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									STATE AND LOCAL TAXES
    IN WISCONSIN
Including Options for Reducing Property Taxes



 Presented to the Governor’s Excellence in
           Education Taskforce
               April 20, 2004
OUTLINE OF PRESENTATION
A.      REVENUES BY TYPE OF TAX
B.      TAXES BY LEVEL OF GOVERNMENT
C.      STATE AND LOCAL TAX BURDEN
D.      OPTIONS FOR REDUCING PROPERTY TAXES
      Note: These options are purely illustrative. They were prepared in
     response to taskforce member questions.




                                                                           2
A.      REVENUES BY TYPE OF TAX
Wisconsin state and local governments collected $18.5 billion
in taxes in FY2003.
Individual income, property and general sales/use taxes were
the major sources, accounting for 86% of total taxes.

                  TABLE 1                                   CHART 1:
                                            STATE & LOCAL TAX REVENUES BY TAX TYPE,
  Wisconsin State and Local Tax Revenues                     FY2003
            by Type of Tax, FY03

                  Amount                             Corporate
                                                                  Other
                                                                   6%
       Tax      ($ millions)   % of Total               3%
                                               Motor Fuel
  Property         6,894.3          37.3%         5%
                                                                              Property
  Individual       5,052.0          27.3%                                       37%

  Sales            4,018.5          21.7%      Sales
                                               22%
  Motor Fuel         902.5           4.9%
  Corporate          526.5           2.8%
  Other            1,087.1           5.9%
  Total           18,480.9        100.0%                         Individual
                                                                   27%



                                                                                         3
• The property tax is almost exclusively a local tax. A state forestry tax
  accounts for less than 1% of total property tax collections.
• The individual income tax is exclusively a state revenue source, since
  local governments do not have the authority to impose a tax on
  income.
• The sales tax is imposed by the state at a 5% rate, by most counties
  and a football stadium district tax in Brown County at a 0.5% rate,
  and by a baseball stadium district in Milwaukee, Ozaukee, Racine,
  Washington and Waukesha counties at a 0.1% rate.
• The next 2 largest taxes are both state-imposed – the motor fuel tax
  used for transportation-related spending, with collections of $902
  million, and the corporate income and franchise tax, totaling $527
  million.
• A variety of other taxes, such as excise (cigarette, beer, liquor), estate,
  insurance and utility taxes, raised an additional $1,087 million.
                                                                                4
         State and Local Tax Sources over Time

                               Percent Distribution of State and Local Taxes, FY85 - FY03


100%


90%


80%


70%

                                                                                                                                            Other
60%
                                                                                                                                            Corporate
                                                                                                                                            Motor Fuel
50%
                                                                                                                                            Sales
                                                                                                                                            Individual
40%
                                                                                                                                            Property

30%


20%


10%


 0%
       FY85

              FY86

                     FY87

                            FY88

                                   FY89

                                          FY90

                                                 FY91

                                                        FY92

                                                               FY93

                                                                      FY94

                                                                             FY95

                                                                                    FY96

                                                                                           FY97

                                                                                                  FY98

                                                                                                         FY99

                                                                                                                FY00

                                                                                                                       FY01

                                                                                                                              FY02

                                                                                                                                     FY03
                                                                                                                                                         5
State and Local Tax Shares Over Time
                                                                                                       • In the FY85-03 period,
                                                                                                         the shares contributed by
                          Wisconsin State & Local Taxes by Tax Source,
                                                                                                         the 3 largest taxes
                    40%
                                      FY1985 and FY2003                                                  (property, individual and
                    35%
                          35.4% 37.3%                                                                    sales) increased from
                    30%
                                                                                                         82% to 86%.
                                     26.8% 27.3%
                                                                                                       • Sales tax share rose from
 % of Total Taxes




