Wisconsin s Big Two : Income & Property Taxes

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1 A SERVICE OF THE WISCONSIN TAXPAYERS ALLIANCE The Wisconsin Taxpayer A monthly review of Wisconsin government, taxes, and public finance Wisconsin s Big Two : Income & Property Taxes IN BRIEF Wisconsin s two largest taxes, the income tax and property tax, generate more than $15 billion for state and local governments. In 2008, income tax collections totalled $6.71 billion. At 3.3 of personal income, Wisconsin s 2007 income tax collections ranked 10th highest nationally. On a per capita basis ($1,137), the Badger State was 13th. Recent income tax law changes reduced the capital gains exclusion from 60 in 2008 to 30 in 2009 and added a fifth tax bracket (7.75). In 2008, the top tax rate was In 2009, Wisconsin local governments levied $9.67 billion in property taxes, an increase of 4.5 from After $940.6 million in various state credits, property owners paid $8.73 billion, or 3.3 more than in the year prior. Also in this issue: 2008 Voter Turnout State Lottery Sales Budget Becomes Law Changing the Rules wis tax 78 Years of Research & Citizen Education Wisconsin s two largest taxes are the individual income tax and the property tax. Combined, they generate more than $15 billion for state and local governments. Wisconsin was the first state to have an individual income tax, establishing the tax in In 2008 Wisconsin was one of 43 states with the tax. Here, the income tax is the largest source of state general purpose revenue (GPR) and the state s second-largest tax, trailing only the local property tax. Many descriptions of state income tax law exist (e.g., WISTAX s annual TAXES guide). What receives less attention is the broader context overall collections, economic effects, various measures of tax burden, and comparative tax liabilities around the country. WISCONSIN INCOME TAX TRENDS Over the past decade, Wisconsin s income tax collections have not grown at the steady pace they did during the late 1980s and 1990s, when income tax rates remained largely unchanged and tax brackets were not adjusted for inflation. Since 1998, the state has experienced wide fluctuations in collections due to policy changes and uneven economic growth. Share of GPR One lens through which to view the income tax is relative to GPR. In 2008 ( ), Wisconsin income tax collections were $6.71 billion and accounted for 51.5 of the $13.04 billion in state collections (see table on page three). Since 1960, income tax collections have averaged 48.5 of GPR, 51.2 since The income tax share of state general fund revenue peaked in 2000 at Because the income tax is more affected by economic conditions than are sales or property taxes, its share of state taxes follows the economy. Prosperity during the mid-1990s led to the income tax share of GPR rising from under 50 in 1994 to 53.0 in After a tax cut and during the slowdown in the early 2000s, its share declined to 49.1 by 2004.

2 Here s the report you requested. It s our gift to you. Here s how to continue reading reports like this... Contributors of the Wisconsin Taxpayers Alliance (WISTAX ) receive our lead research periodicals free. Organized in 1932, WISTAX is a nonpartisan organization dedicated to public policy research and citizen education. WISTAX cuts through the spin of the professional politicians to give you facts.... and here s how you benefit. The most important part of being an annual WISTAX contributor is that you make sure Wisconsin s oldest and most respected source of the truth about state and local government continues its unique mission. Contributors also receive: 27 free issues of our bimonthly newsletter, Focus in-depth analysis of breaking news; Our monthly magazine, The Wisconsin Taxpayer valued research on Wisconsin government; Our annual tax guide, TAXES; Another way to stay informed. Reduced prices on special publications; Access to our first-rate research staff. Becoming a contributor is the most cost-effective way to obtain our research, but you can also subscribe to individual publications. The Wisconsin Taxpayer is our monthly research magazine that covers a wide range of topics, from state and local taxes to school test scores and municipal spending. Focus is our bimonthly newsletter offering analysis of breaking news. wis tax Date: Wisconsi isconsintaxpay axpayer ersalliance 401 North Lawn Ave. Madison, WI Phone: Fax: wistax@wistax.org Name: Organization: Address: City/Zip: I want to become an annual contributor to WISTAX and get my research periodicals free! ($89 minimum) I am contributing: $89 $100 $250 $500 Other $ I want to subscribe to The Wisconsin Taxpayer. One year, $17.97 Three years, $36.97 I want to subscribe to Focus. One year, $54.97 Three years, $ Payment enclosed Visa/MC/AmEx/Discover # Exp. Info Request

3 A MESSAGE FROM THE PRESIDENT When I think about customers and change, I recall my days in marketing, now more than a few years ago. We contemplated a minor update in the packaging of our flagship product; we shared the proposed design with consumers; and a rebellion ensued: This is the package I knew when my grandmother used your product. Don t mess with it! This was an important lesson about customers and traditions I have not forgotten. Nevertheless, we have made a change in this magazine of which I wanted you to be aware. In my 15 years as president of the Wisconsin Taxpayers Alliance, my bottom line has always been that, to be true to our mission of citizen education, we had to make our publications accessible and affordable. Through a switch to four-color covers, larger page sizes, and glossier stock, our goal has always been to hold down our price to subscribers; our donors receive it free. We are not