Wisconsin’s Tax System Exacerbates Growing Gap between Rich and Everyone Else

Friday, April 14, 2017 at 8:02 AM by

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 those who struggle hardest to make ends meet. It’s becoming harder to make it to the middle class and stay there.

Wisconsin’s state and local tax system, like the tax systems in most states, makes this problem worse. 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 financially-stressed families to pay 8.9 cents out of every dollar they earn in state and local taxes, while the wealthiest households pay just 6.2 cents out of every dollar of income. And many corporations pay little or nothing in income taxes.

Best off pay smallest share of income in taxes

Wisconsin’s middle class, once one of the strongest in the country, has shrunk more quickly than in any other state. That trend should set off alarm bells for state policymakers, who should be using the tax system and other tools to help people work their way up the economic ladder. Instead, state lawmakers have focused on passing tax cuts that give big benefits to powerful special interests and do little or nothing to improve the lives of Wisconsin residents with modest incomes.

Examples of recent state tax cuts that are slanted in favor of the wealthy and well-connected include:

  • The Manufacturing and Agriculture Credit, which allows manufacturers and some other businesses to pay next to nothing in state income taxes. Tax filers with incomes of more than $250,000 receive 93% of the value of this credit, leaving just 7% for everyone else. The cost of this credit has ballooned far beyond the amount that state lawmakers anticipated when they passed the tax break in 2011. Over a seven year period starting in 2013, the cost overrun for the credit compared to the original estimate is expected to add up to a stunning $805 million. (For more about the Manufacturing and Agriculture Credit, see The Big Giveaway is Getting Bigger: Updated Figures Show Growing Tax Credit is Inefficient, Costly, Wisconsin Budget Project, February 2017.)
  • A tax credit for private school tuition, which Wisconsin lawmakers passed in 2013. Families making $100,000 and above made up just 13% of the tax filers – but they claimed two-thirds of the private school tuition tax cut.
  • An income tax rate cut for those with the highest incomes. As part of broader tax cut package in 2013 state lawmakers reduced the top income tax bracket from 7.75% to 7.65%, reducing income taxes for married-joint filers who earn more than about $320,000 and single filers who earn more than about $240,000.

In Wisconsin, the top 1% is thriving, with the share of income going to the top 1% in Wisconsin reaching record levels. We need to make sure our tax system doesn’t give the top 1% an additional advantage at the expense of taxpayers of more modest means.  Instead of looking for new ways to cut taxes for people with the highest incomes, state lawmakers should turn their attention to making investments that help Wisconsin communities and families thrive.

Tamarine Cornelius

One Response to “Wisconsin’s Tax System Exacerbates Growing Gap between Rich and Everyone Else”

  1. […] (For more on how Wisconsin’s state and local tax structure is slanted towards the best off, read Wisconsin’s Tax System Exacerbates Growing Gap between Rich and Everyone Else, April 2017.) If lawmakers change the income tax rate structure from a progressive one to a flat […]