Wisconsin Taxpayer Magazine One Hundred Years and Counting: Wisconsin’s Income Tax: History, Process, and Filers
March 2016 • Vol. 84 No. 3
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- Press Release
Wisconsin became the first state to tax income in 1911. Now, the income tax generates $7.3 billion annually, or about half of state general fund revenue. In 2014, two-thirds of filers had incomes under $50,000 and paid 9.4% of taxes. A majority of income (52.2%) and taxes (56.7%) can be attributed to the 31% of filers in the $50,000-to-$200,000 income range. Those with incomes over $200,000 filed 2.5% of returns but paid more than one-third (33.9%) of taxes. Across all income groups, the average effective income tax rate was 4.2%.
Todd A. Berry or Stephanie Rubin
Most Wisconsin Taxpayers Saw Income Tax Cuts In Recent Years
After Recent Legislative Changes, WISTAX Report Reexamines The State Income Taxdownload press releasee-mail this link to a friend
MADISON—Most—but not all—filers have experienced a state income tax cut since 2008, according to a new tax-season report prepared by the Wisconsin Taxpayers Alliance (WISTAX), a nonpartisan research organization now celebrating its 85th year. “Over the past seven years, Wisconsin’s income tax has undergone several waves of major change, and we thought a multi-year, cumulative look was overdue,” explained WISTAX President Todd A. Berry.
During 2008-14, married filers with incomes between $20,000 and $200,000 experienced tax cuts ranging from 3.9% to 32.1%. Taxes fell the most (32.1%) for those with incomes between $20,000 and $50,000. Their average bill dropped from $688 in 2008 to $467 in 2014. Taxes also fell for filers with incomes between $50,000 and $100,000. The average decline was 7.6%, from $3,167 to $2,926.
However, not all income taxpayers had tax reductions. Due to a new top tax bracket created in 2009, taxes for filers with incomes over $500,000 rose an average of 5.7% from $74,107 in 2008 to $78,345 in 2014. Those with incomes under $20,000 also saw an increase from 2008 to 2014. However, as a group, these filers pay no income tax; in fact, due to refundable tax credits, the state writes them a check.
Although the governor and legislature added a new top tax bracket in the 2009-11 state budget, the focus since has been on cuts. In 2013, all rates were reduced and the five brackets were reduced to four. The top rate was trimmed from 7.75% to 7.65%, although that was higher than at any time since 1986. The bottom rate has been dropped more—in two steps from 4.6% in 2012 to 4.0% in 2014.
Despite recent income tax reductions, Wisconsin remains a relatively high income-tax state. According to the U.S. Census Bureau, income taxes claimed 3.0% of personal income in 2013, 7th highest among the states and above the national average (2.3%). Per capita, Wisconsin collected $1,262 in income taxes in 2013, 11th most in the country.
While the Badger State last year had 3.0 million filers reporting $157.8 billion of adjusted gross income and paying $6.6 billion in income taxes, who files, who reports income, and who actually pays the tax varies significantly with income. Two-thirds of filers had Wisconsin adjusted gross income of less than $50,000. This group of filers claimed 23% of income, but they paid only 9.4% of taxes. The vast middle—filers with incomes between $50,000 and $200,000—reported a majority of both income (52.2%) and taxes paid (56.7%), but only comprised 31% of filers. Those with incomes over $200,000 comprised a small fraction (2.5%) of taxpayers. However, they reported a quarter of income and paid more than a third of state income taxes. More than 90% of net taxes were paid by the third of filers with incomes over $50,000.
Due to various deductions and credits, the average income tax rate people pay is lower than the rate specified in law. Average rates are fairly low for those with low incomes, but, reflecting a “progressive” tax, they rise rapidly with income. Filers with incomes below $50,000 paid an average effective rate of 1.7%; however, most of that was paid by filers with income between $20,000 and $50,000. The average rate for filers with less than $20,000 in income was negative (-1.5%). The average effective rate rose to 4.5% for filers with $50,000 to $200,000 in income, and reached 5.7% for filers incomes above that range.
With piecemeal legislative changes to the state income tax, the WISTAX report notes that the process for calculating income taxes has become more complex over the years. In the last four years, the number of pages of instruction for the state’s long form, Form 1, has grown from 33 in 2011 to 58 in 2015.
Another issue that remains a problem with Wisconsin law is equity. The income tax continues to have a “marriage penalty,” and retired residents pay significantly less in taxes than younger residents, even those with like incomes. WISTAX also noted the ongoing discussion about whether Wisconsin’s tax structure needs updating and rebalancing to minimize any adverse economic consequences income taxes might have.
For more information, a free copy of The Wisconsin Taxpayer report, “One Hundred Years and Counting: Wisconsin’s Income Tax: History, Process, and Filers” is available by calling 608.241.9789; emailing firstname.lastname@example.org; visiting www.wistax.org; or writing WISTAX at 401 North Lawn Ave., Madison, WI 53704-5033.