The following is a point-by-point battery of tax information that will hopefully dispel some common myths and place the taxation discussion in context.
For fiscal year 2002, state and local government spending averaged 19.9 percent of total state income. Wisconsin averaged 21.4 percent, which ranks 18th among the states. And in the middle among neighboring states: Iowa 21.6, Minnesota 21.5, Wisconsin 21.4, Michigan, 20.3, and Illinois 18.1. Yet somehow the media and special interests would have you believe spending is out of control. It isn’t.
Over the last 20 years, spending in Wisconsin has declined steadily relative to the U.S. average, and is now half of the level it was in the mid-80s. Pundits and radio talking-heads bellow about excessive spending and such. They’re wrong and willfully misinforming the public.
There’s been no surge in state and local taxes, which now take a smaller percentage of total income than in the 1980s and ‘90s. Milwaukee taxpayers pay a smaller proportion of their income in city property taxes than do almost all their suburban neighbors in Milwaukee County. Yet from some of the articles being written most lead one to believe the City is overly expensive and the suburbs are a bargain. Yet the reality is almost just the opposite as far as tax efficiency is concerned.
Here are property taxes as a percent of income: 1960 – 2.61%, 1970 – 2.86%, 1980 – 2.76%, 1990 – 2.29%, 2000 – 2.26%. This illustrates how important it is to put things in context and to frame the topic being discussed. As a percent of income, taxes haven’t increased as much as wages. So even though the dollar amount on your property tax bill has increased (the work of inflation and higher assessments due to a booming market), on average, so have your paychecks (even though barely, again, accounting for inflation). One thing to remember - even though, let’s say your home appreciated by 10 percent, that does not mean your property tax is going up 10 percent. The bill depends on 1) the overall appreciation occurring in the real estate market and 2) the total City budget. So, if all values averaged a 12 percent increase, chances are, your bill will go down. And, if you’ve see any pay hike at all, your property taxes are now an even lower percentage of your total income. It should also be pointed out that these taxes pay for: City services, County services, public schools, MATC, and MMSD. The array of services and amenities provided are quite a bang for the buck.
The most accurate way to compare taxes in Wisconsin with those of other states is to look at all the forms in which taxpayers give money to support state and local government, Such as state taxes (income and sales), local taxes (property taxes and sales), and fees for services. On this broadest measure of how much government takes from its citizens, Wisconsin ranks 15th. Wisconsin funds services more from taxes than fees. Again, putting things into perspective, taking a more holistic view, we see that Wisconsin is not the tax hell certain factions claim it is.
Increases in individual income and property taxes are due to the decade-long shifting of tax burden from businesses to individuals. A series of exemptions for business property over the last 30 years has significantly reduced business property tax costs. This, in turn, has increased the taxes paid by homeowners, from below 50 percent of property taxes in 1970 to nearly 70 percent today. When businesses pay less, homeowners pay more. The next time you here some supposed expert pushing for lower taxes, try to get a handle on the fine print. The majority and consensus of research has shown that lower taxes alone do not attract nor create jobs. The next time someone says we need to provide a subsidy, create a TIF, exempt a business, provide a tax break, etc., be very leery. There is no free lunch. A tax deduction for business is an increase for homeowners.
The fiscal gaps of the early 1990s were closed by raising regressive sales and excise taxes. Taxes were not raised on the rich, corporations were not asked to pay more. This is just another example of how those with the most means are not asked to sacrifice for the sake of community. When budget gaps need to be closed, average taxpayers pay more, and/or services for those taxpayers are cut. Concurrently, corporations and other well-connected are sheltering income, avoiding taxes, and putting their hands out for taxpayers subsidies. We have gotten rid of welfare as we knew it. Too bad it has morphed into an inverse Robin Hood scheme, where, today, the primary welfare recipients are the well-to-do.
The share of Wisconsin taxes generated by corporate income taxes dropped by over 50 percent between 1979 and 2002 from 11.3 to 5 percent. The share of income taxes paid by working families grew from 47.4 to 54.5 percent. A 2000 review of state records showed that 11 of the 15 largest banks paid no corporate income tax. In the business year ending 2002, almost 2/3 of Wisconsin businesses subject to tax reported no income and paid no corporate income tax. Of the 4,851 corporations with total revenue of at least $100 million, 65 percent paid Wisconsin corporate income of $0 in 2003. These businesses sure are exemplary corporate citizens. If only there were a way for two-thirds of the citizenry to avoid paying income taxes.
Since the 1980s, the federal government has been steadily shifting more responsibilities to the states. Between 2000 and 2003, the United States saw a federal-to-state tax shift of historic proportions: the share of total tax burden borne at the state and local level jumped 15 percent. This is the largest shift since 1947-50. Since 1962, the share of total federal receipts collected from the regressive payroll tax has risen from 17 percent of total receipts to 40 percent, an increase of 135 percent. Meanwhile, the total share supplied by progressive income and corporate taxes has dropped from 63 percent of total receipts to 52 percent, a decline of 17 percent. Since 1962, the share of federal revenues contributed by corporations has declined by two-thirds, while the share contributed by individuals has risen 17 percent. If you’re beginning to see a trend here – the rich paying less, average taxpayers paying more – you’re very perceptive.
