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State tax burden up, but overall burden still falling

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.

At the same time, some taxes paid by many middle-class families here remain relatively high — particularly the property taxes on a typical home.

For decades, the Wisconsin Policy Forum and one of its two predecessor organizations, the Wisconsin Taxpayers Alliance, have been tracking every local, state, and federal tax paid in the state. By comparing tax collections to the collective incomes of state residents, we can gauge the collective impact of these taxes on the families and businesses that pay them.

Rather than a byproduct of higher tax rates, the increased state tax burden reflected factors such as a surge in economic activity. 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. Total state tax collections from all sources grew 9.2% in 2021, the largest annual increase since 1984.

That outpaced a 5.2% increase in personal income in Wisconsin in calendar 2020, the most recent year available. As a result, state taxes grew to 7% of personal income in 2021, up from 6.7% the prior year.

Meanwhile, property and other local taxes fell as a share of income in 2021 to 3.5%, down from 3.6% the prior year to the lowest level since at least 1970. The federal tax burden also hit its lowest level in a half-century.

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. As the Forum recently reported, U.S. Census Bureau figures show Wisconsin’s state and local tax burden has now dipped below the national average, and its ranking at 23rd highest among the 50 states has never been lower in data going back to 1994.

In spite of this trend, Wisconsin’s residential property taxes remain among the nation’s highest. This is because of the state’s reliance on them to fund local government and fewer tax benefits for Wisconsin homeowners compared to other states.

In the current state budget, with tax revenue projections coming in more than $4 billion over previous forecasts, state lawmakers and Gov. Tony Evers again used the additional revenue to prioritize tax cuts. An additional round of massive state income and property tax cuts should further help hold down the tax burden in future years.

This information is provided to Wisconsin Newspaper Association members as a service of the Wisconsin Policy Forum, the state’s leading resource for nonpartisan state and local government research and civic education. Learn more at wispolicyforum.org.

January 25, 2022