Wisconsin residents paid less of their collective income in state and local taxes last year as that figure dropped to its lowest level in decades, according to a new report.
While the amount of state and local tax collections increased in the fiscal year that ended June 30, the increase was outpaced by income growth.
All told, state and local taxes amounted to 10.2% of personal income in the most recent fiscal year, down slightly from 10.3% in the previous fiscal year, marking the lowest point since at least 1970, according to the nonpartisan Wisconsin Policy Forum.
Total state and local taxes in Wisconsin climbed 2.3% from less than $31 billion in 2019 to $31.7 billion last year, while personal income increased by 3.4%.
State and local taxes as a share of income also dropped below the national average for only the second time in decades, according to the Policy Forum.
Taxes as a share of income have been on a downward trajectory since 1994, when the rate was 13.1%.
Wisconsin’s tax-to-income ratio ranked 23rd-highest in the nation in 2018, the most recent year that U.S. Census data is available. The state ranked 17th-highest in 2017.
“At every level of government, taxes in Wisconsin generally have been falling for decades as a share of residents’ income,” according to the Policy Forum. “Wisconsin has dropped to the middle of the pack for taxes as a share of income despite lower per capita income (than the U.S. average) and below-average levels of federal aid.”
The tax-to-income ratio is a snapshot of overall state totals, and individual taxpayers may have different experiences due to differing levels of income and taxes in any given year, particularly during the ongoing pandemic. In December, the state reported it had ended the most recent fiscal year with a positive balance in the general fund using a standard accounting method for the first time in at least three decades.
However, one major question for the state moving forward is the ongoing COVID-19 pandemic, which has had a devastating impact on businesses and employees across Wisconsin.
The Policy Forum reported in December the state could face the most challenging budget session in a decade this year as spending is projected to exceed revenues by about $373.1 million — without taking into account Medicaid costs and new spending requests from state agencies.
The COVID-19 pandemic is expected to weaken both tax collections and the economy, as well as residents’ income, according to the Policy Forum. What’s more, pending budget challenges could force state lawmakers to consider tax increases or cuts in aid to local governments.
“With the economy unsettled and life-and-death demands being placed on state and local agencies, the next year will pose a difficult test for policymakers,” the Policy Forum report said. “At issue will be balancing the goals of maintaining both low tax burdens and sufficient resources for state and local governments to address the lingering service demands and economic after-effects of what we hope will be in time a fading global pandemic.”
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