State tax policy has grown in importance because of its use as an instrument to foster economic development. Over the past 25 years, state governments have engaged in wasteful competition against each other for business investment and jobs. The sales and use tax accounts for nearly one-third of state tax revenue. The personal income tax replaced the sales tax as the single most important source for revenue for the states, which accounts for about one-third of state tax revenue. The corporate income tax accounts for less than 6 percent of state tax revenues. State property taxes and estate taxes generate very little revenue (less that 5 percent of total state revenue). Specialized excise taxes account for approximately 20 percent of total state tax revenue. The states collect about 40 percent of their total revenue through taxes. And more and more, through the years, average citizens have been shouldering more of the burden.
In 1997, Citizens for Tax Justice concluded that Wisconsin’s corporate tax burden ranked 44th in the nation. A Federal Reserve Bank of Boston study, in 2003, found that Wisconsin ranked 50th among all states and the District of Columbia in terms of the share of total state and local taxes paid by business. The Institute for Taxation and Economic Policy found Wisconsin’s corporate tax rate was 26th nationally when measured as a percent of individual income taxes. A January 2004 study undertaken by Ernst and Young found that Wisconsin ranked 45th nationally in the share of all state taxes paid by corporations. The share of taxes paid by business declined 47 percent during the last 30 years. Business doesn’t pay squat here in Wisconsin. These stats just underscore the shamelessness of the corporate community and their talking heads when they beg, plead and lie for more tax breaks. What we have established is a commitment-free business community, whose social costs are almost completely incurred by taxpayers. So, not only are taxpayers covering the majority of costs for the services we all desire, taxpayers are also filling the coffers of corporate crooks whom have been steadily siphoning more and more public dollars into private accounts through subsidies, tax breaks, tax havens, and such.
Workingmen and women pay about 80 percent of Wisconsin’s general purpose taxes. Workingmen and women also pay the majority of property taxes statewide (68 percent), while industry’s share of the property tax declined from 18 percent to 4.5 percent between 1970 and 2004. And guess who gets to make up that 13.5 percent decline in the share of the property tax paid by business? You do, silly, the average homeowner.
The tax rates for the highest income households in Wisconsin dropped from 10.8 in 1977 to 6.75 in 2002. In Wisconsin in 2002, the richest one percent of taxpayers paid 8.1 percent of their income in state and local taxes, the least by far of any income group, and only 5.9 percent after deducting from their federal taxes. The poorest 20 percent of taxpayers paid 10.2 percent in state and local taxes in 2002, and middle-income taxpayers paid the most, 11.9 percent. Now can’t we all agree that this should be the other way around? Those with more means should pay more. We have been creating and solidifying an impoverished underclass, due to our regressive policies and increasing inequality. We are giving a hand to those who need it the least. I’d rather see $400,000,000 in our taxes go to creating 1,000 jobs, paying $40,000 a year, for 10 years; rather than seeing $400,000,000 go to Miller Park.
Since 1974, residential property owners have carried and even greater tax burden with the reduction in manufacturing property tax revenue due to the establishment of the Machinery and Equipment deduction which eliminated as much as 50 percent of the property tax revenue in some communities. This is just another lobbying triumph of the business community that transferred more of the tax burden onto everyday citizens.
And, for those who say we pay too much for education: Only 24 percent of Wisconsin adults 25-and-over are college graduates, which ranks the state 32nd in the country. With all the talk of the “knowledge-based economy” and the importance of having a college- educated workforce to fill jobs and for creating new ones, this ranking doesn’t bode well for Wisconsin’s future.
Per-person income in Wisconsin has been below the national average for several decades, and was 2.3 percent below in 2003. Hmmm, so we’ve been earning less than the average and yet we’re being continually asked to pay more so that more well-off individuals and businesses can pay less. Isn’t a big selling point of the lower-taxes cabal that by allowing the rich to pay less, in turn it will help grow business, thereby increase jobs and wages? But if empirically we see that isn’t true, isn’t it about time we say enough is enough?
State and local taxes play a relatively small part in business location decision-making. The facts are in, the research has been done. Many other factors, well ahead of taxes, weigh much more heavily in business location decisions than taxes. Continuing this bribery and shake-down policy only exacerbates inequality, makes average taxpayers pay more than their fair share, contributes to inefficiency and wastefulness, and simply transfers money from workers to the rich.
Brunori, David State Tax Policy: A Political Perspective.
Collins, Chuck; Chris Hartman; Karen Kraut, and Gloribell Mota 2004 “Shift Tax Cuts” United for a Fair Economy. April.
Institute for Wisconsin’s Future 2006 “TPA/TABOR Jr.: A State Fiscal Illusion.” Feb.
Institute for Wisconsin’s Future. “Project Taxes: Tax Fairness”
Johnson, Nicholas and Daniel Tenny 2002 “The Rising Regressivity of State Taxes.” Center on Budget and Policy Priorities. Jan.
Norman, Jack 2005 “Exposing the Wisconsin Tax Hell Hoax.” Institute for Wisconsin’s Future. Jan.
Norman, Jack 2003 “Some facts about property taxes in Milwaukee.” Institute for Wisconsin’s Future. Nov.
Statz, Bambi 1997 “Windfall for the Wealthy.” Institute for Wisconsin’s Future. Jan.
Wisconsin Education Association Council. 2004 “Tax Shifting and Business Taxes in Wisconsin.” Research Bullets. May.