State and Local Tax Burden Falls

Taxes Take Smallest Share of Income in Decades

December 2018


A key way to compare tax burdens across states and across time is to look at them as a share of taxpayers’ personal income, or their ability to pay. Here our annual look at state and local taxes as a share of income finds them at the lowest levels in Wisconsin Policy Forum records going back to 1970.

Wisconsin’s tax burden—defined as state and local taxes as a share of income—fell in 2018 to its lowest level in nearly 50 years. Taxes accounted for 10.5% of income, down slightly from 10.6% in 2017, marking the seventh consecutive annual decrease. As we do at the end of every year, the Wisconsin Policy Forum has calculated the burden by compiling figures on federal, state, and local taxes.

The total tax burden shrank in recent years not because overall tax collections are lower than in previous years, but because incomes have continued to grow at a faster rate. State and local tax collections rose 2.3% in fiscal year 2018, while federal collections in Wisconsin grew 0.7%. The tax burden dropped mainly because total personal income grew more quickly, at 3.6%.

Even with declines in four major taxes: corporate income taxes (-2.9%), cigarette taxes (-4.5%), hospital assessment taxes (-9.9%), and unemployment tax collections (-16.2%), which have dropped steadily since the end of the Great Recession, total state tax collections increased in 2018, due largely to economic growth.

Local tax collections grew just 1.9% last year. This lower level of growth, compared to state level collections, was driven mostly by state-imposed limits on property tax levy increases and
revenue limits for school districts. Local wheel taxes, room taxes, and sales taxes have all increased in part because they are not subject to the same limits as property taxes.

While a number of major sources of state tax revenue fell this year, total tax collections increased due in part to economic expansion. To fully understand what is happening, it helps to first look at state and local trends, and then to examine each type of income and tax in more detail. Continue reading…