Story originally printed in the La Crosse Tribune or online at www.lacrossetribune.com

Published - Wednesday, May 28, 2008

State drops out of top 10 for taxes

By JASON STEIN / Lee Newspapers

MADISON — For the first time in nearly a generation, Wisconsin has fallen out of the ranks of the top 10 highest-taxed states in the nation, two independent researchers have found.

Measured as a share of the money state residents earn, Wisconsin’s state and local taxes dropped to 11th in the nation in 2006 — the latest year for which data is available — down from eighth in 2005 and sixth in 2004. The last time Wisconsin ranked out of the top 10 was in 1980.

Didn’t notice? That might be because Wisconsin’s taxes actually rose slightly in the fiscal year ended in June 2006, but those of other states rose more quickly. That improved the state’s ranking even as taxes stayed fairly steady, the two analyses of recently released U.S. Census Bureau data found.

“The trend is there,” University of Wisconsin economist Andrew Reschovsky said of the rankings. “And that shouldn’t be a big surprise to anyone when we haven’t increased taxes” and instituted some limited tax cuts.

The state’s taxes and its ranking have long been a rallying point for conservatives and played a role in last fall’s budget standoff.

Much of the change in the ranking is due to economic forces and the actions taken by other states, experts said. But a part of the change also is due to decisions by state officials to place caps on school district revenues and direct more state dollars to schools in the 1990s, make permanent state income tax cuts in 2000 and enact caps on local property tax increases starting in 2005.

In results that have not yet been publicly released, Reschovsky and Todd Berry, president of the Wisconsin Taxpayers Alliance, separately found all state and local taxes amounted to $22.3 billion, or 12.3 percent of personal income in Wisconsin in 2006. That was up slightly from the previous year, when taxes accounted for 12.1 percent of personal income.

The national average in 2006 for state and local taxes was 11.6 percent of personal income.

Berry said the last time the state ranked 11th in the nation or better on taxes was in 1980, the year in which then Republican Gov. Lee Sherman Dreyfus and state lawmakers made a one-time cut in income taxes of $942 million.

Aside from that single-year anomaly, the state has been in the top 10 since 1969, Berry said.

Part of the reason state and local taxes are higher in Wisconsin is fees such as tuition at state universities are lower here, and the state receives less federal money in comparison with other states, Berry and Reschovsky said. Wisconsin residents make less in wages and other earnings than those in many other states such as Minnesota, which means the same level of government taxes takes a bigger chunk of our income.

If all of those factors are accounted for, the cost of government in Wisconsin is closer to the national average, they said.

Jeff Schoepke, director of tax and corporate policy at the business lobby Wisconsin Manufacturers and Commerce, called the ranking “a step in the right direction” toward attracting companies and workers to the state. But the state easily could climb back up in the rankings if taxes are raised, he said.

Reschovsky, a visiting fellow at the Lincoln Institute of Land Policy in Cambridge, Mass., said Wisconsin’s economy also could be threatened if the state focuses too narrowly on taxes and fails to make needed investments in education and infrastructure.

Gov. Jim Doyle, a Democrat, also praised the drop in rankings. Doyle generally has opposed sales, income and corporate tax increases, though last year he sought tax hikes on cigarettes, hospitals and oil companies.

“He’s consistently committed to responsible budgeting,” Doyle spokesman Lee Sensenbrenner said of the governor. “Here you’re seeing those results.”

During the stalemate over the state budget last fall, Assembly Speaker Mike Huebsch, R-West Salem, cited a desire to get the state off the top 10 tax ranking as one of the reasons he was fighting tax increases proposed by Doyle and Democratic lawmakers.

A Huebsch spokesman declined comment Tuesday because no figures on the tax rankings had been publicly released yet.

Huebsch and Assembly Republicans succeeded in keeping most major new taxes favored by Doyle and the Democrats out of the state budget passed in October and a budget fix adopted this month. A notable exception was a $1-per-pack cigarette tax increase that took effect in January.

Reschovsky said he believed the state’s tax ranking should continue to fall in coming years because of those decisions and the continued effects of caps on schools and local governments as well as the elimination, starting this year, of state income taxes on Social Security payments to retirees.

Any prediction is difficult, however, because it depends greatly on what happens in other states, he said.

Jason Stein is a reporter for the Wisconsin State Journal in Madison.