changing our price now; and, we will continue to offer a substantial discount for threeyear subscriptions. But, with the costs of postage, printing, and paper all rising, we have decided to realize some modest savings by sending a longer, twomonth issue during the summer. Thus, this issue of the Taxpayer covers June and July and has an extra four pages compared to the normal eight. We hope you will find this necessary change reasonable. We at the Alliance are so blessed with some of the smartest, most informed, and civic-minded readers anywhere. Thank you for your continued interest and support. As always, feel free to share your thoughts and suggestions on how to make The Wisconsin Taxpayer best serve you. On, Wisconsin! Appreciatively, Todd A. Berry President continued from page 1 The relationship between the tax and the economy can also make annual revenue predictions challenging. For example, during the early 2000s recession, 2002 collections were down 4.4, or $231.8 million, from 2001 projections. As the tax accounts for a large portion of GPR, it is required to fulfill many budget commitments. When collections abruptly fall below projections, the state is faced with spending it cannot sustain. Relative to Personal Income A second way to view the income tax is relative to personal income, a broad measure of state income that includes interest, dividends, and other items besides wages and salaries. In 2008, the income tax claimed 3.3 of total state personal income. As the chart on page four (top) shows, that percentage is up from 3.1 in 2002, but down from 4.1 in The chart shows Wisconsin income tax collections relative to personal income from 1970 to It also includes 2009 through 2011 estimates based on the state budget. The ebb and flow in collections over nearly four decades is evidence of legislative actions and changing economic conditions. Fluctuations Income tax collections can vary for a variety of reasons, including short-term law changes, long-term political and policy shifts, and underlying economic forces. Short-Term Law. Income tax surcharges are used by governments to raise additional revenue without altering The Wisconsin Taxpayer Publication Number USPS Periodical postage paid at Madison, Wisconsin Subscription Price: One Year, $16; Three Years, $33 Published each month, except July, by the Wisconsin Taxpayers Alliance, 401 North Lawn Avenue, Madison, Wisconsin Postmaster: Send address changes to The Wisconsin Taxpayer, 401 North Lawn Avenue, Madison, Wisconsin phone: fax: wistax@wistax.org Web site: Officers and Board of Directors: Carol Ward Knox, Chair, Jefferson; J.R. Riordan, Vice-Chair, Madison; Jere D. McGaffey, Secretary-Treasurer, Milwaukee J.L. Adams, Beloit; M.D. Bugher, Madison; M.A. Cullen, Janesville; C.D. Fortner, Milwaukee; R.J. O Toole, Milwaukee; J.D. Quick, Manitowoc; D.R. Schuh, Stevens Point; T.L. Spero, Milwaukee Staff: Todd A. Berry, President; Kyle Christianson, Research Analyst; Dale J. Knapp, Research Director; Sandra Mumm, Business Manager; Kelly Pfeifer; Susan Ryan Page 2 The Wisconsin Taxpayer

4 the basic structure of the tax. The Badger State has used surcharges for a variety of purposes, including military bonuses ( ), emergency relief (1931, 1932), educational expenses (1949, 1959), and extra revenue during a downturn (1983). The 1983 surcharge was imposed near the end of the recession. The state imposed a 10 surtax on tax liabilities to cover subpar revenue growth. The surcharge resulted in a spike in collections during fiscal 1984 (see chart on page four). A second short-term policy change that affected collections was the repeal and reinstatement of the property tax/rent credit (PTRC) in The credit was first established in 1979 to help offset the tax burden on Wisconsin families. In a controversial 1999 move by the legislature, the PTRC was eliminated in favor of a one-time $700 million sales tax rebate. Following the PTRC repeal, income tax collections rose 15.5 in fiscal 2000, the highest increase since Roughly half the increase was due to the repeal. The credit was reinstated in 2000 and fiscal 2001 collections dropped Return of the credit contributed to the drop, but tax reductions were also partly responsible. Long-Term Shifts. Although the legislature may make changes that last only a year or two, other changes have lasting effects. Three such changes with long-term effects on the state income tax are indexing, rate changes, and S corporation filings. Indexing tax brackets (and sometimes other features of tax law) adjusts them for inflation and prevents taxpayers from moving into higher tax brackets due to inflationary increases in income (bracket creep). Wisconsin first began indexing in 1980 but suspended the provision in Indexing was repealed in 1987 and not adopted again until The effect of repeal along with a strong economy can be seen in the increasing tax burden from 1990 (3.1 of income) to 1998 (3.9). Rate changes generally have a long-lasting impact on tax collections. This was the case in Wisconsin when the state income tax remained relatively unchanged from 1986 through the late 1990s. Not until 1998 did changes occur, when tax rates were lowered and several credits were created or expanded. Amt. of GPR Amt. of GPR 1979 $1, $3, , , , , , , , , Income Taxes Are Volatile Collections ($ Millions), change, of GPR , , , , , , , , , , , , , , , , , , , , A 10 surcharge was passed in 1983, leading to the jump in 1984 collections. 