Income Tax at Historic Lows in Wisconsin, but Legislators Want to Cut it Further
Changes Could Cut Taxes for Biggest Earners, Raise Taxes for Everyone Else
Wisconsin residents pay far less in income taxes than they did twenty years ago, yet state legislators have declared cutting income taxes to be one of their top priorities for next year. Such a move could make it more difficult to make investments in our public school system, keep higher education affordable for families, and maintain the safety of our roads and communities.
The amount of income taxes Wisconsinites pay has declined over the last 20 years. Measured as a percentage of personal income, Wisconsin income taxes have declined from a high of about $40 per $1,000 in personal income, to about $31 in 2012, as shown in the chart below.
The amount of income tax that Wisconsinites pay is likely to drop again in coming years, when several large tax cuts are fully phased in. Over the next five years, these phased-in tax breaks mean that the state will collect an estimated $1.2 billion less in revenue than it would if tax law had been frozen at the 2012 level. Of that amount, $704 million is revenue lost from income tax breaks.
Even though Wisconsinites are paying a smaller share of their income in income taxes than they have in past years, policymakers have targeted income tax cuts as a top priority when the legislature returns to session in the beginning of 2013. The income tax is by far the largest source of revenue the state uses to support school systems, help working families get access to health care, and keep higher education affordable. Significant income tax cuts, and the loss in revenue that would generate, could translate to big financial hits to those programs.
There are no specific proposals for changes to the Wisconsin’s income tax at this point, but some legislators have said they favor flattening the income tax. Depending on how that is implemented, flattening the income tax could mean that big earners would pay less in taxes that they do now, and others would pay more. After the hefty tax increase for working families included in the last budget, Wisconsin doesn’t need another tax increase on those least able to afford it.
There are plenty of ways to reform Wisconsin’s income tax system for the better. Instead of reducing tax revenue and making it harder to balance the state’s books, we should make sure that top earners pay their fair share in taxes, and devote the resources we need to enforce the tax laws already on the books.