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Tax and spin: Most families in Wisconsin, it turns out, would save on taxes by moving to Minnesota

Gov. Scott Walker
REUTERS/Tami Chappell
The taxes on Gov. Scott Walker’s $360,000 home in suburban Milwaukee County were more than $8,000 in 2014.

On Tuesday, Scott Walker will bring his presidential campaign to Minnesota, where he’ll give a speech on the Affordable Care Act and attend a fundraiser. At those events, Walker will no doubt boast about his conservative record as governor of Wisconsin: an ambitious if sometimes polarizing set of public policies that have reduced government spending, curtailed collective bargaining rights and — as he is sure to remind people — reduced the state’s taxes by more than $2 billion. 

Just as predictably, Walker is likely to be asked more than a few questions about the state where he’ll be holding forth, a place where his counterpart, Democratic Gov. Mark Dayton, has pursued the sort of agenda that might cause Walker to break out in hives: expanding union membership, increasing school funding and  — most notably — implementing a tax hike on the wealthiest Minnesotans. 

Comparing the two states under the two men over the last few years has become something of a national sport, after all, a favorite pastime among journalists, academics and politicians alike. Even President Barack Obama has gotten in on the act. Before an audience in La Crosse last month, he paraphrased the local paper by saying that Minnesota was “winning this border battle” when it came to the states’ respective economic fortunes.

And yet, despite all the ink spilled about both Walker and Dayton and their records, almost all of the assessments overlook a longstanding but seldom-discussed fact about life on either side of the St. Croix River: that a majority Minnesotans actually pay a smaller share of their household income toward taxes than Wisconsinites.

The primacy of property taxes

How can that be the case?

In 2013, Walker delivered on one of his big campaign promises when the Wisconsin Legislature passed a bill that compressed five income tax brackets into four and lowered all rates, reducing the average rate from 6.4 percent to 5.9 percent.

That same year, Minnesota went in the opposite direction, with the Legislature passing a Dayton-led initiative to add a fourth state income bracket for individuals earning over $150,000 or couples earning over $250,000. The rate, of 9.85 percent, was among the highest in the country, and it meant the state’s average income tax rate would go from 6.8 percent to 7.5 percent.

But those high-profile changes only affected the income tax, not sales tax or, importantly, property tax — the key factor in comparing the overall tax burden between Minnesota and Wisconsin.

For years, Wisconsin has had some of the highest residential property taxes in the country. The result is that across every income bracket, homeowners in Wisconsin pay a higher share of their income to property taxes than those in Minnesota, according to data compiled by the Institute on Taxation & Economic Policy, a nonpartisan think tank that studies tax policy. To take just one example, the taxes on Walker’s $360,000 home in suburban Milwaukee County were more than $8,000 in 2014.

In fact, for all but the top earners, Wisconsin homeowners who work in Minnesota would often fare better by staying on this side of the river, largely because property tax rates are low enough to make up for higher income tax rates. As a report from the National Center for Policy Analysis noted last year: “While a renter would fare worse in Minnesota thanks to the higher income tax, homeowners would fare better because of Minnesota’s lower property tax rate.”

Walker didn’t create the higher property taxes, but he also hasn’t been able to do much about them, either. The reason lies in Wisconsin’s state constitution. Unlike Minnesota and all but seven other states, Wisconsin is required to tax all property equally, be it commercial or residential. That means Wisconsin can’t shift any of the tax burden from homeowners to owners of other types of property, as many states do (including Minnesota).

As a result, Wisconsin’s high property tax essentially wipes out any savings most taxpayers would see due to the lower income, sales and excise taxes compared to Minnesota. In fact, the only group that faces a higher tax burden in Minnesota than in Wisconsin are families with household incomes over $200,000. 

Small businesses benefit 

Just as the Wisconsin’s tax-code restrictions hurt homeowners compared to those in Minnesota, they help business, because they bear a smaller share of all property taxes in the state.

Small business owners in Wisconsin have another advantage over their counterparts in Minnesota: Because many small businesses are known as “pass-through entities” whose owners pay their corporate tax on their personal income tax form, they benefit from Wisconsin’s lower income tax rate vs. Minnesota’s.

Given all that, one might expect business to be flocking to Wisconsin. But two years after the states’ biggest tax changes took effect, there’s little evidence to suggest any such migration is happening. 

David Ross, president and CEO of the Duluth Area Chamber of Commerce, says he doesn’t see businesses moving across the border to Superior, despite Wisconsin’s efforts.  

That’s partly because moving a business can be risky, Ross said, if for no other reason than political ideology can change with each election. Instead, what’s reliable is a quality work force — the main incentive for businesses to locate in an area, he said, as is quality of life. 

