Around 10.2% of Wisconsinites’ income went to state and local taxes in the 2020 fiscal year, the lowest level since at least 1970, according to a new report from the Wisconsin Policy Forum.
The most recent data comparing Wisconsin to the rest of the country gives the state the 23rd highest tax burden in the country for 2018, down from 17th in the previous year, the report says.
Only Michigan, ranked 30th with a 9.6% burden, had a smaller tax burden among neighboring states. Minnesota ranked seventh in the country at 11.8%, Illinois was 12th at 10.9% and Iowa was 13th at 10.8% of personal income going to taxes.
The fiscal year data used in the report covers the period through June 30, 2020, meaning some of the impact of the COVID-19 pandemic is included.
“So far during the pandemic, tax collections and personal income in Wisconsin have held up relatively well,” the report says, noting the federal CARES Act injected billions of dollars into the state’s economy through stimulus checks, increased unemployment benefits, PPP loans and other programs.
Total state and local tax collections were up 2.3% to $31.7 billion in 2020, the report says, noting a faster rise in personal income helped push the tax burden down.
The Wisconsin Policy Forum uses personal income data from the most recent full calendar year for its calculations. Personal income increased 3.4% in 2019 and 3.1% on a per capita basis.
Because of the report’s methodology, the declining tax burden is not the result of growing personal income from the CARES Act and other government payments. Personal income was up at a nearly 36% annualized rate in the second quarter of 2020, behind a jump in government payments even as wages fell more than 16%, according to data from the U.S. Bureau of Economic Analysis.
On individual taxes, the WPF report found:
- State income tax collections dropped 2.8% to $8.74 billion amid lost earnings, lower investment income and decreased business profits for owners reporting income on individual returns. Final tax payments were also delayed from April to June and ultimately to July 15.
- Sales tax collections increased 2.5% to $5.84 billion, the slowest growth in a decade. Collections were hurt as bars, restaurants and hotels were hit by the pandemic, but a new law allowing for more collections of online sales boosted collections by $257 million.
- Corporate income tax collections increased 20.2% to $1.61 billion. The report attributes the increase to an increase in state auditors, more businesses filing as corporations and federal aid boosting businesses as well as workers.
- A new tax on vaping products brought in $1.3 million, less than the expected $2.3 million.
- Cigarette tax collections rose 1.8% to $524 million after falling for several years.
- Other tobacco tax revenue increased 6.9% to $91.4 million.
- Liquor and wine tax collections increased 2.2% to $54.8 million, beer tax revenues were flat at $8.5 million.
- Fuel taxes dropped 4.1% to $1.02 billion
- Vehicle registration fee revenue was up 19.2% to $839.2 million, partially the result of an increase in the fee from $75 to $85.
- Driver’s license revenues fell 3.9% to $39 million as the pandemic led to a backlog of road tests.
The report notes that the most recent round of federal COVID-19 relief could help support tax collections but also notes “the pandemic will weaken tax collections and the economy” in the near term.
“With the economy unsettled and life-and-death demands being placed on state and local agencies, the next year will pose a difficult test for policymakers,” the report says. “At issue will be balancing the goals of maintaining both low tax burdens and sufficient resources for state and local governments to address the lingering service demands and economic after-effects of what we hope will be in time a fading global pandemic.”
