even more squeezed while state government has even more money to spend. 

The squeeze on local school districts helps explain why a historically high number of districts are introducing and successfully passing local referendums to increase spending and why there was a 37 percent spike in wheel tax revenue collected by local governments in 2019, according to the WPF report. “With limits on local property taxes and little growth in state transportation aids,” the report notes, “more communities have adopted vehicle registration fees [or wheel taxes] in recent years, with the total currently standing at 26 municipalities and 12 counties,” 

WPF records only go back to 1970, when one of its forerunner organizations, the Wisconsin Taxpayers Alliance, began collecting such data. It’s possible taxpayers paid even more than 14 percent of their income before this, though 1970 came just after major changes to raise more revenue. Wisconsin had added a state sales tax in 1962, a new revenue source that quickly grew from a selective tax of 3 percent on more luxurious items to a general sales tax of 4 percent passed in 1969. 

At least in the next three years, there is little likelihood the current picture for state-local taxes is likely to change, the report concludes: “If control of state government remains divided, then big changes to state and local taxes would appear unlikely. In the absence of an economic downturn, the state and local tax burden in the near term is likely to see gradual changes rather than an abrupt shift.”