In Wisconsin’s Tax System, Best-Off Pay the Smallest Share of their Income in Taxes
Wisconsin is a better place when we all do well. Unfortunately, while the wealthiest have seen their incomes skyrocket in recent decades, incomes have stagnated for the middle class and low-income people. It’s becoming harder to stay in the middle class in Wisconsin.
Our state tax system makes this problem worse. In fact, if you look at who pays taxes in Wisconsin, it turns out that middle-class and low-income families pay a bigger share of their incomes in state and local taxes than the wealthiest households in the state. We call on struggling families to pay 9.6 cents out of every dollar they earn in state and local taxes, while the wealthiest taxpayers pay just 6.9 cents out of every dollar of income. And many large, profitable corporations in Wisconsin pay little or no state income taxes.
Wisconsin’s Earned Income Tax Credit helps address this problem by allowing parents who work at low-wage jobs to keep more of their income, making it possible to afford basic necessities. It reduces poverty among working families in our communities, and it pays dividends over the long-term by helping kids grow up in an environment that helps them go further in school and earn more as adults.
Unfortunately, actions by the state legislature have been widening, rather than shrinking, the gap between what families with low incomes pay in taxes compared to the wealthiest households. Many of the recent income tax cuts in Wisconsin give hefty benefits to the highest earners while giving no tax break at all to taxpayers who are having a hard time making ends meet. And the legislature actually raised taxes on parents trying to lift their families out of poverty when it made deep cuts to the state’s Earned Income Tax Credit.
Another tax change enacted in 2011 that also hurts low-income families is the repeal of a statute that automatically adjusted the Homestead tax credit each year to take inflation into account. Nearly all of the state tax code is adjusted each year, which prevents inflation from eroding the size of tax deductions and from pushing middle and high income households into higher tax brackets. However, because the state has stopped making similar adjustments in the formula for calculating the Homestead credit, the number of elderly people and other low-income households who qualify for the credit is declining each year, as is the average credit for those who remain eligible.
The growing gap between the rich and everyone else is hurting economic growth, and is a major reason the recovery from the recession has been slow. Wisconsin’s tax system exacerbates this gap. Instead of focusing on tax cuts that largely benefit the highest earners, state lawmakers should turn their attention to measures that could grow the state’s economy and lift families out of poverty, such as increasing the minimum wage and reversing the recent cuts in the state’s tax credits for low-income households.