                    25%
                                                     21.7%

                    20%
                                                  19.4%                                       FY1985
                                                                                              FY2003
                                                                                                         19.4% to 21.7%, property
                    15%                                                                                  tax share rose from 35.4%
                    10%
                                                                                    7.9%
                                                                                       5.9%
                                                                                                         to 37.3%, and individual
                                                           4.9% 4.9% 5.5%
                    5%                                                       2.8%                        income tax share
                    0%                                                                                   increased slightly from
                          Property   Individual    Sales     Motor Fuel Corporate    Other
                                                                                                         26.8% to 27.3%.
                                                                                                       • The contribution of the
                                                                                                         corporate income tax and
                                                                                                         miscellaneous taxes
                                                                                                         declined.
                                                                                                                             6
B. TAXES BY LEVEL OF GOVERNMENT
The state collects most of the taxes raised in Wisconsin – about
three-fifths of total state and local government collections.
The state imposed $11 billion in taxes, and local governments
raised $7 billion.
                                                               • Most of the taxes
                    TABLE 2                                      imposed by the state are
   Wisconsin Taxes by Level of Government, FY03                  general purpose taxes –
                                       Amount                    used to finance general
   Level of Government/Type of Tax   ($ millions) % of Total     government activities.
  State taxes
    General purpose tax revenues      10,199.7        55.2%    • Segregated taxes are
    Program tax revenues                  22.6         0.1%
    Segregated tax revenues            1,101.3         6.0%      earmarked for specific
    Total state taxes                 11,323.6        61.3%      purposes -- transportation,
  Local taxes
    Property taxes                     6,827.2        36.9%      conservation, recycling.
    Other taxes                          330.1         1.8%      The motor fuels and other
    Total local taxes                  7,157.3        38.7%
  Total                               18,480.9       100.0%      transportation taxes
                                                                 account for more than
                                                                 80% of segregated tax
                                                                 revenues.               7
State General Purpose Revenue (GPR) Taxes

The individual income tax and general sales and use tax are the
dominant GPR tax sources, accounting for 86% of GPR tax
revenues.
                                                                                       Insurance
                                                                                          1%
                                                                               Utility
                      TABLE 3                                                   3%
                                                                                               Estate
                                                                     Excise                     1%
     State General Purpose Tax Revenues, FY03                         3%
                                                                                                        Other
                                                                                                         1%
                                                                     Corporate
                                   Amount                           income and
                                                                      franchise
               Tax               ($ millions)   % of Total               5%
Individual income                   5,052.0         49.5%
State sales and use                 3,737.9         36.6%                                                       Individual
Corporate income and franchise        526.5          5.2%                                                        income
                                                                                                                   49%
Excise                                354.8          3.5%
Utility                               276.8          2.7%    State sales and
Insurance                             114.9          1.1%          use
                                                                  37%
Estate                                   68.7        0.7%
Other                                    68.1        0.7%
Total                              10,199.7        100.0%




                                                                                                                      8
     Local Taxing Districts
     Several different kinds of local governments impose property
     and other taxes                   • School districts accounted for
                                                                             42% of taxes imposed by local
                                                                             government.
                                TABLE 4                                    • Municipalities levied $1.74 billion
                                                                             in taxes – mainly property taxes
                  LOCAL TAXES BY TAXING DISTRICT, FY2003

