Report Finds State Taxes Fall Lightest on Wealthy

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Wisconsin taxes are harder on low- and middle-income residents than they are on the state’s wealthiest, a nonpartisan group that favors more progressive tax policies reports in a new study released Tuesday.

The finding is part of a report by the Institute on Taxation and Economic Policy (ITEP) in Washington, D.C., that analyzes tax policies in every state along with the District of Columbia by looking at how taxes are distributed across income groups.

“The vast majority of state and local tax systems are regressive, asking less of the wealthy than of low- and middle-income families,” the report states.

Wisconsin is well down on the list of states arranged from the most regressive tax system to the least, ranking at No. 27. Nevertheless, the state’s tax system “is upside-down, with the wealthy paying a lesser share of their income to tax than low- and middle-income families,” ITEP states in a summary of the report.

The report looks at all taxes paid, not just income taxes, examining the impact of property, sales and excise taxes as well as other kinds of taxes collected in each state.

In Wisconsin, the 20% of taxpayers with the lowest incomes pay about 10.8% of their income on state and local taxes, the report found. That’s 64% higher than what the top 1% of households pay — 6.6% of their incomes. Middle-income taxpayers pay 9.9%.

“When you ask people what they think a fair tax code looks like, almost nobody says we should have the richest pay the least. And yet that’s exactly what is happening in Wisconsin,” said Carl Davis, ITEP research director. “There’s an alarming gap here between what the public wants and what state lawmakers have delivered.”

The Badger State isn’t alone. Wisconsin is one of 41 states where the top 1% pay less of their income in taxes, and one of 34 where the poorest taxpayers pay more of their income than any other group, ITEP reported. For the nation as a whole, the 20% of taxpayers with the lowest incomes pay 11.3% of their earnings on taxes on average, and the top 1% pay 7.2%. The 20% of middle-income earners pay 10.5%.

The report finds that Wisconsin is one of 44 U.S. states where the tax system makes incomes more unequal after state and local taxes are collected. Six states as well as the District of Columbia have tax systems that reduce inequality, according to ITEP.

ITEP suggests that Wisconsin could address the state’s current tax inequality by enacting an estate or inheritance tax, creating a child tax credit, or ending tax loopholes that favor the state’s wealthiest taxpayers. A proposal advanced by some Wisconsin lawmakers for a flat state income tax “would widen this disparity and worsen tax equity across the state,” according to the organization.