“All of these wild incentives from these different states are often from a state that is the least attractive,” Ross said. “The cost of government is certainly, within a state, an important factor to keep in mind. (But) people want to live in a community where there’s a strong public school system, where it’s a safe place to raise a family, where there’s strong recreation. I think those states that are focusing on cost of government are in a bad place. We’re promoting much more lifestyle and a place to live, not just a place to work. ... So I am not impressed with the position of Walker. We have done nothing other than become stronger, our state as an economic entity, since his election.”

Lindsay Snider and Steven Fischer are students at the University of Minnesota School of Journalism and Mass Communication, which partnered with MinnPost to produce this article.

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Comments (37)

Research, research, research

Two students wasted time writing this article because it is based on the faulty premise that the "Institute on Taxation & Economic Policy, (is) a nonpartisan think tank that studies tax policy."

No, the ITEP is affiliated with the Citizens for Tax Justice, a well-known liberal organization, founded by labor unions, that lobbies for higher taxes on financial achievers—not themselves. What exactly did the students expect this think tank would find? The ITEP simply cherry picked statistics to advance a now familiar political talking point that Minnesota with a Democrat as a governor is now better off than Wisconsin that has a Republican . . . even though their respective predecessors—who arguably laid much of the foundation for what is happening today—were exactly the opposite.

The Milwaukee Journal Sentinel newspaper did a similar comparison when this issue first arose and concluded which state has fared better depended on what statistics were chosen. I hope these two students eventually learn that virtually all think tanks, especially those that claim the credibility of non-partisanship, have a political bias. The students' major misstep, a common one among even experienced reporters, was not accurately alerting readers to the bias of ITEP.

And Research Again!

In what way are the figures presented here inaccurate?

Back up your claims

Please point out the discrepancies in this report. You argue more about the source of the data and your contempt of the writers than you do actually explaining what exactly is wrong with the analysis. What was "cherry picked?"

ITEP Does Have an Agenda

But they are also well known for being a straight shooter and letting the facts speak for themselves. Unfortunately, the facts have a well known liberal bias.

Tax & Spin

Kudos!

Data

The title refers to most families, then the body says, "that a majority Minnesotans actually pay a smaller share of their household income toward taxes than Wisconsinites." So what is the underlying data, families or individuals? The references seem to be a mix of renters vs homeowners but use two different sources. The link above only goes to the Institute on Taxation & Economic Policy homepage and not the actual support.

Taxpayers

The unit of analysis in all of these types of stories is "taxpayers." That's how the data are collected. The IRS/Minnesota Revenue doesn't try to break out what income is yours vs. your spouses, they clump you together if you are married. If you are single, you are single. Either way, you are one taxpayer.

Moving a business involves many other expenses

Moving a business across state lines is not that simple. It involves not just employees and customers, but the expenses of the physical move and preparing the new location. Not every business will have these expenses, but even a move around the corner will cost my law firm about $5,000 in actual expenses, and an unknown amount due to loss of productivity during the move. Spread that out over a three or five year lease and it often pays to stay put. At some point lower taxes might make sense, but the total expense of moving is not likely to be recovered in just one year.

One not so small problem with this analysis

is property tax capitalization

Ever watch House Hunters and wonder how a mega mansion in places like Texas can seem so affordable by Minnesota standards? That's in part due to property tax capitalization which is nothing more than the basic economic idea that the lower the property taxes on a house, the more a household is willing to pay for it -- or conversely, the higher the property taxes are on a house, the less a household is willing to pay for it. So Scott Walker may be paying $8,000 on a $360,000 house but the fact that he is paying a whopping $8,000 a year in property taxes is why the house is "only" worth $360,000.

Point is, because Wisconsin has an unclassified property tax, all else being equal, Minnesota homeowners do generally get a better deal. But, all things equal, home prices would be higher here because of capitalization effects and at least some of the PT savings would be lost in higher home prices (and mortgage payments). This recent study found property taxes were nearly 100% capitalized into the prices of smaller homes. http://www2.census.gov/ces/wp/2013/CES-WP-13-04.pdf

This plus the fact the local levy decisions ultimately drive burdens makes sweeping claims about "property tax rates being low enough to make up for higher income tax rates" highly questionable.
That might be the case in some instances but evidence to the contrary is almost certainly abundant.

Nothing is ever as simple as the spin, or in this case anti spin, seems.

If the only factor selling or buying a house were taxes...

You'd have a point.

Texas Property Taxes

I lived in Texas for 25+ years, their property taxes are 3rd highest in the country...Wisconsin is 4th. Tx homes seem cheaper per sq. ft. for a couple of reasons....no basements, no unions, cheap immigrant labor.

