Milwaukee is set to implement a new 2% sales tax starting January 1st, and many are wondering if this new tax will be successful. To gain insight, let’s compare Milwaukee’s tax rate to other similarly sized cities and explore the impact of sales taxes in those areas.
Ray McCarty, President of the Associated Industries of Missouri, expressed his surprise that it took Milwaukee this long to enact a local sales tax. In his state, cities have had local taxes for a long time, which has become a regular part of business operations. However, it seems that Milwaukee may face some opposition to the new sales tax, as vocal dissent was heard at recent town hall meetings.
With Milwaukee ranking as the 31st largest city in the country, we can examine cities of similar size to see how they handle sales tax. Interestingly, cities like Portland, OR, and Louisville, KY do not have any city sales tax at all. On the other hand, cities like Albuquerque, NM, and Kansas City, MO have higher sales tax rates than Milwaukee.
According to McCarty, sales taxes are quite popular in Missouri, with voters approving several county, local, and special taxes that can total nearly 12% in some parts of Kansas City. In comparison, Milwaukee will implement a 7.5% sales tax, which could rise to 7.9% if Milwaukee County also approves an increase.
McCarty believes that a 2% tax will not significantly impact buying decisions or result in significant loss of business. However, in Albuquerque, sales tax has been found to affect consumer behavior. Dr. Reilly White, an Associate Professor of Finance at the University of New Mexico, explains that consumers often shift their preferences to lower tax areas, leading to changes in buying behavior.
In New Mexico, the sales tax is referred to as a gross receipts tax, and Albuquerque’s 2.75% rate generates around $50 million per month, accounting for about a third of the city’s discretionary budget. Dr. White emphasizes that while raising taxes can generate revenue, predicting the exact impact is challenging, even in the best-case scenarios.
The Milwaukee budget director estimates that the new sales tax will bring in around $16 million per month, totaling approximately $190 million per year. While revenue is an immediate measure of success, monitoring changes in consumer habits will be crucial in the long run. Drastic shifts may take months or even years to manifest.
In many cities, voters have the power to decide whether to implement a sales tax. McCarty suggests that presenting a strong case to voters about how the revenue will be utilized is key to gaining their acceptance of the tax.
Experts also discussed the potential competition from neighboring states when it comes to big-ticket items. As Milwaukee’s sales tax takes effect on January 1st, it remains to be seen if neighboring cities in Illinois will make adjustments to their tax rates to attract Milwaukee consumers.
In conclusion, the success of Milwaukee’s new sales tax remains to be seen. While some similarly sized cities have no city sales tax or higher rates, the impact on consumer behavior and business activity is yet to be determined. Revenue generated will be a critical factor, but monitoring changes in consumer habits will provide a more complete understanding of the tax’s success over time.
