Wisconsin’s Tax System Requires the Least from Those Who Have the Most

Wednesday, November 21, 2018 at 9:00 AM by Tamarine Cornelius 
 
http://www.wisconsinbudgetproject.org/wisconsins-tax-system-requires-the-least-from-those-who-have-the-most-2 
 
Wisconsin is a better place for everyone when hard-working families 
are able to provide for their families and climb the economic ladder. 
But when the lion’s share of economic gains goes to a small number of 
wealthy and well-connected individuals who have rigged the system for 
their own benefit, it is more difficult for Wisconsin families to get 
ahead. Wisconsin’s tax system contributes to the growing concentration 
of wealth by calling on the richest residents to pay the smallest 
share of their income in taxes, and requiring residents with low and 
moderate incomes to pay more than their fair share. 
 
Wisconsin residents with the lowest incomes pay about a third more of 
their income in state and local taxes than the wealthiest residents, 
according to new figures from the Institute on Taxation and Economic 
Policy. The poorest 20% of Wisconsin residents—a group with an average 
income of $14,700—pays 10.1 cents out of every $1 of their income in 
state and local taxes on average. In comparison, the richest residents 
of Wisconsin, who have an average income of $1.2 million, pay just 7.7 
cents out of every $1 in income in state and local taxes. 
 
Wisconsin is one of 45 states that taxes poorer residents at a higher 
rate than richer residents. Our neighbor Minnesota is one of the 
states that provides a model for a better tax system, one that taxes 
poorer residents a smaller share of their income and the richest 
residents a higher share. In Minnesota, taxpayers in the lowest 20% by 
income pay 8.7% of their income in state and local taxes on average, 
lower than the 10.1% paid by the lowest income group in Wisconsin. 
That relationship is reversed at the highest income level: The top 1% 
in Minnesota pays 10.1% of their income in taxes on average, compared 
to just 7.7% in Wisconsin. 
 
Our rigged tax system is a major driver of inequality and contributes 
to the increasing concentration of income and wealth in a few 
hands—hands that are most likely to be white, due to a long history of 
racial discrimination. The recent tax changes at the federal level 
under the GOP Tax Plan also demonstrate how our tax system can be 
manipulated to funnel resources to a small group of wealthy, typically 
white individuals. The tax cuts that President Trump signed into law 
last year reward white wealth at the expense of the economic security 
of poor, middle-class households and households of color. On average, 
white households receive $2,020 from the Trump tax cuts, Latino 
households receive $970, and Black households receive $840, according 
to research from the Institute for Taxation and Economic Policy. Even 
among the ultra-wealthy, whites fare better, because the law gives 
bigger tax cuts to income earned in ways that are more typical of 
white individuals than individuals of color. 
 
Wisconsin can improve its state and local tax system in a way that 
gives all families greater access to opportunity, regardless of race, 
ethnicity, or income. Here are four steps state lawmakers should take 
to make sure Wisconsin families and communities can thrive, and what 
they’re doing instead: 
 
Boost tax credits aimed at supporting taxpayers with low and moderate 
incomes. Instead, Wisconsin lawmakers have cut and/or restricted 
eligibility for two important tax credits in recent years: the Earned 
Income Tax Credit (EITC), which gives a bigger tax refund to working 
parents, and the Homestead Credit, which keeps property taxes 
manageable for people with low incomes. 
 
Reduce tax loopholes that benefit the wealthy. Wisconsin lawmakers 
have introduced several new loopholes in recent years that direct 
resources into the pockets of the very highest earners and shut out 
nearly everyone else. One example is the state’s Manufacturing and 
Agriculture Credit, which allows the owners of manufacturing companies 
and some other businesses to pay next to nothing in income taxes. 
 
Implement highly progressive income tax brackets and rates. An income 
tax rate structure that taxes people with higher incomes at higher 
rates can counteract the effect of regressive sales and property 
taxes. In Wisconsin, the record on this is mixed: In recent years, 
state lawmakers broadened the gap between the top and bottom marginal 
tax rates, but also collapsed two tax brackets into one, giving 
taxpayers with moderately high incomes a significant income tax rate 
cut. 
 
Design a state tax system that relies more on the income tax than the 
sales tax. States with no income tax typically have a very high sales 
tax, and shift the responsibility of paying for schools, roads, and 
communities onto those who can least afford it. 
 
Tamarine Cornelius