Taxing District          Property Tax Other Taxes Total Taxes % of Total
                            ($ m)        ($ m)       ($ m)
                                                                             ($1.68 billion) but also room
School Districts             2,988.6           -      2,988.6     41.8%      taxes, wheels taxes and premier
Municipalities               1,681.5         54.1     1,735.6     24.2%
Counties                     1,395.5        232.7     1,628.2     22.7%      resort taxes.
Tech.College Districts         507.4           -        507.4      7.1%
Other Local Govts.             254.3         43.3       297.6      4.2%    • County taxes included $1.4 billion
Total Local Taxes            6,827.2        330.1     7,157.3   100.0%
                                                                             in property taxes and $233 million
                                                                             in sales taxes, giving them 23% of
                                                                             total local taxes.
                                                                           • The remaining local taxes were
                                                                             property taxes levied by technical
                                                                             college districts, and property,
                                                                             sales and exposition district taxes
                                                                             levied by other local
                                                                             governments.                      9
Property Taxes by Class of Property
                                                   • More than two-thirds of property
                                                     taxes fell on residential property in
                 TABLE 5:                            FY02. Residential property
        WISCONSIN PROPERTY TAXES
       BY CLASS OF PROPERTY, FY2003
                                                     includes single-family and multi-
                                                     family housing with two to eight
                          Amount      % of Total     units (the number varies by
                           ($m)                      municipality).
Class A - Residential       4,759.4       69.0%
Class B - Commercial        1,307.4       19.0%    • Commercial property, including
Class C - Manufacturing       245.2        3.6%      larger multi-family housing
Class D - Agricultural         56.2        0.8%
Other real property           308.2        4.5%
                                                     accounted for 19% of the tax.
Personal property             217.8        3.2%    • Agricultural property accounts for
Total Property Taxes        6,894.3      100.0%
                                                     less than 1% of total property
                                                     taxes.
                                                   • Manufacturing, other real property
                                                     and personal property each
                                                     accounted for 3 - 4.5% of net
                                                     property tax levy.
                                                                                     10
              Property Taxes by Class of Property, FY1970 and FY2003


80%

          69.0%
70%


60%


50%   47.4%


40%


30%

                        19.0%                                              16.6%          FY1970
20%                 15.0%                                                                 FY2003
                                  10.4%          9.9%
10%
                                          3.6%                      4.5%           3.2%
                                                        0.8%    0.5%
0%
       Class A -     Class B -     Class C -      Class D -      Other      Personal
      residential   Commercial   Manufacturing   Agricultural               Property




                                                                                                   11
Homeowners are bearing a larger share of the property tax
burden at the same time that they are sending less kids to
schools.
            Households with children under 18 has decreased from 50% in 1960 to 30% in
                                               2000


      50%


      48%


      46%


      44%


      42%


      40%


      38%


      36%


      34%


      32%


      30%
                  1960           1970            1980           1990            2000
                                             Census Year
                                                                                         12
C. STATE AND LOCAL TAX BURDEN


                     Chart 2: State & Local Taxes
                  as % Of Personal Income, FY2003
                                                                                 • State and local taxes
 12%
                                                                         11.3%     were 11.3% of personal
                                                                                   income in FY2003.
 10%
                                                                                 • Property tax accounted
                                                                                   for 4.2% of income,
  8%
                                                                                   individual income tax
  6%
                                                                                   3.1% and sales tax
                                                                                   2.5%.
        4.2%
  4%
                       3.1%
                              2.5%

  2%
                                            0.6%                0.7%

                                                      0.3%
  0%
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                                                                                                      13
  State and Local Tax Burdens Are at Historically Low Levels

                                                                                      • Tax burdens were relatively
               Wisconsin State and Local Taxes as % of
                   Personal Income, FY1985-2003
                                                                                        constant around 12% of
                                                                                        income from FY85-FY91.
13.0%
                                        12.7%
                                                                 12.5%                • From FY91-FY96, the overall
12.5%
                                                                                        tax burden gradually rose to a
12.0%                                                                                   high of 12.7% in FY95.
11.5%
                                                                                      • Since FY96, overall tax burden
                                                                              11.3%     has generally declined, mainly
11.0%
                                                                                        because of declines in the
10.5%                                                                                   property tax and individual
        FY85


