Wisconsin’s state and local tax system is tilted in favor of those with the highest incomes, according to a new report released today. Wisconsin taxpayers with low and middle incomes typically pay much higher rates of state and local taxes compared to taxpayers with the highest incomes. Some Wisconsin policymakers are advocating for changes that would make our tax system even less equitable, by increasing taxes for most taxpayers to pay for tax cuts for residents with the highest incomes.
Wisconsin taxpayers with the lowest incomes – less than $22,000 a year – pay 8.9% of their income in state and local taxes in 2015, as shown in the chart below, and middle-income taxpayers will pay 10.1% of their income in taxes. In contrast, the top 1% of taxpayers – a group with an average income of $1.1 million – will pay just 6.2% of their income in taxes. The effective state and local tax rate takes into account the deduction from federal taxes.
Put another way, the lowest-income taxpayers in Wisconsin pay 43% more in state and local taxes as a percent of their income compared to the state’s wealthiest residents. Middle-income taxpayers pay 63% more than the wealthiest taxpayers in taxes, on average.
This problem isn’t unique to Wisconsin. An article in today’s New York Times describes how people with the highest incomes pay lower tax rates under virtually every state’s tax system.
Some Wisconsin policymakers have proposed further shifting responsibility for paying taxes away from those who are well-able to pay and toward everyone else:
- A recent report by the Wisconsin Policy Research Institute encouraged lawmakers to expand the sales tax to items currently untaxed, including basic necessities like food, water, and fuel, and use the additional revenue generated to lower income tax rates. The result of these changes would be an average tax cut of nearly $7,000 for taxpayers in the highest 1%, a group with an average income of $1.1 million. Taxpayers in the bottom 20%, who earn an average of $14,000 a year, would pay an average of $110 more in taxes each year under this proposal.
- Governor Walker raised the idea in 2013 of an even more extreme tax shift, when he floated the idea of eliminating the state’s income tax, and substantially raising the sales tax rate to make up the difference. Such a radical change would result in extremely large tax cuts for the rich and corresponding tax increases for many other taxpayers. The top-earning 1% would have received an average tax cut of nearly $44,000 if this tax shift had been implemented in 2013. In contrast, a taxpayer in the lowest 20% of the income scale would pay nearly $750 more in taxes, on average.
Wisconsin’s tax system is already slanted in favor of those with highest incomes, as this new report shows. Lawmakers should avoid shifting more of the responsibility for taxes onto those who can least afford it, and instead work to make the tax system fairer.