Let’s Do Something Radical on Property Taxes

Here’s a modest idea: what if we took schools off the property tax? I mean entirely.

Doing that would address multiple problems while creating one big new one.

First, the good news. Here are the problems it would address.

High property taxes. Wisconsin has the 10th highest property taxes in the nation and schools make up 44% of them.

The cost of housing. The cost of living is the biggest issue right now (well, maybe next to data centers and AI) and housing is a big part of that. Governments are tying themselves in knots trying to address it, all the while ignoring the obvious thing they could do to bring housing costs down: cut property taxes. By this one sweeping act we would significantly reduce monthly mortgage and escrow payments, putting owner occupied housing in reach for more Wisconsinites. And we would put some downward pressure on rents, at least theoretically allowing renters to save for a down payment on a home. Since home ownership is the way most families create generational wealth this should be a policy priority.

Inequities in education. School districts that are able to pass referendums are doing fine. In Madison the school board has so much money flowing in from its record $609 million in referendums passed in 2024 that it’s building a brand new bigger $100 million school building to replace one that is only half full now with a projection for even smaller enrollment in the future. On the other hand, districts with stingier (or smarter) taxpayers are struggling just to make ends meet. School funding based on referenda is bad public policy.

Tax fairness. There’s never been much reason to fund schools through the property tax. Street repair, garbage collection, police and fire protection — sure, all those things are services to property owners. But schools are a general public benefit that would be more appropriately financed by other means.

Transparency. No average citizen understands the state school funding system — most legislators don’t. That’s because we try to do two things at once: fund education and funnel property tax relief through the schools to taxpayers. By funding schools 100% from the state we’d know where the money is coming from and just how much goes directly to education.

So what would it cost to take schools off the property tax entirely? The answer is about $6.8 billion a year.

Currently, the state picks up 45% of the cost, local property taxes 43% and the federal government 12%. So, the state would have to kick in about twice as much as it does now.

And so there’s your catch. Despite what the Democratic Socialists (and for that matter, just the Democrats) would tell you, there’s no way to soak the rich enough to come up with that kind of scratch. And, of course, if Wisconsin tried there’d be still more rich people in Texas and Florida and none here.

Nonetheless, recognizing that there is no free lunch, let’s sift through the options.

What if we put it all on the current income tax structure?

Tax rates would jump by 65%. Here’s the new brackets produced by my good friend AI:

What if we put it all on the sales tax?

The state sales tax would have to nearly double, going from the current 5% to 9.42%.

But what about a hybrid?

We could mix and match.

Let’s start with two ideas that have already been proposed. We could adopt Gov. Tony Evers’ proposal for a “millionaires tax” of 9.8% on income over a million dollars. That would yield about $600 million a year.

Now, let’s do what gubernatorial candidate Tom Tiffany says he’ll do and remove the sales tax exemption for data centers. That would produce a big bump in the first year but then settle down to an estimated $400 million annually after that.

So, now we’ve solved $1 billion of the problem, leaving us with $5.8 billion to go.

We could put all that on the sales tax, raising the state portion of that tax to 8.5%. That would be the highest in the nation, exceeding even California’s 7.3%. And if our concern is cost of living, well, that would just drive up consumer prices even more.

But, on the other hand, it would move Wisconsin from the top ten in property taxes to the bottom ten. On balance I think it would be worth it, but here’s what this exercise reveals.

1. There’s no free lunch. You can’t fund this just by taxing the rich — nor can you fund any major expansion of government services, including Medicare for All or universal preschool child care, that way. No matter how you cut it, the middle class will pay for this.
2. There’s no political free lunch either. Most voters would be supportive of both taxing data centers and the rich, but they’d be beside themselves over a jump of 3.5% in the sales tax as they would over a similarly sized increase in income tax rates.
3. So, as a practical matter, we’ll almost certainly just continue to muddle along with tweaks to the current unsatisfactory system. Politics and public policy are like water. They flow to lines of least resistance.

But here at the YSDA policy shop we’ve concluded that those five benefits to taking schools off the property tax that we listed at the top outweigh the pain of a much higher sales tax. The middle class will pay the bulk of the costs for public education. There’s only three ways to do that: the property, income or sales tax. Right now, everyone agrees that we rely too heavily on the property tax. Well, so what do you want to do about that?