Absolute vs Relative

Folks keep trying to compare Dayton (MN) and Walker (WI) as if they started in the same place. Since Pawlenty and Jesse had pinched pennies for ~12 years, it is pretty likely that MN was pretty lean when Dayton entered. Whereas it is likely that WI was pretty fat when Walker entered.

After Dayton's tax and spend policies and Walker's penny pinching, the States may actually be more aligned than they were 4+ years ago. If living in WI is still more expensive, it must have been really bad before Walker.

I'm beyond tired of hearing that dodge.

By virtue of that logic, you should be thanking Jimmy Carter for the "Reagan recovery."

Peaks and Valleys

Between lucky / unlucky timing and needing to work with many people, I am amazed when either side claims that the "executive" made the difference... For better or worse.

I mean Dayton's hands were tied somewhat every year except 2013 and 2014. So do we really think his changes have made the difference in MN's recovery? My guess is we will see the impact of the DFL's changes in a year or so. It takes some time for people and companies to digest, plan and execute.

As for Walker's changes, I do not know much about them but it sounds like it is still pretty expensive to live in WI.

I'd suggest you keep guessing.

because your logic is flawed. Walker has had a GOP legislature to work with since he was elected which should compensate for the years that Dayton's "hands were tied." It's obvious to anyone that Walker's policies have been an abject failure, just like Brownback's have been in Kansas.

Apparently Not

Apparently not to the people of Wisconsin, I think they have elected him 3 times in ~5 years. (ie counting the attempt to remove him)

I personally have no real idea since I don't have the time or interest to dig into the details.

Well, rest easy...

I do have the interest and an actual "real idea" of what's happening over there. I have extended family living throughout the state and travel there once a month.

Penny Pinching

Cutting 900 million from WI public schools is penny pinching?
Cutting 350 million from the WI university system is penny pinching?

Likewise, stealing money from MN public schools and forcing them to take out loans and pay the interest is just penny pinching?
Taking the tobacco settlement money to fill budget deficits is penny pinching?

There is something bankrupt about this level of irresponsibility.

Here's Some Penny Pinching For You

Giving the Milwaukee Bucks $250 million for a new arena.

Back to My Point

A cut may be good or bad depending on where one's spending level is at. I know it a very non-Liberal concept, but not all cuts are bad and not all tax increases are good. Just as not all tax or spending increases are bad.

As for "borrowing money", I am a big fan of State's borrowing during recessions and paying back during the good times. Otherwise the State carries too much of our personal money in their Funds Reserve. I I don't know about you but I would prefer to have my money in my pocket until the state needs it.

And that is all the shift was... A way for State government to borrow money via the Districts. With the plan that it would be fully paid back once the economy improved. As it was.

As for tobacco settlement money that was provided because the state / tax payers had incurred expenses over decades. Why again wouldn't that go into the State's coffers?

Unlike you

I prefer to pay my bills rather than kick the can down the road.

Tax Increase

So you would have supported tax increases in the middle of the Great Recession? Even Obama and Democrats understood that would have been a bad idea. Remember that they did not increase taxes until ~2012.

By the way, I always pay my bills on time. I just don't leave much money sitting in a passbook savings account. I would rather have it invested somewhere more productive.

Are you really okay with letting the State hold extra money that you could be using to invest, take a vacation, pay for kids activities, etc? Just so that they do not take on a little low cost debt for a few years?

I thought Liberals were big supporters of approving more debt (bonds) because rate are low?

If you have to rely on deferred taxes

to pay for your kids activities, you're doing it wrong. Not to mention that all "liberals" do not subscribe to herd mentality. That's part of what makes us progressive. You should probably try and meet some rather than rely on rightie stereotypes.

Oh Come Now

I am pretty sure you were one the commenters here who was supporting the DFL / Dayton's billion plus dollar bonding bills and complaining that the GOP was hesitant to take on that long term debt, or am I mistaken? I just remembering saying that it was improper to pass those bills on to our children, and many here argued to the interest rate was so low and government spending now was so important. To which I reminded folks that someone still has to pay back the principal.

And here the DFL supporters who love debt / bonding are indignant regarding short term loans. It is interesting.

Depends on the Bill

I'm very comfortable paying the "bill" for my house over 15 years. I'm okay paying half the bill for my car over three years. I was happy paying the bill for my education over 5 years.

And I'm thrilled to pay the bill for my photovoltaic system over 20 years, using $200/month I used to send to Xcel to the bank instead. The payment on the system is fixed, while the payment to Xcel, I suspect, will go up over the next 20 years. After it's paid off, that's a stream of free cash for the rest of the system's life.

