Comparison to Other States
Wisconsin: Not a Tax Hell After All
There are many different ways to compare states based on taxes and spending. It’s best to analyze state and local revenue or spending together when determining Wisconsin’s ranking compared to other states, since certain services may be provided at the local level in one state and at the state level in another state.
One common way of looking at state and local revenues is to compare the amount of revenue raised from state and local sources across states. This includes revenue raised by the state and local governments through taxes, fees, and other sources, and does not include any revenue from the federal government. Looking at revenue from state and local sources as a percentage of income gives an indication of how extensively a state raises revenue within its borders.
Contrary to the commonly held idea that Wisconsin is high in taxes and spending, we are close to the middle among the states. Chart 9 shows that Wisconsin’s state and local revenue as a percentage of income is 16.8%, slightly above the national average of 16.3%. This means that the taxes and fees paid by Wisconsin individuals and corporations when measured as a percentage of income are slightly higher, but similar to those paid across the country.
Wisconsin’s revenue status has changed over the years. Currently, Wisconsin state and local revenue as a share of income is tied for the third lowest it has been in more than 20 years. Our ranking compared to other states has fluctuated as well, as shown in Chart 10. Wisconsin ranked fairly high in the 1980s, rose to a high of sixth nationally in 1995, and has now fallen to 21st, close to the middle of the pack. At one time, Wisconsin had fairly high taxes and fees compared to income. That is no longer the case.
Source: Wisconsin Legislative Fiscal Bureau, U.S. Census Bureau, and Bureau of Economic Analysis.
Wisconsin has a lean public sector. In 2009, Wisconsin was 7.9 percent below the national average in the number of state and local employees per capita. Only seven states had fewer public employees, measured relative to the state’s population.
Revenue Sources Compared to Other States
Wisconsin raises about the same amount of revenue as a percentage of income from state and local sources as other states, but we’re a little different in how we raise it. Compared to other states, Wisconsin gets a larger share of its revenue from the property tax and income tax, and a smaller share from sales and excise tax, and corporate income tax. Chart 11 compares Wisconsin and the national average in terms of revenue sources from state and local sources. This chart does not include federal revenue, which is discussed in the next section.
Wisconsin is similar to other states in the extent to which we raise revenue within the state. Where we are not similar is in the amount of federal government expenditures in our state. Federal funds flow from Washington, D.C. in the form of social security payments, refunded earned income tax credits, funding for food stamps, grants, procurement contracts, federal employee salaries, and other forms.
Compared to other states, Wisconsin has traditionally ranked very low in per capita federal spending. Chart 12 shows that over the last five years, Wisconsin has received on average $7,416 per capita in federal expenditures, compared to a national average of $8,829. If Wisconsin had achieved the national per capita average in federal spending, there would be an additional $39 billion per year in our state’s economy over the last five years. To a greater extent than most other states, Wisconsin must rely on revenue raised within our own borders to pay for community services.