                FY87


                       FY89


                              FY91


                                     FY93


                                            FY95


                                                   FY97


                                                          FY99


                                                                    FY01


                                                                           FY03



                                                                                        income tax burdens.
                                                                                      • FY00 was an exception--
                                                                                        repeal of property tax/rent
                                                                                        credit (to fund the sales tax
                                                                                        rebate).
                                                                                                                 14
 State and Local Tax Burden by Tax Type
                                                                                                                                               • Property tax burden: at its
                                        Wisconsin State and Local Taxes
                                           as % of Personal Income,
                                                                                                                                                 highest in FY94 (4.9%),
                                          Select Taxes, FY1985-2003                                                                              dropped to 4% in FY97 when
6%
                                                                                                                                                 the state assumed two-thirds
                                                                         Property
5%                                                                                                                                               of school costs.
4%
                                                                                                                                               • Individual income tax burden:
                                                       Individual
                                                                                                                                                 fairly constant between FY85
3%
                                                                Sales                                                                            and FY91; rose steadily from
2%                                                                                                                                               FY91 to FY98, and dropped
1%
                                                                                                                                                 after that (tax cuts). FY00
                                                                                                                         Corp.
                                                                                                                                                 was an exception (repeal of
0%
                                                                                                                                                 property tax/rent credit)
     FY85

            FY86

                   FY87

                          FY88

                                 FY89

                                         FY90

                                                FY91

                                                         FY92

                                                                FY93

                                                                        FY94

                                                                               FY95

                                                                                      FY96

                                                                                             FY97

                                                                                                    FY98

                                                                                                           FY99

                                                                                                                  FY00

                                                                                                                          FY01

                                                                                                                                 FY02

                                                                                                                                        FY03
                                                                                                                                               • Sales tax burden: stayed at
                                                                                                                                                 2.5% of income despite
                                                                                                                                                 increase in the number of
                                                                                                                                                 counties and stadium districts
                                                                                                                                                 imposing the tax.
                                                                                                                                                                         15
      Tax Rankings: How Does Wisconsin Measures-Up?

             Tax Rankings of State and Local Taxes, FY00
                   Per $1000 of Personal Income

•   Individual Income Tax:       4th (out of 43 states)
•   State and Local Sales Tax:   31st (out of 46 states)
•   Property Tax                 11th (out of 50 states)
•   Corporate Income Tax:        24th (out of 46 states)

• TOTAL - State and Local        4th (out of 50 states)


• Important Note: These rankings are now out-of-date. They rely on
  data from 2000. We hope to have new rankings by this summer from
  the Census Bureau.                                               16
How does Wisconsin rank in terms of government spending?
          Rankings of State and Local Expenditures, FY00
                  Per $1000 of Personal Income

•   Higher Education:           17th
•   K-12 Education:             8th
•   Welfare Programs:           21st
•   Highways:                   17th
•   Public Safety               11th
•   Hospital & Health           33rd
•   Natural Resources           24th
•   Government Administration   26th

• TOTAL (State and Local)       17th
                                                           17
D.   OPTIONS FOR REDUCING
      PROPERTY TAXES
    Possible Criteria for Evaluation of Tax Policy Changes

• Fairness - Does this revenue source treat like taxpayers the same
  (horizontal equity)?
• Equity - Does one group of taxpayers bear too much of the burden
  with regards to this new/enhanced revenue source (vertical equity)?
• Efficiency - Is this revenue source expensive to collect? What kind of
  effect will it have on the state’s economy?
• Reliability - Will this revenue source grow over time? Is it volatile?
• Political Sustainability - How much of a political cost would be
  associated with defending this new revenue source for schools?
• Impact on State/Local Partnership - Does the change weaken local
  control? If so, is that a problem?
• Timing Issues - How quickly can something be done? What impact
  will timing have on taxpayers?

                                                                       19
            What will it take to reduce property taxes?

• In FY03, roughly $6.9 billion in property tax revenue was raised in
  Wisconsin.
• To have a meaningful impact on the average homeowner’s property
  tax bill, a significant amount of alternative funding must be found.
• In order to reduce the average property tax bill by 5% in Wisconsin,
  $345 million in other funding would be needed.
• In order to reduce the average property tax bill by 10% in Wisconsin,
  $689 million in other funding would be needed.
• In order to reduce the average property tax bill by 15% in Wisconsin,
  $1,034 million in other funding would be needed.
• In order to reduce the average property tax bill by 20% in Wisconsin,
  $1,379 million in other funding would be needed.


