Focus Newsletter Income taxes show effects of tax hikes, recession
April 15, 2011 • Vol. 2011 No. 5
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- Summary
- Press Release
Two state income tax changes in 2009 raised income taxes 13.5% for filers with adjusted gross incomes (AGI) above $1 million (m) and 9.4% for those with AGI between $500,000 and $1m. Meanwhile, the number of these filers fell for a variety of reasons, including the recession.
In 2009, more than half of filers had income under $30,000; about half of income was earned by filers with AGI between $30,000 and $100,000; and more than half of income taxes were paid by filers with incomes above $100,000.
Todd A. Berry or Dale J. Knapp
Income Taxes Show Effects of Recession and Tax Hikes
Taxes Up More Than 13% for Top Earners
download press releasee-mail this link to a friendMADISON—This year’s recent tax season marked only the second in more than two decades that some state income taxpayers faced a major tax increase. A new analysis of 2009 state income tax returns by the Wisconsin Taxpayers Alliance (WISTAX) shows the impact of the increases that were enacted as part of the 2009 budget.
At or above $200,000, the average tax increased 4.0% to $29,980. This effect was most evident at $1m and above, where the average tax paid rose 13.5% to $168,383. For filers with incomes under $200,000, the average tax declined 3.7% to $1,539.
These high-income groups were the only ones affected by the tax hikes, because raising the top income tax rate from 6.75% to 7.75% fell only on joint filers with more than $300,000 of income and single filers with incomes of more than $225,000. Similarly, the effect of halving of the state tax break for capital gains—the other major personal tax hike—likely fell on middle- and upper-income filers, those most likely to own stock or other investments.
Overall, the total number of state income tax filers fell 1.9% from 2.89 million (m) in 2008 to 2.83m in 2009. That was the lowest total since 2.76m filers in 2006. WISTAX researchers point to the recession as a main cause for the decline.
However, they also note that the drop in filers was greater at high-income levels: at or above $1m in income, -15.2% to 2,949; between $500,000 and $1m, -9.4% to 6,738; and between $200,000 and $500,000, -7.0% to 38,654. WISTAX suggested several possible reasons for these declines. Recession probably led to scant profits or losses among small business owners and investors, pushing them out of top tax brackets. Higher income and capital gains taxes might also have had an effect, particularly for those contemplating once-in-a-lifetime sales of family businesses.
In other findings, WISTAX reported that about half of 2009 filers (52.1%) had incomes under $30,000. This group accounted for 11.7% of income and 4.1% of state income taxes paid. At the other end of the spectrum, the $100,000-and-above group accounted for 9.4% of all filers, reported 40.3% of total income, and paid 51.1% of total income taxes.
For a copy of the Focus newsletter titled, "Income taxes show effects of tax hikes, recession," which discusses this topic in detail, go to www.wistax.org, call , or write WISTAX, 401 N. Lawn Ave., Madison, WI . WISTAX is a nonprofit, nonpartisan public policy research organization dedicated to citizen education since 1932.
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.