2 In 1999, the PTRC was repealed, affecting 2000 collections. The following year, it was reinstated. The most recent major change to rates occurred in 2000, when they were lowered and a fourth bracket created. Rates in 1999 were 4.77, 6.37, and Over a two-year period, rates were lowered to 4.60, 6.15, 6.50, and In 2008, income tax brackets for married filers were: $0-$12,930 (4.60); $12,931-$25,860 (6.15); $25,861-$193,950 (6.50); and $193,951 or more ($6.75). The recently passed state budget added a fifth bracket, 7.75 for incomes over $300,000. Part of the decline in income tax burden from 2000 to 2002 was due to the rate reductions. The shift in business organization from the traditional corporate form to Subchapter S status affects both corporate and individual income tax collections. S corporations (named for the subchapter of the federal tax code under which they are taxed) pass their income to owners who pay individual income taxes, as do sole proprietorships and partnerships. In 1986, 800,000 S corporations filed taxes nationally. By 2003, the number of S corporations filing returns had grown to over 3 million. From 1997 to 2003 (the most recent year available), S corporation tax filings nationally increased While detailed state figures are not available, it is likely Wisconsin too experienced an increase during these years. Long-term policy changes, such as the repeal of indexing and tax rate changes, significantly affect collections. Page 3

5 In 2008, Wisconsin income taxes claimed 3.3 of personal income. WAGI ($ Thous.) Number of Total The change in filing status means that an increasing amount of business income is taxed through the individual income tax and not through the corporate income tax. This is part of the reason for above-average collection gains in the individual income tax, and belowaverage increases in the corporate income tax. Economy. Slow economic growth often leads to job loss, business closings, and stagnant incomes, resulting in declining tax collections. The recession of the early 1980s affected the state s overall tax burden (tax collections divided by personal income). The effect of the 2001 recession is noted on the chart above. As job growth and state output slowed, tax collections relative to income declined. Collections increased only 2.3 between 2001 and 2004, largely due to the struggling economy and tax cuts enacted several years prior. Just as a slow economy leads to diminished collections, growth often increases collections. During the economic boom of the 1990s, Profile of Wisconsin s Income Tax Returns, Adjusted Gross Income, and Tax by Income Group, 2007 AGI and Net Income Tax in $ Millions Returns Filed Wis. AGI Net Income Tax* Amt. of Total Amt. of Total Avg. Rate < $0 to $10 699, $1, $ to , , to , , to , , to , , to , , to , , , to , , , , , , Total 2,889, $137, $6, *Includes alternative minimum tax Tax Burden Varies by Policy, Economy Income Taxes Relative to Pers. Inc., Est. substantial economic growth, low unemployment, and a soaring stock market led to a surge in tax collections relative to income from 1992 to Who Pays In 2007, the Badger State took in over $6 billion in income taxes. Although collected from nearly three million taxpayers, tax payments varied widely. The table below shows number of filers, total Wisconsin adjusted gross income, and net income tax paid for nine income groups. Low Income. Nearly 1.5 million filers had incomes less than $30,000. This group generated $16.3 billion in income for tax purposes, or 11.9 of the state total. They paid $285 million in state income taxes (4.6 of total), at an average rate of Although this group was large in number, its income was small, mostly due to the presence of students and dependents with limited incomes, and filers with losses. Middle Income. Those with incomes between $30,000 and $100,000 accounted for 40.3 of all filers. The income of this group totalled $66.4 billion, or nearly half (48.3) of the state total. Middle-income filers paid $2.8 billion in state income taxes at an average tax rate of 4.3. Within this category, filers with incomes between $70,000 and $100,000 paid the highest average tax rate at High Income. Of the three income categories, filers with over $100,000 in income were the least numerous, accounting for 270,755 filers, or 9.3 of the total. Nearly 40 of the state s total income was reported by this group, and it paid over $3 billion in state income taxes (49.1 of the total). High-income filers paid an average tax rate of 5.52, with those at the very top ($200,000 or more) paying an average rate of NATIONAL COMPARISONS Use of Income Tax As of 2007, 43 states imposed an income tax. Only Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming did not. New Hampshire and Tennessee taxed only interest and dividends. As noted, Wisconsin state government relies heavily on the income tax. According to the U.S. Census Bureau, the tax accounted for 43.7 of state taxes in This figure differs for two reasons from the 52 figure cited earlier (see table on page three). First, the gas Page 4 The Wisconsin Taxpayer

6 tax is included in Census tax figures but is not part of state general fund collections. Second, the Census definition of taxes includes certain fees, such as those for driver s licenses and vehicle registrations. Nationally, Wisconsin ranked 12th highest for its reliance on the income tax. That was below its rank in the 1990s and early 2000s, when the Badger State hovered in the top 10. Oregon relied most on the income tax (72.3 of total revenues), largely because it does not impose a sales tax. Second highest was Massachusetts (55.2), followed by Virginia (55.1). Not surprisingly, of the 43 states with an income tax, Tennessee and New Hampshire (taxing only interest and dividends) relied least on the tax. Among neighboring states, income tax collections accounted for more than 40 of state taxes in Iowa (41.2, 14th), and Minnesota (40.7, 15th). Illinois (34.2) was 26th, while Michigan (27) was 36th. Tax Burden Tax