Picking a Needed Fight in Milwaukee, Naive or Not.

Jay Weber decided to take on Dan Cody, Left on the Lake, who supports an increase in the Milwaukee County sales tax.

Weber enters the fray with A Naive View of the Sales Tax Increase contending that an increase in the sales tax is regressive and hurts the poor more than the wealthy.

Cody (contends) that we are wrong to suggest that this is a regressive tax that will hit the poor harder than anyone....Frankly, I’d expect this position from a condescending liberal. It’s offensive. Cody seems to be suggesting that poor people don’t ever spend money on anything other than food, medication, and gasoline. Dan, the poor eat out, too. The poor buy furniture, clothing, televisions, and other consumer goods, too.

Jay, without my being condescending, let me suggest you do the math.

We did a study in Madison in the 1990's on this very subject and found that when compared to the property tax, an increase in the sales tax was less regressive.

Take a family of four with a $3500 monthly budget. This family of four is going to spend $600 a month for housing, $600 a month for non taxable food, and $250 a month for health care. All exempt from the sales tax. Assume another $400 a month for child care for the two kids.

That leaves them with expenditures of $1650 for taxable items and I am including all tranportation costs including gasoline. A 1/2 cent sales tax per month will be $8.25 or 2.3 tenths of a percent of their income.

Now take a family of four with a $204,000 income or $17,000 a month. Housing (taxes, mortgage ) will run about $2500. Food will be $1100.  Health care will be only $200 a month since they have insurance. Lets assume $4000 a month in taxes, $200 for professional services, $800 for child care, and another $2000 saved.

Our wealthy family is now spending $6200 a month on taxable goods which includes car payments (rich people spend more on expensive news cars than do poor people), vacations, electronics and appliances, jewelry and more costly clothing.

Our wealthier family finds that a 1/2 cent sales tax is costing them $31 a month  or 4.5 tenths of a percent of their income or almost twice the rate of the low income family.

That sounds pretty progressive to me.

I do not have access to the original study but the findings were similar. The irony is that we prepared it to present to liberal Democrats in the legislature who were locked into the 1950's notion that a sales tax fell unfarily upon the poor and middle class.

That was true fifty years ago but it is not true today. The nature of our economy has changed and the wealthy have considerable expendable income that they use for items subject to a sales tax. It is almost as though the sales tax becomes an excise tax on the rich so long as exemptions remain for shelter, health, and non processed food.

If Jay would like to do something to really crush regressive taxes, he will support a more progressive state income tax so that there is no need for a sales tax increase and property taxes can be lowered.

The poor do spend a considerably smaller portion of their income on dining out, furniture, clothing, televisions, and other consumer goods including that expensive new car and computers.

Oh, we did find two groups on the low income end who did not benefit. University students living in state owned residence halls, and low income people living in public housing. Neither benefit from lower lower property taxes to the tune of about $5 a year.

Comments

[John]

The funny thing about the sales tax increase: Conservatives love the idea of getting rid of the IRS and replacing it with a "sales tax (even though you'll still need an office like the IRS to collect the money)."

In European countries, they actually have both in place, the "Cody plan" so to speak.

So what do the Republicans want? I can only guess that they would propose whatever is convenient at the time, never committing to real change, and using the issues as a wedge in campaigns. After all, isn't it all just a game, where the winner takes office?

[libocrat]

How about we only raise taxes on you libtards!! Problem solved.
I did a survey and concluded that you libtards suck.
TW, that "stache' and "hair-do" are really cool. Your look may come back in style someday comrade!!

[Jay Weber]

Paul, thanks for your thoughtful piece. I also wrote in the piece that it is naive to believe that this county board will follow through with their promise to reduce property taxes. If I really thought this county board was going to reduce property taxes after they impliment this sales tax, I'd be more willing to consider it. Until they put it in writing, this is just another tax on all Milwaukee County citizens, and I believe it is going to hurt the poor more than the rest of us. If we 'can afford it', they can't.

[Paul]

Jay - there is a way to, by law (charter ordinance imbedded in the referdum creating the sales tax), require that the some or all of the prceeds from the sales tax increase be applied to lower property taxes. Let me use the Madison example.

We assumed, at that time, that the sales tax would bring in an additional $12 million in revenues. We estimated that 75% or $9 million would be paid by Madison residents and the remainder by non-residents.

We figured we would require that a minimum of $9 million be applied against the property tax.

Imagine that the previous year we collected $80 million in property taxes. Allow 3% for reasonable growth and inflation. Therefore, the new year $82.4 million is the anticpated property tax collection (levy).

Now subtract the $9 million and you have a cap of $73.4 million on property tax collections for the year the sales tax is enacted.

Since it is a charter ordinance, the legislative body cannot amend it.

Subsequent years are not a problem, since a base was established and any attempt to sprend the sales tax revenues rather than apply them to lower property taxes would result in a big hike that even liberals like me would not dare try. :)

[Peter Rickman]

This may or may not be germane to the discussion, and it's really a state issue, but can we also deal with the exemptions to the sales tax in Wisconsin?