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Robert M. La Follette
School of Public Affairs
1225 Observatory Drive
Madison, WI 53706

Telephone:  608.262.3581
Fax: 608.265.3233


Last updated:
September 26, 2007

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© 2006 Board of Regents of the University of Wisconsin System

Conference Report

 

200 gather to consider methods for controlling government spending and taxing

Facts about taxes and spending
Analysts presented these facts and observations at the Taxing and Spending Limits in Wisconsin conference on Jan. 19, 2005:

Wisconsin’s tax burden has not increased in recent years. Taxes take the same share of income now as they did 15 years ago.

Wisconsin businesses pay more than $5 billion in taxes, which is less than the taxes businesses pay in Illinois, Indiana, Iowa, Michigan, Minnesota and Ohio. Wisconsin’s government spends nearly $2.7 billion directly on business, which, as a fraction of taxes paid, is more than in any neighboring state.

The Wisconsin sales tax as a percent of personal income has remained steady. Personal income tax in Wisconsin has declined as a percent of personal income from fiscal year 1992 to 2004, from about 3.8 percent to about 3 percent.

Corporate income tax has declined somewhat as a percent of personal income from 1992 to 2004.

Property tax has not grown as a percent of personal income.

Revenue based on state and local taxes, licenses, tuition and fees has not fluctuated as a percent of personal income.

State and local spending has remained steady, varying only a couple of percentage points as a percent of personal income.

Compared to other states, Wisconsin has the sixth highest tax burden. These rankings vary from year to year and from how taxes and income are defined. When all taxes and fees are considered, the state has the 15th highest burden, about 16 cents on the dollar.

Most states have tax and fee burdens that are close to Wisconsin’s.

Cost of living, including taxes, influences where people live, but local taxes are not a large component of that cost.

Wisconsin’s income tax is progressive. The poorest 20 percent received refunds due to the federal and state earned income tax credits. The highest-income households paid 5.3 percent in income taxes.

Wisconsin’s sales tax is regressive. The poorest households paid between 3.6 percent and 4.4 percent of their income in state sales tax. The top 1 percent of households paid between 1.5 percent and 1.9 percent.

Even with credits, the property tax in Wisconsin is regressive, with poorest households paying a higher share of income than those households with higher incomes. About 43 percent of qualifying households claimed the homestead credit.

Overall, the Wisconsin tax structure is slightly progressive to proportional for 90 percent of Wisconsin households.

Medicaid is among Wisconsin’s largest and fastest growing programs. It covers 14 percent of the state’s population.

State Medicaid spending is growing because of increasing health-care costs, new programs to provide insurance and take care of seniors, limits on federal aid, and the extensive range of services.

In 2003, 11.7 percent of Wisconsin’s non-elderly population was uninsured, compared to 8.6 percent from 1995-2000. In 2003, 11.8 percent were on Medicaid, up from 7.9 percent in 1995-2000.

The growth of medical care spending poses the biggest threat to Wisconsin’s fiscal stability. This conclusion emerged from a conference on taxing and spending limits held on January 19, 2005. Analysts also noted that Wisconsin’s taxes are no larger today as a share of income than they were 15 years ago, and that Wisconsin’s business taxes are below those of surrounding states.

In one of the largest conferences the Robert M. La Follette School of Public Affairs at the University of Wisconsin-Madison has ever organized, more than 200 people explored tax policy, government revenue and spending, suggestions for reform, and implications of proposed policy changes.

Analysts from Wisconsin and around the country presented facts on taxes and government spending to inform debate about alternatives in Wisconsin. Legislators, local officials, state agency representatives, private residents, school board members, county board members and others attended the conference, Taxing and Spending Limits in Wisconsin.

“This conference, unlike many others on this topic includes only speakers who are analysts and who have a healthy respect for the facts,” La Follette School director Donald Nichols says.

