Sales tax jump in Wisconsin’s future?

Is a sales tax increase in Wisconsin’s future?

Gov. Scott Walker says he wants to reduce both the property tax and the personal income tax. He talks of major tax changes, and the rhetoric may suggest a higher sales tax could be an alternative.

Tax experts note financing Wisconsin state and local government is a three-legged stool. Property taxes raise $10 billion, personal income taxes $6 billion, and the state’s five percent sales tax nets $4 billion. Corporate income taxes trail those “big three” categories at $850 million.

How does Wisconsin compare to other states? Our property taxes are the ninth highest, income taxes are 12th highest, and the state sales tax is 35th highest in the nation.

The Wisconsin sales tax rate of 5 percent is below neighboring states, according to a 2011 Legislative Fiscal Bureau briefing paper. That report put Minnesota at 6.875 percent, Illinois at 6.25 percent, Michigan at 6 percent, Iowa at 6 percent, and Ohio at 5.5 percent.

It’s important to remember the comparison doesn’t include locally adopted sales taxes. Many of Wisconsin counties have voted for such additions. There are also special sales tax additions to build athletic stadiums.

State-by-state sales tax rate comparisons don’t tell the whole story. Rate is just one factor. Equally important is what is taxed and what is exempt. For example, some states impose the sales tax on motor fuel, rather than have a higher cent-per-gallon gas tax.

Walker isn’t expected to release his tax and budget recommendations until next year. But with a re-election effort coming in 2014, public opinion will play a part in his recommendations and taxpayer reaction.

The Wisconsin Taxpayers Alliance says the property tax is the most disliked tax, followed by the income tax. It says a “balanced portfolio” of state and local taxes is essential for broad-based reform.

But there are dangers in tinkering with the personal income system, the Alliance warned in a recent analysis.

“Even if the goal is tax reduction, tax changes done haphazardly could leave in place a state income tax that is frustrating and costly for taxpayers; cumbersome for tax collectors; and from a regulatory standpoint, onerous for small businesses,” it said.

Over the years, legislators, governors and lobbyists have complicated the Wisconsin income tax code. Many citizens, even those with modest means and limited tax liabilities, hire their own tax preparers rather than wading through the complicated paperwork themselves. The number of differences between the state and federal tax code has doubled in the past decade.

Changing the tax system can be politically explosive. Wisconsin exempts Social Security payments from taxation. Senior citizens are among the most regular voters, and a change could be a problem for incumbent elected officials.

Increasing sales tax revenues — either by a higher rate or reducing the number of exemptions — would set the foundation for the 2014 state elections. Those who specialize in right-wing talk shows may like the idea — even if it is a tax increase.

They have ranted about the “moochers” who get benefits but pay no income tax. But the “moochers” do pay the sales tax.

Liberals likely would decry a higher sales tax, noting it is regressive on the poor. It should be noted that Wisconsin’s sales tax, started 50 years ago, was first signed into law by Democratic Gov. Gaylord Nelson.

Tags: opinion, editorial