The Brilliance of Scott Walker's Sales Tax Suspension

By Aaron M. Rodriguez

Scott Walker's 10 Month Sales Tax Suspension

In a Sunday interview with Mike Gousha, County Executive Scott Walker proposed a ten-month suspension of Milwaukee County’s sales tax in an attempt to provide a much needed stimulus to a downturn economy. Although Walker conceded that advancing the proposal would be an uphill battle with state legislators, he intimated a willingness to stay the course until his message was heard.

Most economists agree that when used properly, tax cuts will stimulate a struggling economy. The logic is sound and the notion is simple: reducing tax rates encourages consumer spending and business investments. Oftentimes, we see the same principle applied in the marketplace when businesses lower their prices in order to allure more customers. Will they make less profit on each item sold? Absolutely, but they widen their consumer base and create a greater return in the process. Similarly, cutting taxes will stimulate greater consumer involvement in the market meanwhile widening the tax base and creating increased government revenue.

Caring for Low Income Families

Another point to consider is that increasing a sales tax typically hurts the lower income bracket the most. The poverty rate of Hispanics in Milwaukee County, for instance, is somewhere in the range of 20-29% depending on the location. This coupled with the fact that Hispanic households are the largest of all Wisconsin groups will put a heavy burden on Hispanic families, especially as they purchase retail products like food, toiletries, clothing, and school supplies. A suspension of the sales tax is likely to provide more relief to the Hispanic community than any other minority group in Milwaukee County.

Interestingly, the British government is expected to cut their national sales tax 2.5% in an attempt to bolster business sales. The idea is that tax cuts will stimulate consumer spending; and history demonstrates this fact. In 1997, New York Governor George Pataki took a similar approach. He authorized a one week suspension of the sales tax for purchases under $500. According to the New York Department of Taxation and Finance, the result was a 73.1% increase in sales for that period.

To be fair, however, there is always the possibility that a sales tax cut might incite retailers to adjust their pricing in order to neutralize the benefit of a tax cut for consumers. From an economic standpoint, price adjustment would be beneficial to retailers, may preserve more jobs, and would certainly stimulate more investment; but it would be at the expense of the consumer – literally speaking. If Walker’s proposal is considered, then perhaps more oversight is necessary by either public or private sources in order to safeguard against adjusted pricing by retailers.

Concluding Thoughts on the Sales Tax Suspension

The most dangerous of all proposals is Governor Doyle’s. In his budget proposal, he intends to increase state spending by 10% while adding $2.2 billion in new taxes. This type of behavior will deepen an existing recession while contribute to a growing state deficit. By contrast, Scott Walker’s proposal to use stimulus funds to suspend the sales tax is what Milwaukee County needs, not only to stimulate a sluggish economy, but to provide relief for low income families that struggle the most.
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