burden is a measure of the amount of tax paid relative to some metric, often some measure of well-being. When states are compared, state income or population are typically used. At the individual level, tax burden is measured relative to a person s income. Per Capita. In 2007, Wisconsin income taxes averaged $1,137 per capita, or 13th among the 43 states with an income tax. Connecticut was highest at $1,816, while Tennessee ranked 43rd at $41. Regionally, Minnesota alone was higher ($1,406), while Iowa ($899), Illinois ($821), and Michigan ($639) were all below $1,000 per resident. Relative to Income. Wisconsin s income tax claimed 3.30 of personal income in This was 10th highest nationally and second highest regionally behind Minnesota (3.61). Oregon had the highest income tax relative to personal income at 4.52, while Tennessee again had the lowest at Rates. Because Wisconsin uses multiple tax brackets, portions of a filer s taxable income are taxed at several different marginal rates. For example, married filers with $150,000 of taxable income face a top tax rate of However, this rate applies only to part of income. In 2008, the first $12,930 of taxable income was taxed at 4.60, the next $12,930 at 6.15, and the remaining $124,140 at The top marginal tax rate is the level at which the last dollars of income are taxed. Taxable incomes above $193,950 were taxed at In 2007, married filers in Wisconsin with taxable income of $25,000 faced a marginal (top) tax rate of 6.15 (see table below). That rate was second highest regionally and 11th highest nationally. At $75,000, Wisconsin s top rate (married filing jointly) was Minnesota (7.05) and Iowa (8.98) both had higher rates. Wisconsin s rate ranked 18th nationally. Joint filers in Wisconsin with taxable income of $150,000 paid a tax rate of 6.50 on their last dollars of income. Minnesota and Iowa filers were taxed at 7.85 and 8.98, respectively, while Illinois (3.00) and Michigan (4.01) used the same rate for all incomes. Wisconsin s tax rate for these earners was 18th highest among the states. Deductions and Credits. Statutory tax rates alone are not good measures of tax burden. States may exclude large chunks of income from tax, or may provide significant credits for filers in certain income groups. One of the most unusual and important features of Wisconsin s income tax is the sliding scale standard deduction. The deduction varies based on filing status and adjusted gross income: The higher an individual s income, the lower the standard deduction allowed (see chart Tax Rates by Taxable Income and State Tax Year 2007 State/ Rank $25,000 $75,000 $150, Rate Rk. Rate Rk. Rate Rk. 1st nd rd Ill Mich Wis Minn Iowa th th st Oregon had the highest tax rate at this income, followed by Idaho and Maine. The lowest tax rate was New Jersey (41) followed by California and Louisiana. New Hampshire and Tennessee, which tax only dividends and interest, were excluded. 2 Oregon had the highest tax rate, followed by Iowa and Maine. Illinois had the lowest tax rate, followed by Pennsylvania and Arizona. 3 California had the highest tax rate, followed by Oregon and Iowa. Illinois had the lowest tax rate, followed by Pennsylvania and Indiana. Wisconsin s reliance on the income tax for state revenues was 12th highest among the states. Wisconsin s minimum tax rate of 4.60 ranks eighth highest nationally. Page 5

7 Wisconsin s sliding standard deduction is one of the main reasons the state s income tax is progressive. For lowerincome filers, Wisconsin s income tax is among the most generous in the nation. Std. Deduction by Filing Status and Income In Thousands, 2008 $20 $16 Married-Joint Single $12 HOH $8 $4 Married-Sep. $0 $0 $20 $40 $60 $80 $100 Adjusted Gross Income on page six). Once a filer s adjusted gross income reaches a level set in law, the standard deduction is zero. In 2008, single individuals with adjusted gross incomes less than $12,920 claimed the maximum standard deduction of $8,960. The deduction gradually declined between $12,920 and $87,587. Individuals with income greater than $87,587 had no standard deduction. For married couples filing jointly, the maximum standard deduction was $16,140 for adjusted gross incomes under $18,130. The deduction fell between $18,130 and $99,736, where it was eliminated. Wisconsin also provides a range of credits aimed primarily at low-income filers. In 2007, filers with incomes under $25,000 claimed credit totalling 25 of their gross tax. For those with incomes between $25,000 and $100,000, credits averaged 17.9 of tax. For filers with higher incomes, available credits generally fell, though the highest earners claimed various business and investment credits. By Income. Examining tax rates and total burdens provides some insight into state-bystate differences. A study by the District of Columbia s Office of Research and Analysis provides a more in-depth look, comparing 2007 tax burdens across states for a hypothetical family of three. To determine what filers actually pay, credits, deductions, and exemptions were included in the calculations. The study shows that a Wisconsin family of three with income of $25,000 would pay no state income tax (see chart at right). This placed Wisconsin 31st (tied for the lowest). At $50,000, the family would pay 2.9 of income, or $1,462, in income taxes (19th highest among the states). At $75,000 and $100,000, families would pay 3.9 and 4.5 of income, respectively. Wisconsin ranked 17th at the $75,000 level and 16th at the $100,000 level. At $150,000, a Wisconsin family would pay an estimated 4.9 of income, 15th highest that year. What the Washington, D.C., study does not show is the effect of refundable credits for filers with incomes below $25,000 or large