                                                                          20
           Option #1: Broadening of Sales Tax Base
• Under current law, a 5% state sales and use tax is imposed on
  sales of tangible personal property and selected services.
• Under this proposal, the sales tax would be expanded by
  imposing a tax on additional services and repealing the
  exemptions of sales of some tangible personal property.
• Extending the sales tax to services would distribute the cost of
  public services more broadly and equitably to consumers of
  public services.
• However, many of the current exemptions were enacted for
  social purposes (example: food).
• Additional sales tax revenues could be used to reduce property
  taxes through a number of mechanisms - additional school aid,
  removing certain function from the property tax and/or
  increasing shared revenue payments to municipalities.
                                                                     21
                                                         FY2002 Cost
                                                           $ millions
Example of Sales Tax Exemptions
    Goods:
    Food                                                          455.0
    Motor fuel                                                    240.0
    Prescription drugs and medicines                              107.0
    Fuel & elec. for residential use during winter                 99.1
    Tractors and farm machinery                                    31.6
    Manufacturing machinery & equipment                           167.0
    Caskets & burial vaults                                          4.1
    Cloth diapers and diaper services                              0.04
    Services:
    Physicians, dentists, other health professionals              320.0
    Advertising services                                          108.8
    Computer services                                             151.0
    Legal services                                                 87.0
    Architecture, engineering&surveying services                   63.0
    Accounting services                                            50.0
     Beauty, barber, nail,other personal care services             22.6
     Janitorial services                                           23.0




                                                                           22
              Option #2: Increase in Sales Tax Rate

• Under current law, a 5% sales and use tax is imposed on sales of
  tangible personal property and selected services.
• Under this proposal, the state sales tax rate would be increased by an
  undetermined amount and the proceeds dedicated to property tax relief.
• The increased sales tax burden would be distributed across taxpayers,
  thereby providing a rough match between the beneficiaries of the
  educational system and the taxpayers that bear the cost burden.
• Lower income taxpayers generally spend a greater share of their
  incomes on taxable products than upper income taxpayers. However,
  the regressivity of the sales tax is mitigated somewhat by exemptions
  for necessities (example: food.)
• A 0.25% increase in the Sales Tax Rate would increase GPR by the
  following amounts:
         FY06 $214.8 million
         FY07 $230.4 million                                         23
    Wisconsin has a low sales tax rate compared
             to other Midwest states.

        STATE TAX RATES, MAXIMUM LOCAL RATES, AND TOTAL STATE-LOCAL
                         RATE OF NEIGHBORING STATES
                                   State     Maximum Local       Maximum State/ Local
                                                      1
                                   Rate          Rate                  Rate
       Illinois                      6.25            2.50                     8.75
       Iowa                          5.00            2.00                     7.00
       Michigan                      6.00             ---                     6.00
       Minnesota                     6.50            1.00                     7.50
       Wisconsin                     5.00            0.60                     5.60
       1
          Highest local rate known to be actually levied by at least one jurisdiction.
       Includes local taxes for general purposes and those earmarked for specific
       purposes (e.g. transit). Taxes applying only to specified sales (e.g. lodging or
       meals) are excluded.



Note: According to the 2000 rankings of tax burden (as a percent of
income), Wisconsin had a higher sales tax burden than Illinois and
Minnesota. This is primarily due to tax base differences as well as
income levels in the varying states. It is also important to note that
these rankings are out-of-date.
                                                                                          24
                  Option #3: “Optimal” Sales Tax
• Some tax policy experts have called for a sales tax that would be
  applied to all consumption expenditures while expenditures by
  businesses would be exempt.
• Under the current sales tax, untaxed products are treated preferentially
  relative to taxable products.
• Under an “optimal tax”, the preference given untaxed products would
  be eliminated and the burden would be shared by all consumers.
• In addition, exempting taxes on sales to businesses would result in a
  fairer tax in that it would avoid pyramiding in sales taxes.
• Such a change would also increase the burden on individuals while
  reducing the burden on businesses.
• An optimal sales tax would require an extensive educational effort to
  inform all taxpayers of the many changes in what is taxable under the
  sales tax.
• Based on an analysis by DOR, adopting the “optimal sales tax” could
                                                                         25
  lead to an increase of $3 billion in General Purpose Revenue.
    Option #4: Remove certain functions from the property tax
•   Another approach would be to find an alternative way to fund certain types of
    local governments.
•   Two likely candidates would be counties and technical colleges which tend to
    rely less on the property tax than municipalities and school districts.
•   Counties:
           Repeal their authority to levy a property tax.
           Provide additional sales tax authority (i.e. higher rate or broader base)
           On a statewide basis, a 2% sales and use tax would produce about the same
            revenue ($1.5 billion) as counties levied in property tax in calendar year 2003.
           Revenue raising capacity varies significantly from county to county which
            could lead to inequities in ability to spend.
           Not all counties currently have a sales tax (58 of 72 counties currently have a
            sales tax).
•   Technical Colleges:
           Repeal their authority to levy a property tax.
           Provide for another local option tax (possibly sales tax.)
           On a statewide basis, a 0.7% sales and use tax would have produced about the
            same revenue ($542 million) as technical college districts levied in 2003.

