While Wisconsin has cut taxes for upper- and middle-income taxpayers over the last decade, low-income residents are paying more in taxes, a new report shows.
The Wisconsin Policy Forum report released Wednesday confirms other analyses of how the tax burden has shifted following a series of tax cuts beginning in 2011, the most recent in the 2021 budget.
The report draws on data from the Legislative Fiscal Bureau and the Wisconsin Department of Revenue (DOR). To map the state population by income, it uses DOR figures for adjusted gross income, or AGI — which leaves out some forms of income, such as Social Security benefits.
“Wisconsin’s income tax remains relatively progressive,” the report states. But the gap between the tax rates for the highest income groups and those with the lowest incomes has been shrinking, making the tax “less progressive over time.”
For the bottom 20% of Wisconsin taxpayers with incomes of less than $8,460 a year, average tax rates have risen from 1980 to 2020, the report states. The tax rate for that lowest one-fifth of taxpayers was about two-tenths of a percent of their incomes 1980; by 2020, the rate had more than doubled to half of a percent — 0.5%.
Meanwhile, tax rates for the top 1% of taxpayers fell to 5.5% from 7.9% over the same period.
Income is becoming more concentrated among the highest-earning state taxpayers, the report finds, and “incomes have risen much more quickly for top earners in Wisconsin.” After adjusting for inflation, the average income of the top one-tenth of 1% in 2020 was four times what it was in 1980. For the bottom 20% of taxpayers, average income in 2020 was less than half what it was for that group in 1980.
While the top earners account for a greater share of state income tax dollars, their share has risen less quickly than their share of overall incomes, the report notes.
A tax cut included in the 2021-23 budget that took effect in July 2021 was the largest of dozens of reductions in state individual and corporate income taxes since 2010, according to the report. The change, which reduced the tax rate for payers in the state’s third income tax bracket to 5.3% from 6.27%, will reduce state tax revenue by $1 billion a year starting in 2022.
And state tax revenues will be $2.7 billion less annually than they would have otherwise as a result of 82 changes — three cuts for every increase — in state taxes for individuals and corporations since 2011. That is equivalent to the general fund budgets of the University of Wisconsin System plus the Departments of Corrections and of Agriculture, Trade, and Consumer Protection for one year.
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