families with modest incomes. For example, a recent study showed, in 2007, a single parent (with two children) earning minimum wage would pay no Wisconsin income tax and would receive more than $600 in refundable state income tax credits. Wisconsin was the 10th most generous state for low-income filers. RECENT DEVELOPMENTS Recent changes to Wisconsin s income tax have affected taxation of Social Security benefits and capital gains. Other small changes were included in the recently passed state budget. Social Security Benefits At the federal level, Social Security benefits are partially taxed. Generally, 50 or less of benefits is taxed, though in some situations, 85 can be subject to tax. Prior to 1994, Wisconsin taxed up to 50 of Social Security benefits, the same as the federal government. In 1994, the U.S. increased the maximum percentage to 85, while the state retained its 50 maximum. In the budget, state legislators exempted Social Security benefits from Wisconsin tax, effective As of 2007, 29 other states did not tax Social Security benefits, while seven taxed up to 85 of benefits. Capital Gains Capital gains result from stock market transactions as well as from selling real estate, a family Average Tax Rates Rise with Income Estimated Tax Burden and National Rank, Family of Three, st th th th 15 th $25,000 $50,000 $75,000 $100,000 $150,000 Page 6 The Wisconsin Taxpayer

8 Wisconsin Income Tax at a Glance Comparing Wisconsin s Income Tax, 2007 Feature Wis. Rank Number of Brackets 4 22 Minimum Tax Rate Maximum Tax Rate Income Tax as of Total Revenue Income Tax as of Pers. Income Income Tax Per Capita $1, business, or other investments. A major change in how Wisconsin taxes capital gains was enacted in the state budget. Historically, the federal government has taxed capital gains differently from other income. In some years, only part of the gains was taxed. And, except for 1988 through 1990, the maximum rate applied to capital gains was less than that for regular income. In 2008, the maximum federal rate for capital gains was 15. That figure rises to 20 for 2009 and beyond. Through 2008, Wisconsin excluded from tax 60 of long-term (held more than one year) gains. The state budget reduced that exclusion to 30. In Wisconsin, the taxable portion of gains is taxed at the same rate as other income. Capital losses can be subtracted from gains, but Wisconsin allows only $500 of net losses to be claimed in a tax year, while the federal government allows $3,000 of net losses to be claimed. At the state (and federal) level, filers with more than $500 ($3,000) of net losses can carry forward the excess to future years. In 2008, 14 states followed the federal government and taxed all capital gains. Another 17 taxed gains similar to the federal government, with only small differences. For example, North Carolina exempted gains from certain North Carolina obligations issued before July 1, 1995, and Kansas exempted gains from Kansas bonds. New Hampshire did not tax capital gains, while Tennessee taxed only mutual fund gains. Hawaii was the only state to have a special alternative tax for capital gains. Wisconsin was one of six states that exempted from tax a portion of capital gains. In 2008, exclusions ranged from 30 in Arkansas to 100 of qualifying gains on business assets in Iowa. The state budget permits taxpayers, beginning in 2011, to exclude from income up to $10 million of long-term capital gains if those gains are reinvested in qualified new business ventures Budget Changes In addition to the capital gains changes, the state budget created a fifth tax bracket for the highest earners. For 2009, the top tax rate will be 7.75, compared to the 6.75 rate imposed on top earners in prior years. Legislators also expanded the deduction for college savings account contributions. Beginning in 2010, deductions for contributions to college savings accounts are available for parents who designate contributions for their child but do not claim the child as a dependent. ISSUES The use and structure of the state income tax is often debated. Because of its sensitivity to economic conditions, the income tax can provide unexpected revenues in boom times and significant shortfalls in downturns. States that rely on the income tax for a major share of revenues need to understand this and smooth revenue streams by keeping adequate reserves. The fairness of the income tax, be it federal or state, is also debated. For some, a fair income tax would impose higher tax rates on higher-income taxpayers than on lower-income ones. They see the income tax as a tool for offsetting other taxes, such as the property and sales tax, that are viewed as less fair. Others are concerned about the adverse economic impacts an income tax, particularly a high one, can have. High rates can discourage working and saving, they argue. Some analysts also worry that taxing income at high rates can create an incentive for earners to invest outside the state or leave. Regardless of income level, there is an issue of complexity. As legislators add more deductions, credits, and exemptions, the income tax becomes harder to understand for many residents and, therefore, more costly to prepare and file. DATA SOURCES: Federation of Tax Administrators; U.S. Bureau of Economic Analysis; U.S. Census Bureau; Washington, D.C. Office of Research and Analysis; Wisconsin Legislative Fiscal Bureau; Wisconsin Department of Revenue; and WISTAX calculations. Beginning in 2008, Wisconsin excludes from tax all Social Security benefits. The state budget made changes to income tax brackets, taxing of capital gains, and taxation of college savings plan donations. Page 7