                                                                                           26
     Option #5: Implement Streamlined Sales Tax Project
• Currently, products purchased over the internet are subject to the sales
  and use tax in Wisconsin.
• However, a U.S. Supreme Court decision prevents states from
  requiring e-retailers from collecting the sales tax at the point of sale.
• As a result, taxpayers are supposed to report their e-purchases on their
  income tax forms.
• Compliance is very low which results in Wisconsin-based retailers
  being at a cost disadvantage when it comes to competing with e-
  retailers.
• The Streamline Sales Tax Project seeks to fix this inequity by
  addressing the concerns identified in the court decision so as to allow
  Congress to allow states to require collection of the sales tax at the
  point of sale.
• When fully implemented, improved compliance could increase state
  revenues by as much as $200 million per year.
• This additional revenue could be earmarked for additional school
                                                                            27
  spending and/or property tax relief.
               Option #6: Increase the Cigarette Tax
• Wisconsin ranks 21st among the 50 states in its cigarette tax rate (77
  cents per pack which generated $293.7 million in FY03.)
• Among our neighboring states, only Minnesota and Iowa have lower
  rates (48 cents and 36 cents respectively.)
• A 10 cent increase in the tax would increase General Purpose
  Revenues by $34.22 million in FY06. These additional funds could be
  directed toward property tax relief.
• The cigarette tax is a regressive tax in that it constitutes a higher share
  of income for a low-income person than for a high-income person.
• The cigarette tax isn’t a very reliable revenue source. Following
  increases in the rate, revenues tend to fall slightly in future years as
  purchases of taxable cigarettes in Wisconsin declines.
• Tax avoidance through the purchase of cigarettes via the Internet is a
  growing problem in Wisconsin and around the rest of the country.
• Other states have successfully raised their cigarette tax to fund specific
  functions such as early childhood care and education.                      28
                    Option #7: Increase Other Excise Taxes
• Beer Tax
     Wisconsin currently imposes an occupational tax on the sale of fermented malt
      beverages (beer) at the rate of $2 per barrel.
     The rate was last raised in 1970. The beer tax generates $9.5 million (FY03)
     An increase in the rate by 50 cents per barrel would generate $2.5 million.
• Liquor Tax
     Wisconsin currently imposes an occupational tax on the sale of liquor. The current
      tax rate is $3.25 per gallon. In FY03 the tax generated $33.4 million.
     The rate was last increased in 1986.
     An increase in the rate by 50 cents per gallon would generate $5.7 million.
• Wine Tax
     Wisconsin imposes an occupational tax on the sale of wine. The rate varies based
      on the amount of alcohol. In FY03 the wine tax generated $2.7 million.
     The rate was last increased in 1986.
     An increase in the rate on low alcohol wines of 10 cents would generate $1.3
      million.
• All alcohol related excise taxes are regressive.
                                                                                   29
        Option #8: Use Gas Tax to Fund School District
                     Transportation Costs
• School districts are required by state law to furnish transportation
  services to public and private school pupils.
• School districts that provide these services are eligible for categorical
  aid.
• The aid payment is based on transportation rates which have not been
  changed since FY81.
• In FY03 transportation aid totaled $17.7 million.
• Based on school district budget data, the total cost of transportation in
  FY03 was $340.5 million.
• Each 1 cent increase in the gas tax generates $42 million in additional
  revenue.
• Transportation costs vary significantly across districts so some districts
  would benefit more than others from this policy change.
                                                                          30
          Option #9: School District Option Income Tax
•   This proposal would create a school district income tax to fund education,
