The state of Wisconsin and local governments extracted the most taxes ever from Wisconsinites in fiscal year 2022. Wisconsinites had the lowest combined state and local tax burden in at least fifty years in fiscal year 2022 (FY22). Both of those statements are true according to a report from the Wisconsin Policy Forum. What does this mean for the upcoming budget debate?
That is the data. What does it tell us? First, it tells us that the state and local government coffers are brimming with cash right now. Ignore the pleas of poverty from your favorite government entity. Many units of government have surpluses and will be using that as an excuse to increase spending in their next budgets. In state government, not even the Republican-led Legislature is talking about returning all surpluses to taxpayers.
Instead, they are talking about modest tax reductions combined with more spending.
Second, while tax burden as a percentage of personal income is decreasing slightly, personal income is still not keeping up with inflation. According to the U.S. Congress Joint Economic Committee, as of November of 2022, the annual cost of inflation for the average Wisconsin household since January of 2021, the last month we had a normal inflation rate, is $8,299. That is an 14.1% in household costs in less than two years. While personal incomes are increasing, the cruel cost of inflation is leaving Wisconsinites with less actual buying power every month.
Third, it could have been worse. The reason that state and local tax collections only rose 4.1% in FY22 is thanks to over a decade of relatively consistent tax policy discipline by the Republicans. Think back to the successive state budgets by the Republicans in the Governor Walker era and even in the previous budget when they kept the caps in local property tax increases, cut income tax rates, eliminated the state property tax, and dozens of other choices. These choices have resulted in slowing the rise of tax collections.
Thanks to Republican policies, state individual income taxes actually decreased by 0.7% in FY22 and net property taxes only grew by 0.8%. The aggregate tax collection increases were almost completely driven by an increase of 9.5% in state sales tax collections as a result of inflationary consumer prices. Corporate income tax collections were up a stunning 15.6%. Corporate income tax collections are thrice as much as they were in 2018. Interestingly, this increase is mostly due to more robust auditing of out-of-state businesses that was launched in the 2015-2017 state budget by, you guessed it, legislative Republicans and Governor Scott Walker. Corporate tax rates are not increasing, but the state is better at collecting what corporations are obligated to pay.
The decade-long effort by Republicans has resulted in a systemic shift of the tax burden from individual income and property taxes to consumption and corporate taxes. This has also resulted in record tax collections and annual state budget surpluses. Those surpluses are not the dividends of spending discipline, but of intelligent tax policies.
As state lawmakers consider the next budget, they should not take too much of the fact that the tax burden as a percentage of personal incomes is at a historic low. That metric must be understood in the context of the inflationary pressures on Wisconsin’s taxpayers from all angles and the overall cost of living in the state. Flush state coffers should be viewed as an opportunity to put more money back into the pockets of Wisconsin’s taxpayers to help them contend with the rising cost of living.
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