9 Wisconsin s 2009 Property Taxes At $9.67 billion, the property tax is Wisconsin s largest state or local tax. In , Wisconsin property taxes claimed 4.41 of personal income, ninth highest nationally. In 2009 (levied in December 2008 and collected in 2009), Wisconsin local governments levied $9.67 billion in property taxes, a 4.5 increase from The state provided local taxpayers with three credits totalling $940.6 million a $747.4 million school levy credit, a $118.2 million lottery credit, and a $75.0 million first dollar credit. Thus, taxpayers paid $8.73 billion in net property taxes, a 3.3 increase from Both increases were below the annual average since 1997 (5.0 in gross levies and 4.9 in net). The relatively small increase in net levies was driven largely by a $75.0 million increase in the school levy credit and a new $75.0 million first dollar credit. TRENDS Property taxes in 2009 claimed 4.6 of state personal income. Personal income is a comprehensive measure that includes total wages and salaries, interest, dividends, and other sources of income. Net levies claimed 4.2 of income. Since 1980, net levies relative to income have ranged from 3.9 in 1980 to 5.0 in 1994 (see chart below). During the late 1960s, net property taxes reached 6.0 of income, leading to calls for property tax relief. Elected state officials responded over the ensuing 15 years with a combination of increased aids to local governments, additional property tax credits, and temporary cost controls on schools. As net levies approached 5.0 of income in the early 1990s, due mainly to relatively large increases in school property taxes, legislators reacted by limiting increases in school revenues (school revenue limits) and adding more than $1 billion to school aids ( two-thirds funding). In the last four years, municipalities and counties have been bound by levy limits initiated in The Ups and Downs of Wisconsin s Property Tax the state budget. Those levy limits were extended in the state budget. NATIONAL COMPARISONS Because Wisconsin has a long history of active government and local control, the state has an equally long history of relatively high property taxes. In 2006 (the last year state comparative data were available), property taxes in the Badger State claimed 4.41 of personal income, above the 3.49 national average and ninth highest nationally. The highest property taxes were in five of six New England states [New Hampshire (1), Vermont (2), Maine (4), Rhode Island (6), and Connecticut (8)], two other eastern states [New Jersey (3) and New York (7)], and Wyoming. Much of Wisconsin s early history can be traced to these states, other than Wyoming. Of Wisconsin s neighbors, Illinois (12), Michigan (13), and Iowa (20) were among the nation s top 20 states in use of property taxes. Minnesota was 34th at 2.80 of income. The pattern was similar on a per capita basis. The top eight states were the same, though in a slightly different order. Wisconsin was 11th at $1,448 per person, or 19 above the U.S. average ($1,214). BY TAXING ENTITY The property tax is Wisconsin s largest state or local tax. It is an important revenue source for technical colleges (44.6 of total revenues), school districts (36.9), municipalities (28.1), and counties (24.4). However, because statewide school district spending exceeds technical college, county, or municipal spending, K-12 schools levy more property taxes. As the chart on page nine shows, school districts levied 44.3 of total 2009 prop- Gross and Net Levies Relative to Personal Income, Gross Levies Net Levies Page 8 The Wisconsin Taxpayer

10 Who Levies Most Levies by Unit of Government, 2009, $9.67 Billion Total Tech. Coll. 7.4 Other 5.4 Muni's 23.8 Counties 19.2 Schools 44.3 erty taxes. Municipal levies were 23.8 of the total and county levies just under 20. Technical colleges levied 7.4 of all property taxes, while other governments (state, tax incremental finance districts, and other special districts) were responsible for the remaining 5.4. School Districts Since school revenue limits were imposed in , school property tax changes have been tied to school aid increases. Revenue limits cap the amount schools can raise from property taxes and state aids combined. The more state aids increase, the less schools can increase their levy. With state school aids rising less than 2 in 2009, K-12 school districts in Wisconsin levied $4.28 billion, or 5.2 more than in School levies increased slower than in the previous two years (see table below) but more than the 4.6 average since Individual school levies can also be affected by local referenda, either to add facilities or to exceed state-imposed revenue limits. The largest 2009 school levy increases were in Iowa-Grant (40.0), Belmont (38.8), Lake Mills (33.9), Weyerhaeuser (33.9), and River Ridge (29.1). Each of these districts recently passed referenda to exceed revenue limits. The largest declines were in Beloit (-13.9), Wauzeka-Steuben (-13.7), Ashland (-13.4), Crandon (-11.7), and Herman #22 (-10.1). The reductions in Beloit, Ashland, and Herman #22 were largely due to increased state aid. Crandon had more than $750,000 of debt service come off the tax rolls. Wauzeka-Steuben levied only two-thirds of the property taxes they could have under revenue limits. Technical Colleges Technical college districts levied $714.6 million in 2009, up 5.0 from This was a slight increase from the 4.6 levy increases of the past two years, but below their average since At 6.1, the technical college annual average was the highest among the various government types. The largest increase was a 16.3 jump in Southwestern s levy resulting from passage of a referendum to spend $31.9 million on new buildings and renovations of existing ones. Levies for MATC (Madison), Gateway, and Fox Valley all rose more than 5. The smallest increase was in Nicolet (Rhinelander), where the tech levy rose 3.5. Partially due to school aids rising less than 2 in , school levies climbed 5.2 to $4.28 billion. Year Levies Wisconsin Property Taxes by Government Type , $ Millions Gross Net* School Levies Levies Tech. College Levies County Levies Municipal Levies 1999 $5, $5, $2, $ $1, $1, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Avg Since 1999, technical college levies have increased the most, averaging 6.1 annually. *Includes school levy, lottery, and first dollar credits. Page 9

