Local Taxing Authority - the Right Way and the Wrong Way

Thank you to Thomas McMahon for giving us the fuller picture regarding supposed cost savings to be gained through consolidating local school districts (Asbury Park Press County school districts won’t assure cost savings, 10/3/06 http://www.app.com/apps/pbcs.dll/article?AID=/20061003/OPINION/610030306/1030). His article serves as a warning for us not to mindlessly accept over-simplified solutions to high property taxes. Politicians are so inclined to sound bites over substance and to then believing themselves that we are in jeopardy of not really getting anywhere than to the governor’s capitulation of a reduced rate of property tax increases.

Buying into insubstantial fixes like consolidation is also why we must not allow the latest proposal of allowing localities to impose there own taxes to go down the wrong road. Builder fees and local sales taxes are gaining traction, according to recent reporting. We must scrutinize these ideas.

Builder fees may add tax revenue but they have severe shortcomings. They are not reoccurring. Homes and offices are built once. Areas that are built out would have limited, short-term benefit. As for towns that are built out, just as they are driven to chase ratables so as to increase property tax revenue, the thirst for builder fees would encourage more unneeded development and, likely, further abuse of eminent domain. Those not built out would be encouraged to do so with a vengence as they also chase more tax revenue.

Local sales taxes are equally problematic. They do not ensure tax revenue would remain local. Who shops exclusively in their own town? In fact, towns with a mall would see a windfall at the expense of other towns. On the other hand, unless every locality enacts a sales tax, people would be encouraged to spend their money where there is no or lower sales taxes. This would in turn harm businesses in the shunned town or simply drive all towns to enact a local sales tax. What an unhelpful and confusing mess.

We ask would local sales taxes be mandated to offset dollar for dollar local property taxes? We all know how politicians find ways to spend additional income rather than using it to reduce taxes. Does anyone believe things will be any different this time? Even with a mandate offset, they will find ways around it.

The sales tax is regressive. It begins with the first dollar you spend. That is, it forces those at the bottom and least able to afford it to pay more taxes. There was a huge uproar over raising the state sales tax 1%. Will the arguments against doing that be any less applicable when there is a two, three or four percent local sales tax?

The idea of local taxing authority is good. The methods proposed are not. What needs to be implemented is a local income tax. And it ought to replace the local property tax. Local taxpayers’ taxes will then remain local.

More importantly, fundamental fairness will be brought to tax funding of local schools and government. With an income tax, those who are struggling to get by on fixed or reduced income will no longer be burdened with carrying an inordinate share of local taxes. It will also eliminate the inequity of the low income taxpayer being imputed with an ability to afford more taxes just because his neighbor’s income means he lives in a “rich” district.

Therefore, local taxing authority can be a solution to inequities in the property tax. But that will only be as long as it is restricted to an income tax. Other kinds of taxes are illusions, non-solutions or will only shift the tax burden from one unfair method to another.