Why Businesses Support a Local Sales Tax

There is an old axiom about taxes that says, “don’t tax you, don’t tax me, tax the guy behind the tree.” The point being (most) people don’t want their taxes raised and prefer someone else pay them.

Gov. Tony Evers has proposed an addition of up to a 1% sales tax increase at the county level or in a municipality with 30,000 or more residents. (The county could increase the sales tax in the county by up to 0.5% and the city could increase it by up to 0.5% if approved each time by a local referendum.) Representing thousands of employers in the region, MMAC has a strong “don’t tax me” track record, so why in this case are we supportive of a local option sales tax for Milwaukee County/City?

The answer comes from two perspectives, sources of funds, and uses of funds.

Sources of funds: The sales tax

Overall, Wisconsin taxes, as a percentage of personal income, have dropped to 10.2%, ranking us 23rd. This the lowest share of personal income going to state and local taxes since 1970. Good news.

The property tax is the only tool the City of Milwaukee can utilize to raise the revenue needed to provide services (counties have access to an incremental sales tax). Milwaukee has the highest property tax in the state. In peer U.S cities property taxes account for 52% of revenue; in Milwaukee property taxes account for a whopping 94% of its revenue. Adding to the property tax burden in Milwaukee makes no sense, especially on top of the recently enacted MPS property tax increase. Wisconsin ranks 16th highest for property taxes per capita as a percentage of personal income.

Wisconsin ranks 13th highest for income taxes as a percentage of personal income. Levying a local income tax would make this sore thumb stick out even more. Taxing income earned in Milwaukee County would also put a wrench into our regional economy and make the county a less desirable place to work, pushing jobs out.

Wisconsin has the lowest sales tax of any state that has a sales tax. If the sales tax were raised via a referendum in Milwaukee County about a third of the revenue would come from non-county residents.

If we are going to raise taxes, the sales tax is the most palatable approach. It captures revenue from those who utilize the county, but don’t live there. It relieves pressure on property taxes. It is relatively stable, allowing a growing economy to generate local revenue without competing with state revenue sources.

Also note, Wisconsin’s state government has a policy agreement to share a portion of revenue raised from income, sales, and corporate taxes with local governments. Over the past decade, shared revenue payments have been flat, declining substantially in real dollars. Other state priorities have run over this policy promise resulting in a significant loss of revenue to local governments.

Uses of funds: Fiscal Stability

As city and county governments across the U.S. vary in services provided and responsibilities there are no easy apples to apples comparisons. But from data MMAC has used, both Milwaukee County and the City of Milwaukee on a per capita basis spend below the average of their peers. So, while we can all debate the spending priorities, we should be settled on the issue of whether total spending is out of line.

The most critical issue, the one that pinches most on the current level of services, is the funding of pension obligations at the county and city. These are spent obligations, defined benefits, not 401K’s that could be funded at lower levels in the future. Former Milwaukee County Executive Chris Abele did an outstanding job efficiently running the county and effectively managing its finances. But that work had its limits and does not avoid the obligation to cover annual unfunded pension liabilities that have increased 360%.

Less publicized is the city’s pension problem. Without going into a lengthy description, by 2023 the city’s cost jumps from around $80M to $153M. For perspective, that increase would fund or defund 450 police officers in a department that has 1,850. Neither of these local pension obligations are cans that can be kicked down the road.

The time is now

Milwaukee County is the economic hub of the region, and the economic cornerstone for Wisconsin. There is a symbiotic exchange of $12 billion in personal income earned from jobs in Milwaukee County by workers who reside outside the county. Factoring in the reverse, Milwaukee County is the only net donor of personal income, to the tune of $7.5 billion, in southeast Wisconsin.

Businesses want a competitive tax environment. They also want a strong quality of life to retain and recruit the talent to keep them competitive. What businesses want least is instability. Look no further than the fiscal dumpster fire that is Illinois, with for starters, 37% of its pension obligations funded. Our regional economic development arm, M7, has had a field day drawing new corporate expansions from south of the border. Some of our greatest strengths are a constitutionally balanced budget, funded pension plans, and sound services from local government. If the largest county and city are squeezed on one end with less shared revenue and restricted on the other end with only property taxes as a revenue source, it will result in a fiscal instability spiral. That will hurt both businesses and citizens.

No need to look any further. There is no “guy behind the tree.” It’s time to face the future of an additional sales tax; that responsibility is ours.

Tim Sheehy is president of the Metropolitan Milwaukee Association of Commerce