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From six-figure tax bills to $0: Why trust fund set up by Sen. Johnson no longer owes state taxes

State records show a trust fund started by Republican Sen. Ron Johnson hasn't paid any Wisconsin taxes since 2016. Before then, the fund paid hundreds of thousands of dollars each year in state taxes.

With Wisconsin voters labeling the economy a top issue ahead of what projects to be a tightly-contested statewide election between Johnson and his Democratic challenger, Lt. Gov. Mandela Barnes, the two parties see the vanished tax liabilities very differently.

Democrats argue a state tax credit allowing the trust fund, which Johnson set up for his three children, to save millions of dollars in recent years is another sign of a system skewed toward the wealthy. Republicans maintain the Johnson family's tax savings are irrelevant to the midterm campaign because he did nothing illegal.

For his part, Johnson has never been bashful about his support for tax cuts or his disagreement with the idea they unfairly favor the rich.

"If you cut taxes for everybody, everybody gets a tax break," Johnson told 27 in April. "And people that make more money get more dollars cut, but that's our tax system."

Tax records obtained from the Wisconsin Department of Revenue showed the Ronald Johnson and Jane Johnson Irrevocable Endowment Trust paid between $400,000 and $920,000 annually in state taxes between 2011, when Johnson was sworn into his first term as a U.S. Senator, and 2015.

From 2016 on, however, the trust fund didn't pay a single cent in state taxes. Johnson's campaign said it was because the fund was able to apply for Wisconsin's Manufacturing and Agriculture Tax Credit.

State Republicans, under former Gov. Scott Walker, enacted the credit in 2011. It took effect in 2013 and scaled up in size to its current level of 7.5% in 2016, the same year Johnson's trust fund no longer owed any state taxes.

Democratic strategist Joe Zepecki said the tax applying to Johnson's family trust fund symbolizes a broken tax structure.

"We know that the system has been rigged by people like Senator Johnson for people like Senator Johnson for way too long," Zepecki said.

UW-Madison tax economist Ross Milton said it wasn't surprising to see the tax credit apply to trust funds like the Johnsons'.

"More or less, the way trust taxes work is they are taxed, kind of like they're a person," Milton said. "And so it makes sense then that tax credits like this would apply if you owned a business and that business showed up in your personal income taxes, it'd also apply to your trust."

In 2011, the Milwaukee Journal Sentinel reported the Johnson trust fund purchased a million-dollar house in Washington, D.C. Johnson then paid rent to the trust when he stayed in the house while conducting Senate business.

Washington, D.C. tax records indicate the trust still owns the property, which now has an assessed value of $1.6 million.

As Johnson seeks a third term in the Senate, Republican groups have targeted Barnes for having been late on property tax payments in the past. Ben Voelkel, an advisor to Johnson's campaign, said the senator doesn't personally benefit from the trust fund. He accused the Barnes team of deflecting from their own candidate's tax issues.

"Unable to defend Mandela Barnes’ record of tax delinquency, his campaign is now shamefully attacking Senator Johnson’s family," Voelkel wrote to 27 News. "Any business or tax entity that Senator Johnson has ever been associated with always has, and always will, comply with all applicable tax laws."

Johnson's stance on taxes has drawn scrutiny from critics since his push to expand tax cuts in 2017. While the move affected the vast majority of businesses, a ProPublica analysis found two of the three biggest beneficiaries were Wisconsinites among Johnson's biggest donors.

Zepecki said regardless of whether it was legal for the trust fund to apply the tax credit, it was an example of an unfair system where the wealthy have tools to avoid taxes that aren't available to working and middle-class taxpayers.

"Even if everything is by the book, it speaks to the frustration that ordinary working families have," Zepecki said. "That the system is set up to work for people like Ron Johnson and his family."

When asked if the tax savings were a sign families like Johnson's disproportionally benefit from the state and federal tax codes, Voelkel pointed to Johnson's personal state tax records. Dating back to 2005, Johnson himself has paid more than $1.75 million in state taxes.

"Senator Johnson paid 91 times more in Wisconsin state income taxes than Mandela Barnes," Voelkel wrote. "At what point will Mandela Barnes and WKOW admit Senator Johnson has paid his 'fair share'?"

Johnson business also avoids state taxes

State records also showed the Oshkosh plastics company Johnson once oversaw hasn't paid state taxes since 2013. Johnson owned five percent of the company during his time in the Senate.

When he sold his share of Pacur in 2020, he reported to the Senate the sale made him between $5 million and $25 million.

That the business, itself, has largely avoided owing state taxes is not surprising, though. Like most companies, Pacur is a pass-through entity, so its profits are passed to the owners, who are then taxed on those profits as part of their income taxes.

The manufacturing credit would also be applicable to the plastics business. A 2021 study by the nonpartisan Legislative Fiscal Bureau found the tax credit reduced state revenues by $1.6 billion through 2020.

The report noted critics of the credit argue it largely benefits the wealthy. For instance, the credit means owners of manufacturing businesses now have to make more than $3.7 million from the business before they'd owe any individual income taxes.

Supporters of the credit say it makes Wisconsin more attractive to manufacturing and agricultural businesses, which often do business across state lines.

Milton said, ultimately, it's up to individual taxpayers to decide whether the credit is worth the lost revenue, and whether it is fair.

"When you look at people for whom they were paying a lot of state taxes before this policy was created," Milton said. "And then it drops to zero, or near zero, you gotta think about, was that a good investment of taxpayers' money?"

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