Who Pays Taxes? We All Do
True or False: In Wisconsin, working class taxpayers pay a higher percentage of their income in state and local taxes than higher-earning taxpayers do.
Given much of the new coverage on tax issues, and the rhetoric of some policymakers, it’s understandable why a person would guess “False.” But in fact, in Wisconsin and in nearly every other state in the country, working class people pay a higher percentage of their income in state and local taxes than do taxpayers who are better off.
In Wisconsin, individuals earning less than $20,000 per year paid 9.2 percent of their income in taxes, while the top 1 percent paid only 8.0 percent of their income in taxes, according to a report from the Institute for Taxation and Economic Policy. When you take into account the fact that Wisconsin allows state taxpayers to deduct their federal income taxes on their state tax returns, the difference is even greater: 9.2 percent of income paid in taxes for people earning under $20,000 and 6.7 percent for the top 1 percent of earners, as shown in the chart below.
If low-income people pay a higher percentage of their income in state and local taxes, why is there so much rhetoric to the contrary? Some analyses take a selective look at taxes, and include only the individual income tax. Working-class taxpayers in Wisconsin pay little in state income taxes, but pay a much more of their income in sales and property taxes than higher-earning taxpayers do.
Several actions by the Wisconsin legislature mean that the tax gap between working-class taxpayers and those that are better off is likely to widen:
- The Legislature increased the amount of taxes that working families with children will pay, by cutting the state’s Earned Income Tax Credit by $56 million over two years. This means that 140,000 Wisconsin taxpayers will get smaller refunds this year. A single mother with three children, working at the minimum wage saw her tax credit for 2011 shrink by more than $500.
- Thousands of seniors and working-class families are paying higher property taxes, because the legislature voted to stop adjusting the Homestead Credit for inflation. The result is that low-income seniors will have a harder time staying in their homes.
- The best-off taxpayers are paying less in taxes, thanks to last year’s budget, which cut taxes on capital gains income.
Lower-income taxpayers in Wisconsin already pay a higher share of their income in state and local taxes than higher earners do. The legislature should be working to close that gap, not widen it.