Tax experts talk wheel tax
Another tax expert, Todd Berry of the Wisconsin Taxpayers Alliance, warned such hidden taxes make government less transparent.
Levitt has proposed the wheel tax to raise about $550,000 for street maintenance. The city faces a $1.5 million gap in its 2012 budget because of losses in revenue, including state aid. A wheel tax would be a way to diversify the city's revenues, which now rely mostly on state aid and property taxes, he said.
The state would administer the fee as licenses are renewed, charging the city 10 cents for each license.
John Witte, a professor of public affairs and political science at the La Follette School of Public Affairs at UW-Madison, said a wheel tax is a consumption tax, which prove more popular with residents. It might be a good way for municipalities to raise money because vehicle fees still are relatively low in Wisconsin, he said.
Three Wisconsin cities and one Wisconsin county charge a wheel tax. The cities of Beloit and Mayville charged $10, St. Croix County charges $10, and the city of Milwaukee charges $20.
Some states, such as Arizona, where Levitt last worked, base their wheel taxes on the values of vehicles—the more valuable the vehicle, the higher the wheel tax.
Berry said Levitt is right in figuring cities won't be getting more aid from the state in future years, and they probably will get less.
"It's been on a 15- to 20-year trend of decline," Berry said.
The Legislature capped property tax increases as it cut state aid because it didn't want to be blamed for property tax increases, he said.
Any new state money will go to schools or Medicaid, Berry said.
It might be that wheel taxes have seldom been used in Wisconsin because neither end of the political spectrum likes them, Berry said.
Some believe a wheel tax hits low-income people harder, and others view it as a hidden tax.
"When you're one of the first (to impose a wheel tax), you're going to call attention to yourselves, and you are going to be more vulnerable," Berry said. "There have been statewide elections won or lost on taxes on vehicles. It is something that gets people's attention."
Berry said the tax is regressive, hitting low-income people harder.
"Everybody has a car, and not everybody has a house," he said.
Residents can deduct property taxes but not wheel taxes on federal income taxes, he said.
"The taxpayer on the margin, if they're itemizing, could end up with an overall tax burden that's marginally higher," Berry said.
Generally speaking, Berry said, user fees make government financing less transparent and less understandable.
"People look at their property tax bills, and they know what they pay," Berry said. "It's not that less is being spent, it's just being spent in a different way.
"If they really want to raise taxes, then they should be upfront about it, go to the voters and ask for the referendum to raise taxes," Berry said.
School districts have had to do referendums for a long time, he said.
"My experience is, when you can make the case, they pass," Berry said.
Witte said a wheel tax deserves consideration.
"I would I see this as a very positive-type tax, if I was looking for money," Witte said.
It's a consumption tax, and consumption taxes are more popular with the public, he said.
"If you don't want to pay the wheel tax, you don't have to buy the car," Witte said.
Consumption taxes are regressive, and they tend to fall harder on people with lower incomes because people with lower incomes consume all their money, he said.
Witte is surprised more places don't have wheel taxes, and he predicted more would in the future.
That's because Wisconsin has lower fees for vehicles, although fees here are catching up with other places, he said.
"There's a lot of hidden stuff out there," Witte said.
For instance, one-third of an airline ticket price is now fees, he said.
The wheel tax in Janesville would be earmarked for street maintenance, and Witte said that would be fair—the people driving on the streets would be the ones paying the tax.
But he predicted wheel tax revenue would be redirected to other uses in the future.
"I'd keep my eye on that little ball," Witte said.