    equal to 10% of the net income tax.
•   Between 1918 and 1961, Wisconsin had several individual income tax
    “surtaxes” to finance various programs/projects.
•   A local/regional income tax would be more progressive than a sales tax
    and state and local income taxes are deductible for federal income tax
    purposes, whereas the sales tax is not.
•   Since 1976, Iowa has allowed school districts to impose a surtax on net
    tax, the rate of which is determined by each school district but may not
    exceed 20% (the surtax must be approved through a referendum.)
•   According to 2002 school district income tax data, a 10% surtax would
    generate $441 million statewide.
•   To help ensure that inequities in tax burden do not appear under this
    proposal, the use of the income surtax should be “capped” and limited to
    reducing a particular school district’s property tax contribution to school
    funding under the current school finance system.
•   Recent advancements in technology would allow for the implementation
    of a school district surtax.                                                31
   Option #10: Increase Wisconsin’s Top Income Tax Rate
• Another income tax related option would be to increase the top
  individual income tax rate of 6.75% and dedicate the additional
  revenue to property tax relief.
• Single individuals with income in excess of $126,420 and married
  couples (joint filers) with incomes in excess of $168,560 pay tax at the
  top rate.
• A .25% increase in the top rate would increase General Purpose
  Revenues by $33 million annually.
• This proposal could be deemed as a effort to “soak the rich.” Others
  also argue that high taxes on the wealthy can dampen economic
  growth by discouraging high wealth, high skill workers from locating
  in a particular state.
• The counter argument is that wealthy individuals - especially those
  with extremely high incomes - can afford the additional tax burden.
• In 2000, Wisconsin ranked fourth nationally in terms of income tax
  burden (per $1000 of personal income.)                                 32
        Option #11: Changes to Corporate Income Tax
• The Corporate Income and Franchise Tax raises approximately $500
  million per year (5% of GPR.)
• A number of corporate income tax credits have been created over the
  years to provide economic incentives to various types of industries.
• The corporate income tax is highly volatile. Since it is linked to
  corporate profits it fluctuates with changes in the business cycle.
• Options for change include:
         Reversing the recently adopted Single Factor Apportionment formula change
          (revenue impact = +$45 million annually.)
         Adoption of Combined Reporting (revenue impact = +$75 million)
         Elimination of a series of corporate income tax credits (revenue impact = +$12
          million)
• Regardless of which change were adopted the volatility of the
  corporate income tax would not make it a good funding source for K-
  12 education.
• Also, the corporate income tax is subject to intense inter-state
  competition which means Wisconsin needs to be careful not to put 33
  itself in a non-competitive situation.
                               Summary
• None of these options are “perfect” - each has its own strengths and
  weaknesses.
• Weighing the trade-off’s between policy options is always important.
• Property taxes remain a sore point among Wisconsin residents.
• As the population of the state ages, property taxes will likely become
  even more unpopular because retired residents on fixed incomes see
  little direct benefit from the school system and growth in property
  taxes is especially burdensome.
• Sales taxes tend to be regressive but lack transparency and are paid
  sporadically which makes them less painful.
• Income taxes tend to have the closest link to “ability to pay” but
  Wisconsin already relies heavily on the income tax to fund the cost of
  government.
• Many tax policy experts advocate for a system of taxation that relies
  on a broad mix of taxes with no single tax rate being so high as
  generate resentment among residents.
• Such an “optimal system” should also balance the needs for taxpayer 34
  equity and fairness and generate a reliable stream of revenue.

								
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