Today on A Public Affair, Eli Byerly-Duke from the Institute of Economic Policy (ITEP) joins Bert Zipperer to discuss how fair the state tax law is in the state of Wisconsin. For fairer taxes, ITEP recommends an aggressive income tax rather than higher sales or property tax, which tend to tax lower income brackets. Wisconsin taxpayers have an even one third split between income, sales, and property tax, putting it right in the middle of the rest of the US states. Minnesota has the second highest fairness rating falling just under the District of Columbia, with 40% of tax revenue coming from income tax.

Although sales tax is a reliable source of revenue, it is paid by lower or middle income people who put their money back into the local economy. The wealthiest bracket is more likely to keep their money elsewhere, or avoid paying taxes altogether. Over 114 of the largest corporations did not pay taxes last year, using loopholes such as the Offshore loophole, which allows revenue to be taxed overseas rather than in the US. Taxing income ensures there is enough money to fund the basic needs most people expect to have, like roads, plowing, and a working water system.

Interestingly, nine states do not have an income tax, but it is usually due to special reasons, for instance, the Alaskan economy is dominated by the petroleum industry, so more money can be generated from taxing the petroleum companies than the people who live there. Similarly, states with high levels of tourism can tax tourists on hotels and other amenities, which generates enough revenue that taxing residents is not necessary. Other states have underfunded school systems and roads and go without many services that are usually provided by the state.

Because many people are “house poor,” taxing property is not a good system either. Many tax credits were established to offset certain inequalities in the tax system. The homestead credit allows property owners to receive money back from property taxes if their income is under a certain amount, or if they are 62 or older. However, because Wisconsin did not write any provisions for inflation in the legislation for the homestead tax credit, the original income necessary to qualify for the credit does not match the rate of inflation, making the credit not very helpful for homeowners.

Another solution to taxing property is taxing an unoccupied second property worth more than 5 million dollars. This was established earlier this year in Montana and New York City, two places where high value property is likely to sit empty. The conversation also addressed whether data centers should be taxed for the productivity of AI which could have been taxable income from Wisconsin workers doing the same jobs. It is an open question whether AI will be taxed, or continue to receive the tax breaks that have been the status quo.

Eli is a State Policy Analyst at the Institute on Taxation and Economic Policy who works on current issues in state tax policy and long-term research. Based in Pittsburgh, he covers Wisconsin alongside other states and territories.

Photo by ccPixs.com via flickr

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