Gov. Tony Evers proposed his $91 billion 2021-23 biennial budget Feb. 16. The budget addresses COVID-19 recovery, University of Wisconsin funding and tuition freeze, tax cuts and municipalities’ concerns.
Specifically, Evers addressed municipalities’ concerns in the budget by allowing counties to increase the sales tax by an additional 0.5% on top of the 0.5% currently allowed under state law.
If approved by voters in a referendum, Evers’ budget would also allow municipalities of 30,000 people or larger to increase sales taxes by a further 0.5% to “diversify local revenue sources and better empower local governments to fund police and fire protection, transit, roads and other important services.”
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According to the Finance Director of the City of Madison David Schmiedicke, this would be beneficial for Wisconsin’s already limited income sources for services.
“Compared with cities in other states, Wisconsin cities have a very limited range of options to pay for public health and safety, snow removal, refuse and recycling collection, community services, libraries, transit and other essential local services,” Schmiedicke said.
According to the Wisconsin Budget Project, shared revenue from the state to local governments is normally a major source of funding for counties and municipalities but declined by 47% from almost $1.6 billion in 1996 to $830 million in 2020.
According to Schmiedicke, reduced spending on municipalities led to heavy reliance on property taxes.
“State aid to municipalities has been reduced over the past 20 years, further increasing reliance on property taxes,” Schmiedicke said. “Growth in property taxes has been constrained by state-mandated levy limits.”
According to the Wisconsin Department of Revenue, levy limits provide the maximum amount a town, village, city and county may implement as a property tax levy on parcels within their boundaries. A study by the Tax Foundation found Wisconsin is the 18th most reliant state on property tax in the nation.
The Tax Policy Center found property tax revenue, however, is not as heavily affected by the pandemic as state and local income and sales tax revenues.
UW Economics Professor Noah Williams said Evers’ new budget will help specific municipalities that don’t rely on property tax. This includes services such as dry cleaning, carpentry work, barbershops and more.
“Sales tax revenue has fallen, so localities that rely heavily on sales taxes, as well as room and hospitality taxes, have been hurt,” Williams said. “So this proposal gives those localities some additional flexibility.”
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Wisconsin’s current sales tax is 5% and has the sixth-lowest reliance on sales tax out of all 36 states that allow general sales tax.
Wisconsin’s sales taxes are low compared to its neighbors, with Indiana’s sales tax at 7%, Minnesota’s at 6.875%, Illinois’s at 6.25% and Iowa and Michigan’s at 6%, according to Channel 3000.
Schmiedicke said though there will be an increase in goods’ costs with the proposed budget, Wisconsin’s tax rates are still relatively low.
“While a local option sales tax may increase the cost of goods and services sold, Wisconsin’s combined state and local sales tax rate is among the lowest in the nation,” Schmiedicke said.
Williams said the effect of increased sales tax on lower-income individuals is one potential drawback of this budget.
According to Econometer, if everyday item costs go up, the lower-income group will be affected the most, since they spend a big part of their income on food and basics, thus these income groups are more greatly affected by the budget changes.
Ultimately, the sales tax would need approval from a voter referendum in each community to choose whether to enact the local sales tax, according to The Cap Times.
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In a statement to Channel 3000 news, Madison Mayor Satya Rhodes-Conway said she is grateful for this tax, but she predicts tough budgeting in coming years.
According to Williams, this proposal will help cities in Wisconsin, specifically Madison and other “destination locations.”
“Sales taxes tend to be beneficial for ‘destination locations,’ where a significant share of spending is done by non-residents,” Williams said. “For places like Madison — when we do have events again — this could be helpful.”
The budget also addresses federal Medicaid expansion to help pay for mental health programs, lowering prescription drug costs, legalizing medical and recreational marijuana and creating a caregiver income tax credit as part of a $600 million investment in long-term care.