MADISON – Democratic Gov. Tony Evers on Friday recommended increasing the sales tax to up to 6.5% in some areas if approved by voters — an idea Republicans who control the Legislature are unlikely to get behind.
Under the governor’s plan, counties could increase the sales tax by 0.5% and municipalities with a population of more than 30,000 could do the same. Voters would have to approve any increase in a referendum.
Currently, Wisconsin imposes a 5% sales tax and almost all counties impose a 0.5% sales tax. That means the sales tax is 5.5% in most parts of the state — low compared to many parts of the country.
Evers would allow the rate to go up to 6.5% in places where voters approved the maximum increases at both the municipal and county levels. In a few spots, it could go even higher because existing law allows communities that are tourist attractions, such as Wisconsin Dells and Eagle River, to levy additional sales taxes.
Milwaukee officials and others in local government have long pushed for a chance to increase the sales tax, arguing state aid hasn’t kept pace with their expenses. Republican lawmakers have resisted the idea, saying they want to limit the state’s tax burden.
Evers announced Friday he would try to give local officials a path to raise the sales tax in their jurisdictions in the budget he will unveil on Tuesday.
Evers said voters should be the ones to decide whether they pay more in sales taxes.
“Our proposal puts the question back in the hands of the folks best positioned to make decisions for their community — local leaders and the people who live there,” he said in a written statement.
Republican legislative leaders did not react to Evers’ plan Friday. They will spend the coming months reviewing and rewriting Evers’ budget and they could easily take out his sales tax proposal during that process.
Evers’ plan received a critical response from former Lt. Gov. Rebecca Kleefisch, a Republican considering running against Evers in 2022. In a statement, she noted Evers at the tail end of his 2018 campaign said he wasn’t planning to raise taxes.
“Tony Evers ran on no new taxes in 2018 and has completely failed on that promise every step of the way,” she said in a statement. “Unfortunately Wisconsin businesses and hard-working families are the ones left to pick up the pieces in an already COVID-hit economy.”
In addition to allowing every county to increase its sales tax, Evers’ plan would give perhaps two dozen municipalities the same option for the first time.
Local governments have faced difficulties for years because their costs have increased faster than the aid they receive from the state, said Rob Henken, president of the nonpartisan Wisconsin Policy Forum. Local officials have few options for raising money because of tight limits on property taxes.
“There comes a time where if you want to see service levels maintained, then something has to give,” he said. “So then the key question becomes what should give?”
Officials could consider several options, he said, such as increasing state aid to local governments, having the state take over some functions of local government, consolidating local governments or — as Evers has proposed — letting local governments raise more taxes.
Evers’ proposal would help local governments with their budget problems and would diversify their funding base, Henken noted. It would also allow them to collect money from those who use their services but don’t live there, such as commuters and tourists, he said.
But the sales tax is more regressive than other taxes and there’s a danger that providing more tax revenue to local governments would hurt efforts to make them more efficient, Henken said.
Wisconsin Manufacturers & Commerce, the state’s largest business lobbying group, announced it would fight Evers’ plan.
“Wisconsinites are still reeling from the worst economic downturn in a generation, and the governor’s response is to make it more expensive to purchase everyday items,” said a statement from Scott Manley, a WMC vice president. “Our state already has some of the highest tax rates in the country. Now is not the time to make our national reputation as a high-tax state even worse.”
A Milwaukee County group made up of leaders in local government, business and the broader community for more than a year has been pushing the state to allow a binding referendum to raise the county’s sales tax by one percentage point, to 1.5%.
The revenue, which has been estimated at as much as $160 million in the first year, would be used to provide property tax relief and fund countywide priorities in the face of stagnant revenue from the state, the group says.
Leaders in the county point to an imbalance between the ever-growing amount of tax revenue sent to the state by Milwaukee County residents and businesses each year and the stagnant share of that money that is returned.
The City of Milwaukee and Milwaukee County both face increasingly challenging fiscal situations, with the city in the last two years cutting positions in the Police Department through attrition.
On Friday, members of the Move Forward coalition praised Evers’ proposal.
“Milwaukee County and its municipalities house 60 percent of the jobs in our metro area,” Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, said in a statement. “In order to provide property tax relief, maintain critical services and support our infrastructure, MMAC applauds Gov. Evers for including a local option sales tax in his budget proposal. With voters approval, this could lead to a new way to move Milwaukee forward with a more balanced fiscal structure and make the investments necessary to keep metro Milwaukee a region of choice.”
County Executive David Crowley called Milwaukee County “the economic engine of the state,” saying the proposal takes a step toward ensuring that the region and state continue to grow. The investment will also help the county achieve its vision of racial equity, he said.
Milwaukee Mayor Tom Barrett said he appreciated Evers’ recognition that change is needed in the relationship between the state and local governments.
“The inclusion of the proposal to increase a sales tax via referenda allows diversification in our revenue stream, at the desire of our citizens,” he said in a statement, adding that such a measure gives Milwaukee control of its own future.
City leaders are grappling with how to address a significant anticipated increase in its annual pension contribution in 2023, which could severely damage city services. Barrett has cited changing the fiscal relationship with the state as key to resolving the looming pension problem.
Barrett also said the sales tax would help reduce reliance on property taxes and allow local revenue to be generated from tourists and those who commute into Milwaukee for work but do not pay property taxes.
Evers’ proposal also won the backing of the League of Wisconsin Municipalities.
“Wisconsin relies too heavily on property taxes to pay for schools, police, roads and other essential services,” said a statement from Jerry Deschane, the league’s executive director. “Study after study has shown that the state needs to spread that load to a more balanced system of financing. We are grateful to Governor Evers for proposing an option for citizens to choose.”
Contact Patrick Marley at firstname.lastname@example.org. Follow him on Twitter at @patrickdmarley.