11 County levy increases averaged 3.5 in the last four years, compared to 5.7 in the six years prior. Municipality Pop. $ Mil. Rate $ Mil. Rate Milwaukee 590,870 $ $7.20 $ $22.70 Madison 226, Green Bay 103, Kenosha 95, Racine 80, Appleton 72, Waukesha 68, Oshkosh 65, Eau Claire 65, Janesville 63, West Allis 60, La Crosse 51, Sheboygan 50, Wauwatosa 45, Fond du Lac 43, Page 10 The Wisconsin Taxpayer Counties County levies totalled $1.86 billion, or 3.1 more than the prior year. Since 2006, counties have been subject to state-imposed limits on levy increases. Counties could increase their levy no more than the increase in new construction; however, if that increase was less than 2, counties were allowed to increase tax levies 2. A total of 23 counties had 2009 levy increases less than 2. The largest increases were in Lafayette (9.7), Green (9.0), Adams (8.3), Sauk (7.4), and Kewaunee (7.0). Since 1999, county levies have climbed an average of 4.8 per year. Increases averaged 3.5 in the four years of levy limits, compared to 5.7 in the six years prior. Municipalities Municipal levies rose 4.3, from $2.20 billion to $2.30 billion. Like other governmental units, the 2009 increase was below the average (4.8). Over the last four years, municipalities have been subject to the same levy limits as counties. During that time, municipal levies rose 4.2 per year. In the years prior to limits ( ), municipal levies rose an average of 5.2 per year. Other Governments As the chart on page nine shows, schools, technical colleges, counties, and municipalities levy nearly 95 of all property taxes. The remaining 5.4 is levied by tax incremental finance (TIF) districts (3.5), special districts (1.0), and the state (0.9). Property Taxes in Largest Municipalities 2009 Municipal Levy Net Levy TIF levies climbed 4.7 in In the four years prior, they were up an average of 12.2 annually. Statewide increases in TIF levies depend largely on the number of districts and the increase in value within the districts. Since 2000, the number of TIF districts has grown 3.7 per year. The total property value in TIFs rose an average of 12.6 per year during those years. The value increase in 2008 (used for property taxes) was 2.7. Property taxes for various special districts (sewerage districts, lake districts, etc.) rose 2.0 in Since 1999, special district increases averaged 3.5 per year. Finally, the state forestry levy rose 3.3, up slightly more than the 2.6 increase of the three years before. Prior to 2005, the forestry tax was set at 20 per $1,000 of equalized value. From 1990 through 2004, this tax rose 7.5 per year, the same as values. A 2005 change in state law limited forestry tax increases to 2.6 per year for three years. The rate used for the third year ($16.97 per $1,000 of value in 2008) is fixed for future years. Thus, the 3.3 increase in 2009 was the same as equalized value growth. BY MUNICIPALITY Property taxes vary widely by municipality. Towns provide fewer services than cities or villages and thus have lower municipal levies and rates. Property taxes also differ among school districts and counties. Municipal Purpose Levies Among the three municipal types, village levies increased most, rising 6.2. City (4.5) and town (3.6) levies increased less. Cities. Of 190 cities, 12 increased municipal levies 10 or more. Princeton (87.3) had the largest jump, due to passage of a referendum to exceed state levy limits. The other 11 were Middleton (19.1), Ashland (15.1), Verona (14.9), Montello (13.7), Milton (13.0), Rice Lake (11.8), Elkhorn (11.2), Abbotsford (10.7), Hudson (10.7), Ladysmith (10.3), and Eau Claire (10.2). Nine cities (Adams, Algoma, Barron, Brillion, Columbus, Cumberland, Horicon, Oconto Falls, and Waupaca) reduced their levies. Adams s levy was down 19.6, while Barron s fell Levies for the 15 largest cities are listed in the table at left. A similar table with all cities,

12 villages, and towns is available on the WISTAX Web site ( Among these 15 cities, the largest levy increases were in Eau Claire (10.2), Madison (8.3), and Kenosha (6.2). Municipal levies were up less than 2 in Fond du Lac (0.8), Sheboygan (1.2), and West Allis (1.8). Villages. Village levies were more volatile than city levies. Part of the reason is many villages are small, and relatively small dollar changes in the levy can result in very large or small percentage changes. Thirty-three villages had municipal levy increases of 10 or more. The small villages of Mount Calvary (312.1) and Alma Center (171.0) had the largest increases. Twentyeight villages reduced their levies. Mount Hope and Melvina reduced levies two-thirds or more. Towns. Towns generally have small municipal levies that can fluctuate widely from year to year. In 2009, 87 (6.9) of 1,258 towns reduced their levies. Another 764 (60.7) had increases of 2 or less, while 106 (8.4) hiked taxes 10 or more. Net Levies Like municipal purpose property taxes, net levies and rates can vary widely. Net levies include property taxes levied by all taxing jurisdictions minus the school levy credit. These figures do not include the effect of the first dollar or lottery credits. Most of the variation by town, village, or