COWS report claims state tax policy contributing to inequality

A new report from UW-Madison’s Center on Wisconsin Strategy claims the state’s tax policy is contributing to inequality, as the richest Wisconsinites pay a smaller share of their income in taxes than poorer residents. 

The COWS report shows Wisconsin has less income inequality than the national average, but levels of inequality in the state recently hit a record high. 

By comparing the income of the top 1 percent with the average income of the other 99 percent, study authors found the richest one percent of state residents have an average income about 19 times greater than the average for the rest of the state — $964,358 compared to $50,953, for a ratio of 18.9 percent. 

For the Midwest, that ratio is 21.1 percent, while the overall U.S. ratio is 26.3 percent. 

The average income for most of Wisconsin is close to the national average, while the top earners in the state don’t earn as much on average as the top 1 percent for the entire country. 

According to the report, income inequality in the state is as high as it’s been in a century. Inequality was declining between 1928 and 1980, but that trend soon reversed as workers in Wisconsin saw a “considerable” wage decline in the 1980s, which left the median wage in the state nearly a dollar per hour below the national median wage. 

In recent years, income inequality has reached and exceeded a “high inequality benchmark” set in 1928. 

Report authors emphasize the role played by the state’s tax policy, noting the richest in the state have been “rewarded with an increasing share of the state’s income” over the past 30 years. 

Citing an earlier report from the Institute on Taxation and Economic Policy, COWS says the top 1 percent in the state pay 7.7 percent of their income on average in state and local taxes, while the middle 60 percent pay 10.4 percent on average. 

That trend continued in 2017, the report shows, drawing from another separate report from the Wisconsin Budget Project. That report showed the top 1 percent of income had an average tax cut of $10,015 in 2017, compared to $175 for the lowest 20 percent. 

Since the late 1970s, median wages both in Wisconsin and nationwide have been “stagnant,” the report shows. The median wage for workers in the state was above the national average in 1979, but after the decline seen in the 1980s, it took until the mid-1990s for the state’s median wage to bounce back to match the national median. 

Since then, the median wage continued to rise along with the national median until 2005 before flatlining once more. 

The median wage in the state hit a low in 2012 following the Great Recession, with median wages reaching $17.52. It then rose to $18.84 in 2017, before falling slightly the next year to reach $18.65, below the national median wage of $19.02. 

Wisconsin’s current median wage is 73 cents per hour higher than in 1979, which roughly fits the national data as well. Report authors call this “discouraging,” because productivity on the national level has grown by 70 percent — six times faster than the growth of compensation. 

Report authors say if workers wages had kept up with productivity in the last 40 years, the median worker’s wage would be “well over” $25 per hour today. That’s not unprecedented, they note, as wages kept pace with productivity in the decades following World War II. 

The report also includes a section on the decline of unions, as membership in the state has fallen below the national rate. Union coverage in Wisconsin has gone down 50 percent between 2011 and 2018, and report authors connect that shift to Act 10, which stripped certain collective bargaining rights from public sector unions. 

And separate section of the report spotlights the potential economic benefits of Medicaid expansion, a subject covered in previous COWS reports. 

See the full report: