Will Milwaukee's sales tax be successful? A comparison to similarly sized cities

MILWAUKEE (CBS 58) -- We're digging deeper into how Milwaukee's new 2% sales tax could impact consumers and businesses once it goes into effect January 1^st.

We're comparing Milwaukee's tax rate to other similarly sized cities, and we're asking if those taxes are successful.

Ray McCarty, President of the Associated Industries of Missouri, said, "I'm amazed that it's taken this long for Milwaukee to enact a local sales tax."

McCarty said cities in his state have had local sales taxes for so long it's just business as usual.

But here in Milwaukee, acceptance of the new sales tax could take a while judging by some vocal opposition at recent town halls.

Milwaukee is the 31st largest city in the country.

Some similarly sized cities like Portland, OR and Louisville, KY have no city sales tax at all. Others like Albuquerque, NM and Kansas City, MO have higher rates than Milwaukee.

McCarty said sales taxes are pretty popular in Missouri: voters have approved several county, local, and special taxes that total nearly 12% in some parts of Kansas City.

Milwaukeeans will pay a total of 7.5% when the sales tax goes into effect. That would rise to 7.9% if Milwaukee County also approves an increase.

McCarty said, "I think people have to be convinced they are paying the taxes for a good reason, and that the money is going to be used for a good purpose."

McCarty doesn't think a 2% tax will impact buying decisions, and he doesn't see a lot of business being lost.

But in Albuquerque, a tax expert said it does impact consumer behavior there.

Dr. Reilly White is an Associate Professor of Finance at the University of New Mexico. He said his research has shown "Consumers shift their preferences. They go from buying in the high-tax area to buying stuff in the low tax area."

In New Mexico, a sales tax is called a gross receipts tax. Dr. White said Albuquerque's 2.75% rate generates about $50 million a month lately, about a third of that city's discretionary budget.

He said, "It's not devastating to raise taxes. It will generate revenue. But a lot of that revenue is challenging to predict, even in the best-case situations."

The Milwaukee budget director estimates the sales tax will generate $16 million a month here, or roughly $190 million a year.

Revenue generated may be the quickest measure of success, but White cautioned that consumer habits should be monitored. He said it could take months or years to see changes manifest.

Many cities now let voters decide on enacting a sales tax, and in Missouri McCarty said the key has been proving the revenue will be used wisely. "[Taxes] seem to be generally accepted by voters if the local governments present the case well enough to the voters as to what they need to use the revenue for."

Another thing the experts talked about was competition from neighboring states on big ticket items.

Milwaukee's sales tax goes into effect January 1^st, so it will take time to see if any neighboring cities in Illinois make changes to their rates to lure Milwaukee consumers.