State’s Individual Tax Burden Grows, But Tax Rates Dropped

Wisconsin’s state tax burden for individuals increased for the first time in a decade last year, according to new data from the nonpartisan Wisconsin Policy Forum. At the same time, local and federal taxes decreased substantially and the overall tax burden as a share of income reached the lowest level in at least 50 years.

The increased state tax burden wasn’t the result of higher tax rates, the Policy Forum report said, but other factors including a surge in economic activity from July 1, 2020, through June 30, 2021, increased online sales tax collections and federal stimulus payments to individuals and businesses. Still, the data shows “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.”

Wisconsin Policy Forum Research Director Jason Stein said those declines have dropped the overall resident tax burden as a share of income to the lowest levels in a half century.

“The thing that makes it a little more nuanced this year is the state tax collections actually went up quite a bit,” said Stein. “But again, you know, local and federal went down more.”

The state’s total tax collections grew by 9.2 percent in 2021. That’s the largest increase since at least 1984, according to Policy Forum data. Wisconsin sales taxes, alone, grew by 9 percent to $6.37 billion, due in part to a 2018 U.S. Supreme Court Decision and a 2019 state law aimed at ensuring online retailers charge state sales taxes to customers.

Corporate income and franchise tax revenues grew by 59.2 percent, due in part to recent changes in federal tax law. That’s the largest increase since 1960, when the Policy Forum and its predecessor organization Wisconsin Taxpayers Alliance began tracking the data.

The report states that state tax collections grew faster than a 5.2 percent increase in personal income in 2020, which means Wisconsin taxes reached 7 percent of personal income last year. That’s up slightly from 6.7 percent the year before.

At the same time, the report shows that federal taxes, which account for a majority of taxes paid by Wisconsin residents, reached the lowest level in 50 years during federal fiscal year 2021. Estimates suggest the federal tax burden is around 15.9 percent of personal income. That’s lower than the 16.3 percent of income paid by residents in 2020, the most recent year from which the federal data is available.

Stein said whether residents have noticed recent tax cut legislation at the state and federal levels aimed at lowering tax burdens depends on who you ask.

“Despite all this change that has happened over the past 20 years, particularly over the last decade, for certain taxes, for ordinary taxpayers, they still are pretty high,” said Stein.

In particular, Stein said Wisconsin property taxes are still in the top 10 nationally. He said that’s largely a function of how the state funds local governments and schools while some states take different approaches and offer property tax breaks.

Policy Forum data shows that 2020 property taxes on a $150,000 home in Milwaukee were $3,646, which is nearly 83 percent higher than the national average. A $150,000 home in Rice Lake had a tax bill of $3,091 in 2020, which is 58 percent higher than the national average.

Wisconsin has a state lottery property tax credit, but the Policy Forum found that fell in 2020, which contributed to a 4.2 percent net increase in net property taxes paid by owners.

State unemployment tax revenues dropped by 15 percent in 2021 to $456.9 million according to the Policy Forum. That’s the lowest level since 2002 with no adjustment for inflation.

The report said a surge in unemployment claims filed in 2020 drove down the balance in the state’s jobless fund to just over $1 billion as of June 30, 2021, which “would have normally triggered higher payroll tax rates on employers this year.”

“We haven’t ever seen, in the past, an impact to the unemployment fund of that size,” said Stein.

To prevent that, the Policy Forum said state lawmakers and Gov. Tony Evers approved a transfer of $60 million from the state’s general fund to shore up the jobless fund balance. Stein said that helped keep businesses from shouldering any immediate payroll tax increases amid the economic uncertainty caused by COVID-19. Still, he said there could be an impact in coming years.

“It would be very surprising if at some point there weren’t higher tax rates to help rebuild the fund,” said Stein.

Listen to the WPR report here.

Wisconsin’s tax burden as share of income grows for first time in 10 years was originally published by Wisconsin Public Radio.