No question is asked more often of WISTAX researchers by the public and press than:  How does Wisconsin’s tax burden compare with other states?  And no issue is more debated by partisans and interest group advocates at the State Capitol.

Based on the most recent national data available (fiscal year 2004) from the most commonly used source (U.S. Census Bureau), facts show that Wisconsin state and local taxes claimed 12.2% of personal income, the sixth-highest percentage in the nation.  The U.S. average was 11.0%.

An equally useful ranking results if population, rather than income, is used.  State-local taxes here totalled $3,714 per capita in 2004, or 12th highest.  The U.S. average was $3,447.  Because Wisconsin per capita income is below the national average, tax rankings based on population are generally lower than those based on income. 

Taxes plus fees:  8th

Where the confusion begins is that their rankings can be altered if other state or local government revenues are added to taxes.  Because Wisconsin relies less on these sources than it does on taxes, including them lowers any state ranking.

For example, Wisconsin has no toll roads and lower college tuitions than many states.  So, when fees paid for public services are added to taxes—a legitimate approach—the state’s 2004 rank on the combined total was eighth (rather than sixth).  Taxes and fees together claimed 15.3% of Wisconsin personal income, compared to 14.2% nationally.

Less-used revenues drop rank

Still lower rankings are possible if funds from other less-used sources are included.  By adding to taxes and fees miscellaneous government revenues from investment earnings, property sales, and special assessments, among others, the result is total revenues raised from all state and local sources, or what the Census calls “own-source” revenues.

In Wisconsin, own-source revenue accounted for 16.8% of personal income, 14th highest among the states.  The national average was 16.0%.  Some cite this as the Badger State’s rank for taxes and fees paid; however, as noted, it includes items from sources other than taxes and fees.

Federal aid confuses picture

One final ranking, often cited by those suggesting that Wisconsin taxes are not particularly high, further expands the definition of revenues.  By including federal aid to Wisconsin governments, our 2004 revenues from all sources climbed to 21.2% of personal income vs. a national average of 20.6%.  The Badger State has long ranked low in federal monies received, so adding them to state-local dollars pushed the state’s overall revenue rank to 24th.

Similarly, Wisconsin ranked 21st on state-local spending.  Total 2004 expenditures equalled 21.9% of personal income; the national average was 20.8%.

Income, property taxes matter

For typical taxpayers, the confusion over total tax rankings probably misses the point.  Many have trouble identifying with an abstract percentage or rank based on many taxes or other revenues.  But they readily know what they pay in property or income taxes.

In FY 2004, Wisconsin property taxes claimed 4.4% of personal income, eighth highest in the nation and well above the U.S. average of 3.5%.  They required a larger share of income here than in any of the surrounding states:  Illinois (4.2%, 11th highest); Iowa (3.8%, 16th); Michigan (3.8%, 17th); and Minnesota (2.8%, 36th).

At 3.1% of income vs. 2.4% nationally, the state income tax ranked ninth.  Regionally, only Minnesota (7th, 3.3%) was higher than Wisconsin.  Iowa (26th, 2.4%), Michigan (35th, 2.0%), and Illinois (38th, 1.7%) were all lower.