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Wisconsin no longer in top tier of states with highest taxes relative to income

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During the past two decades, the amount of taxes Wisconsinites pay relative to their income has dropped from seventh-highest among the states to 19th-highest, according to a new report from the nonpartisan Wisconsin Policy Forum.

The report, based on the latest available Census Bureau data, found that 10.3% of Wisconsin residents’ income went to taxes in 2017. Twenty years earlier, taxes consumed 12.4% of residents’ income.

That decline in the portion of income residents pay in taxes was the eighth-largest among all states and second-largest in the Midwest, behind only Indiana, the report found.

Republicans in particular have long derided Wisconsin as a state with high taxes, although one reason taxes as a share of income ranks higher than other states is because Wisconsin per capita income is about 5% lower than the national average.

To help improve Wisconsin’s tax climate compared with other states, lawmakers created strict local property tax limits and cut income tax rates in recent decades.

According to the report, state and local governments in Wisconsin spend at levels comparable to other states, but they tax a little more because the state receives significantly less on average in federal aid. State residents also pay less in user fees than other states, though the state recently increased the vehicle registration fee, and many municipalities — including Madison — have created new vehicle user fees.

An October report from the Pew Charitable Trusts found that 26.3% of the state’s budget came from federal dollars, ranking Wisconsin 45th among states in its ability to harness federal funds.

“Wisconsin relies heavily on income and property taxes, and much less so on sales taxes, fees and federal aid,” according to the report. “Some actions by state officials in recent years have served to nudge the state toward a more balanced set of revenues.”

Meanwhile, the University of Wisconsin System in-state tuition freeze limits state revenue from fees and Republican resistance to expanding Medicaid coverage allowed under the Affordable Care Act has reduced the state’s share of federal aid compared with other states.

“Receiving fewer federal dollars means the state is less dependent on the future actions of Congress but more reliant on state and local taxpayers in the present,” according to the report. “Ultimately, elected officials and the voters themselves must choose the mix of taxes and other revenues, determine the state’s spending priorities, and then accept the inevitable trade-offs that come with them.”

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