In a time of frequent calls to cut taxes and government spending, the La Follette School volunteered to hold the conference to provide a neutral, non-partisan forum for the ongoing discussion. The event is one way in which the school fulfills its practice of the Wisconsin Idea, that the boundaries of the university extend to the boundaries of the state.

"The conference provided taxpayers and policy-makers with important context for the critical debate that Wisconsin residents will face in months to come," Nichols says.

“Advocates always like to present only those facts that support their arguments,” Nichols adds. “But the numerical spending and taxing facts that were presented at this conference were comprehensive and were all based on the underlying Census and Revenue Department data.”

Speakers shared the common goal of dissecting Wisconsin’s tax and spending systems in hopes of finding legitimate answers to complex problems rather than simply offering knee-jerk suggestions.

One notable fact offered at the outset of the conference is that state and local government spending in Wisconsin is growing at the same rate as the economy. Taxes are not taking up an ever larger share of personal income. “This is a surprise to a lot of people,” Nichols notes.

The consensus at the conference is that health-care spending is growing rapidly as a proportion of total spending, and is squeezing out everything else in the state budget. Less and less money is available for vital public services because of the rapid growth of health costs.

The conference came at a time when state officials were debating the merits of a so-called taxpayer bill of rights (TABOR), a proposal to amend the Wisconsin constitution to limit taxes and government spending.

An amendment to the state constitution to limit taxing and spending would not address higher health-care costs directly, Nichols notes. With increasing health-care costs, a taxpayer bill of rights would mean that other services the government buys, like sheriff’s departments and public schools, would get a shrinking share of the pie.

Constitutional limit could hurt local services
Indeed, projections suggest a taxpayer bill of rights could harm local, state services, says Andrew Reschovsky, professor of applied economics and public affairs at the La Follette School.

The taxing and spending problems facing Wisconsin “are complicated problems, and they don’t have simple solutions,” Reschovsky says. “And what worries me personally about tax limitations or spending limitations like TABOR is they’re very blunt instruments. By design they’re inflexible. That’s the whole point.”

In his analysis, Reschovsky predicts effects of a TABOR by projecting what would have happened had TABOR been in enacted in the mid-1980s.

He suggests that the effects on spending on things like education within communities would be problematic under TABOR. “TABOR really will penalize frugalities,” he says.

In many places, Reschovsky notes, school districts and communities have already done a good job of not overspending, and he worries what effects spending limits would have on districts with high immigrant populations that require innovative and expensive services.

TABOR may sound better than it is, Reschovsky says. “If we really are interested in lowering property tax burdens, we need to target new policies that will target that property tax relief for those people who face the high burdens. TABOR is a very ineffective way of providing that relief and at the end of the day won’t provide a lot of property tax relief. People will be disappointed,” he explains.

One of the country’s foremost authorities and proponents of TABORs, William A. Niskanen, chair of the Cato Institute, cites the national spread of these types of taxing and spending limits as a progressive trend in state governance. Niskanen, a libertarian, served on TABOR – type committees in California and Michigan.

In Niskanen’s opinion, “taxes and government spending in the United States are clearly too high.” Niskanen promotes formalized limits on spending at the state and federal levels, and he calls for a wide-scale demand for all forms of government to find ways to tighten their spending belts. “Almost the entire growth of the federal government, in my lifetime, has been spending for functions for which there is no, and I repeat no, explicit constitutional authority,” Niskanen says.

The issue, according to Niskanen, is that spending has gotten out of control and the time has come to set limits, and reduce taxation and spending. While state and local governments may want the services and items that would be cut, they don’t need them, Niskanen says. With this as a guiding principle, Niskanen explains, governments will shrink and revert to what they were initially designed to do.

“I am not impressed by the argument that somehow there is an inherent natural growth of government relative to the size of the economy. I’ve devoted a good bit of my life to try and counter that impression,” Niskanen argues. “I’m not prepared to accept that somehow governments can’t control their budgets. At the federal level, it might even have the favorable effect of not going to war as often as we have.”