If I paid my bills as incurred rather than kicking the can down the road, I'd have a high school education, be hitchhiking, not have a home that's within a couple of years of free and clear ownership, be spending more on energy and be a bigger part of the climate change problem rather than part of the solution.

Minnesota has a lot to offer businesses.

If taxes were the only thing important to businesses, as the Republicans want you to believe, companies would be running from taxes all the time.

How can our over taxed, over regulated state, as characterized by Republicans, be called the best state in the nation for business? I’m smelling a red herring with the Republican anti-tax and anti-regulation characterization. Minnesota is union friendly and has high wages too. Something is not adding up. It turns out a balanced approach makes the right combination for business. Minnesota does well because the dreaded high taxes and regulations are offset by our educated workforce and a high quality of life. Minnesota ranks high in most quality of life polls.

Why isn't Wisconsin doing better. Walker has applied the Republican philosophy. There are some real disaster associated with the Republican way. Sam Brownback in Kansas (total disaster), Scott Walker (running a deficit), Arnold Swartzenagger (ran up a huge deficit), George W. Bush (took America to its knees). It is another prime example of listen to the GOP and then assume the exact opposite is true. You will be right more than you will be wrong. The GOP needs a new brand of kool-aid. The GOP circus continues.

Yeah...

This republican tunnel vision when it comes to taxes is economically blinding for the most part.

Social Security

Social Security benefits are exempt from state taxes in Wisconsin, not in Minnesota. That makes a big difference to many retirees.

Not exactly...

"Social Security benefits are excluded from taxable income for beneficiaries with provisional income below the first tier threshold ($32,000 for married couples and $25,000 for other filers).

"The amount included in taxable income for beneficiaries with provisional income over the first tier threshold, but less than the second tier threshold, equals 50 percent of provisional income over the first tier threshold, up to at most 50 percent of benefits.

"The amount included in taxable income for beneficiaries with provisional income over the second tier threshold equals 85 percent of provisional income over the second tier threshold, plus 50 percent of provisional income between the second and first tier thresholds, up to at most 85 percent of benefits."

Chart, examples, details here:

http://www.house.leg.state.mn.us/hrd/issinfo/sstaxes.aspx

There is more to a tax system than just the income tax

It seems that in political discussions people often only want to acknowledge the individual income tax, instead of seeing the entire tax system. The individual income tax at both the state and federal level is only a portion of the entire tax system - it would be nice if people would begin to see the entire system when they talk taxes.

Interesting Conversation

Seems like a conversation about 2 guys that bought the same car and fighting over who got the better deal! However, we have 2 different states with 2 different sets of life styles, government services, amenities etc. (Not quite apples to apples) A few observations: Yes Wisconsin property taxes (lake property with a mini-cabin) are significantly higher than a full 365 day house here in Mpls. Sales Tax is lower in Wis. Speed limits in general also are lower.
Roads in Wis. appear to be considered more valuable, (tend to be in better shape, MN politicians don't consider them good for commerce, good to talk about but not do anything about.
Wis seems a better state for summer lake vacations, maybe just a personal prejudice, Min: seems to be way ahead in places to go Duluth, Mpls, St Paul etc, bit more variety, not saying Bay-field and Lake Michigan coast line are not nice places. Mpls, tends to be more progressive, up-beat, open minded, eastern Wisconsin more conservative. Not sure how much of this has to do with Taxes?

Just FYI, Dennis. Their roads

are in terrible shape once you get off the interstate. It's been quite an issue during their last legislative session. Plus, they just raised their hwy speed limit (which is fine with me.)

Well

Jason, guess its which roads we travel on (Wi, 8,63,I 94, 29, I43,) MN, Mpls City streets, 8, 97, 35W, 94, 100. 169 etc.
Brand new paved 8 mile stretch between Baronett and Shell ale on 63 "just saying"

Don't forget gas tax.

Since the article is about Wisconsin families saving taxes by moving to Minnesota, don't forget the extra gas tax that Wisconsinites pay on the extra gas they need driving to and from their jobs in Minnesota.

Now, if we can just get a toll booth on the new bridge.

State and local govt, share of GDP, US v MN v WI, 2013

MN: 8.48%
US: 9.04%
WI: 10.30%

Percentage point change in state and local government share of GDP under Dayton and Walker, 2010-2013
US avg: -0.62
Dayton: -0.61
Walker: -0.34

Source:
http://www.bea.gov/iTable/iTableHtml.cfm?reqid=70&step=10&isuri=1&7003=2...

More Work to Do

Looks like there is more government waste to eliminate in Wisc, then maybe they will do better.

"more government waste to eliminate in Wisc"

They had their chances, but they insisted on keeping Walker in the Governor's Office.

(Like you didn't see THAT one coming.)