A proposal to replace the state income tax with a higher state sales tax will save the wealthiest Wisconsin residents tens of thousands of dollars while increasing taxes for the poorest, a new analysis concludes.
The analysis, produced for the Wisconsin Budget Project, pegs the average tax cut for the top 1% of the state’s earners at more than $75,000 a year.
The 40% of taxpayers in the state whose incomes are the lowest would not see any tax relief at all, the analysis finds. They would pay, on average, $250 to $450 more a year.
The proposal is “a radical change that would raise taxes on people with the lowest incomes to cover part of the cost of giving huge tax cuts to the wealthy and powerful,” writes Tamarine Cornelius, an analyst for the Wisconsin Budget Project and Kids Forward, in a summary of the findings.
“The plan would result in the largest tax cuts going to white households, with households of color receiving smaller tax cuts or having to pay more in taxes,” Cornelius adds. “The enormous cost of the proposal would make it difficult for the state to provide even basic public services that schools, businesses, and families need to thrive.”
The Wisconsin Budget Project analysis projects the likely impact on state taxpayers of a plan advanced in December to end the state’s income tax and replace it with an 8% sales tax statewide. The analysis was compiled using calculations provided by the Institute for Taxation and Economic Policy in Washington, D.C.
The groups advancing the sales tax hike and income tax repeal include Wisconsin Manufacturers & Commerce, the state’s largest business lobby, along with Americans for Tax Reform, an anti-tax group, and Americans for Prosperity-Wisconsin, a pro-corporate, anti-government organization. In announcing the proposal, they have described it as providing “massive middle class and small business tax relief.”
The Wisconsin Budget Project analysis, however, finds that the vast majority of savings don’t go to middle-class taxpayers, but instead to the top 1% of taxpayers.
That group, with incomes starting at $603,000 a year and averaging $1.7 million a year, would get an average tax cut of 4.7%, or $78,122 a year, the analysis finds. That average tax cut is more than the annual incomes of 60% of Wisconsin residents.
The middle 20% of the population, people with incomes from $44,000 to $74,000, would see their taxes drop by $357 a year on average, or less than 1% of their income.
Taxes for the poorest 20% of the population would rise by $460 a year on average, or 1.7% of their income. For the second poorest 20%, taxes would go up $250 a year, or a little less than half of 1% of their income.
The plan becomes more advantageous at higher incomes, cutting taxes by 1.6% of the incomes of people in the second-highest 20% of earners, whose incomes are between $74,000 and $117,000.
The gap between how the proposal affects white people and how it affects people of color is largely because on average white people’s incomes are higher than those of other racial and ethnic groups, Cornelius told the Wisconsin Examiner.
But it also reflects differences in shopping patterns across demographic groups, which would in turn change their likely sales tax burden as a result of the higher sales tax, she said. And it reflects demographic differences in who takes the state’s earned income tax credit. The analysis assumes that the credit, which is associated with the income tax, would be eliminated along with the income tax itself.
Even as the plan would make poorer residents pay more, it would cut state revenues by $5.3 billion, “forcing the harmful elimination of entire categories of services that make Wisconsin an attractive place to live, work, and do business,” Cornelius writes. The revenue reduction is more than the combined cost of the state’s prison system, the Wisconsin technical college system and BadgerCare, the state’s health care program for low-income people, she observes.
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