city is the result of differences in municipal, school, county, or technical college taxes. Statewide, net levies (before the lottery and first dollar credits) rose 4.0. They were up 4.1 in cities, 5.7 in villages, and 2.9 in towns. Net Levy Changes Vary of 190 Cities, 403 Villages by Net Levy Change, Cities. A total of 13 (6.8) cities had net levy increases of 10 or more. Four (Abbotsford, Elkhorn, Montello, and Princeton) were among the cities with double-digit increases in municipal levies. The other eight were Blair, Independence, Lake Mills, Manawa, Shullsburg, Stevens Point, Whitehall, and Wisconsin Dells. As the chart below left shows, 19.5 of 190 (37) cities (dark bars) had declines in the net levy. Another 18.9, or 36, had net levy increases of less than 2. The largest decline was 15.5 in Montreal. Among the 15 most populous municipalities, only Sheboygan (-2.1) had a decline. The largest increases were in Milwaukee (7.6), Kenosha (5.8), and Racine (5.1). Villages. As the chart shows, a higher percentage (21.3 vs. 19.5) of villages had net levy declines than did cities. However, 15.4 of villages had net taxes increase more than 10, compared to 6.3 for cities. Part of the reason for the larger village increases is they grew faster than cities both in population (2.0 vs. 0.4) and in equalized value (5.3 vs. 2.7). The villages of Cashton (42.8), Hawkins (34.2), and Superior (26.5) had the largest net levy increases. Most of Cashton s increase was due to a new TIF district, while about 70 of the increase in Hawkins and nearly half of the increase in Superior were due to increases in net school levies (school levy less school tax credit). The largest declines were in Gresham (-10.2), Prairie Farm (-8.13), and Lowell (-7.9). Towns. Of 1,258 towns, 164 (13.0) had net levies increasing at least 10 in 2009, while 232 (18.4) had decreases. Among the largest net property tax increases were those in Sanborn (Ashland County, 333.1), Shullsburg (Lafayette, 30.5), Seneca (Crawford, 29.9), and Seymour (Lafayette, 27.8). The Sanborn increase was due to correction of a Department of Revenue error that significantly reduced its levy last year. The towns of Lomira (Dodge, -18.3), Woodboro (Oneida, -14.4), and Fountain Prairie (Columbia, -12.3) were among those with the largest net levy declines. Among the state s largest cities, municipal levies rose the most in Eau Claire, Madison, and Kenosha. Statewide, net levies were up 4.1 in cities, 5.7 in villages, and 2.9 in towns. 0 < >10 Cities Villages DATA SOURCES: U.S. Bureau of Economic Analysis; U.S. Census Bureau; Wisconsin Department of Revenue; WISTAX calculations. Page 11

13 wistax wis Wisconsin Taxpayers Alliance 401 North Lawn Avenue Madison, WI PERIODICALS USPS WISTAX NOTES Voter Turnout. Over 71 of eligible Wisconsin voters went to the polls last November. Turnout was below 2004 (76.6) but above the 70.1 in 2000 (see chart at right). In 2008, Wisconsin was again above national turnout levels (63.6). Since 1984, Badger State turnout has averaged nine percentage points higher than the nation. Wisconsin turnout in 2008 ranked second behind Minnesota (75.0), according to the U.S. Census Bureau. Overall, the Midwest had the highest turnout of any region (66). Nationally, voter numbers rose by 5 million from 2004 to Most of the increase was due to black, Hispanic, and Asian voters, especially those ages 18 to 24. Turnout in 10 states (Hawaii, Utah, West Virginia, Arkansas, Tennessee, Texas, Oklahoma, New York, Arizona, and Nevada) was below 60. State Lottery. The Wisconsin state lottery ended fiscal 2009 with over $473 million in sales. Down four percent from 2008, the lottery had its ninth-best year despite a poor economy. In its 21 years of existence, lottery sales have ranged from $230.4 million in 1989 to $518.9 million in Lottery sales provide property tax relief to Wisconsin taxpayers. For December 2008 property tax bills, the lottery provided nearly $120 million to help offset $9.7 billion in local property taxes. State lottery sales have provided over $2.9 billion in property tax credits since WISTAX FOCUS Budget Becomes Law. Democratic majorities in both chambers of the legislature and the threat of lost federal funds led to the earliest state budget signing in over 30 years. In Budget round-up II: The governor makes it Wisconsin and U.S. Voter Turnout Presidential Elections ( ) U.S Wis law (Focus #12-09), WISTAX notes that Governor Jim Doyle (D) used his item-veto authority 81 times, vetoing about 0.02 of total spending. Main sources of new tax revenues in are taxes on individual incomes and capital gains, health care providers, and tobacco products. The largest fee increases are: solid waste tipping ($69.0 million), security trading ($44.4 million), and insurance agent appointments ($27.6 million). Changing the Rules. State statutes require that state biennial budgets follow rules that include being balanced and retaining an emergency reserve. However, state legislators have for years used actions like reducing statutory reserve requirements to balance budgets. Playing by the rules: Basketball vs. budgets (Focus #13-09) looks at a relatively new development, as the governor used his veto to add $200 million in promised-but-unspecified cuts or fund transfers. If, when, and where these cuts will occur is unclear. The Wisconsin Taxpayers Alliance, founded in 1932, is the state s oldest and most respected private government-research organization. Through its publications, civic lectures, and school talks, WISTAX aims to improve Wisconsin government through citizen education. Nonprofit, nonpartisan, and independently funded, WISTAX is not affiliated with any group national, state, or local and receives no government support.