The Massachusetts Property Tax, and Economic Stimulants for the Economy

My intent is create grassroots support for changes to public policy and tax reforms. My primary focus is to address the knotty issue of easing the property tax while also fully funding schools and town-wide services. My point is that we can better stimulate the economy at state and local levels, and we need increased state and local revenues to accomplish this. Federal budget priorities are getting increasingly uneven with regard to adequate funding levels for state and local governments. In short, we need to spend more of our tax dollars at home. We don't need more taxes, we need better-spent taxes. Due to the issue of scale and budget processes the federal budget may waste hundreds of millions or even billions of dollars, while state and local budgets may waste thousands or hundreds of thousands -- size matters. Shifting some revenues to state and local governments will lead to more oversight and will reduce waste.

The first-stage is to shift funding from the federal budget to state budgets by federal tax reforms – to make state and local taxes paid by individuals dollar-for-dollar offsets to federal taxes owed. We need actions that benefit the state and local economies without doing long-term damage to the federal budget and economy. States and local authorities need to have more revenue to spend, and the federal government needs to spend less.

State and local authority spending on maintaining and rebuilding infrastructure are presently near the bottom of federal priorities, along with fully funding local services, teachers, police and firemen. Teachers, police and fireman are obviously very important to maintaining the quality of life in communities and at the same time help drive local economies. Add up the effects of short-funding state and local budgets, and the results are real decreases in quality of life, as well as undermining local economies. The U.S. needs to focus more on the economy at home, before it is too late.

What does the first-stage accomplish? In practice this makes any increases in state and local taxes neutral to taxpayers; revenues going to state and local coffers offset monies that would be going to federal coffers. This piece is important as it will allow state governments to increase revenues to fund state and local budgets without additional expenses to the taxpayers. It can act as a brake on federal spending as well.

To do this for individuals itemized deductions presently allowed on The IRS Form 1040 Schedule A for state and local taxes should shift to page 2 of the IRS Form 1040 line 52 (Other Credits). Similar changes can be wrought on the other federal tax forms. Business tax reforms are more complicated, but could follow a similar process. This is most likely a better approach than relying on proposed casino gambling to fix the budget crisis of the Commonwealth of Massachusetts.

If the first stage is achieved, then I would press for local property taxes to be replaced by local income taxes. This is based on the idea that the property tax is regressive, and that the income tax is fairer and is better linked to an ability to pay by the taxpayer. Some studies suggest that the income-gap between citizens is widening, and income taxes are more appropriate regarding this issue. Should state budgets have funding sufficient to drive local public schools and services and effect needed repairs to state infrastructure, changes to the local property tax would not be required. Regardless, the property tax is inherently less fair and should be phased out. I hope this opens a pathway for action, and that we all continue to work on the thorny issues of stimulating the economy and resolving state and local funding issues.

George Mandell

*Resource List: 1) Budgeting For Basics: The Changing Landscape of City Finances, a Discussion Paper prepared for The Brookings Institution Metropolitan Policy Program 08-2005 by Bruce A. Wallin. 2) Revenue Sharing and the Future of the Massachusetts Economy, a Report by The Northeastern University Center for Urban and Regional Policy, Massachusetts Municipal Association, 01-2006 3) NOTICE OF SALE AND PRELIMINARY OFFICIAL STATEMENT, TOWN OF MILTON dated 01-03-2007. 4) Good to great: why some companies make the leap – and others don’t, by James C. Collins. 5) Built to last: successful habits of visionary companies, by James C. Collins and Jerry Porras. 6) Suburbs push for a bigger share, article for The Boston Globe by Robert Preer 03-01-2007. 7) Tax Expenditures and Limitations: Introduction and Overview, by Daniel R. Mullins and Bruce A. Wallin, Public Budgeting and Finance/Winter 2004. 8) CITIZEN’S REPORT: MILTON, 2005, Municipal Benchmarking LLC 9) Massachusetts DOR website, http://www.mass.gov//dor 10) Massachusetts Budget and Policy Center website, http://www.massbudget.org/

Milton, Massachusetts Property Tax

HOW COULD THIS WORK FOR MILTON?

Allowing cities and towns to collect income taxes requires an amendment to the Massachusetts Constitution, so it is no small task. The Massachusetts Suburban Legislative coalition has some excellent objectives including requiring the state to commit to funding at least 17.50% of the operating budgets of every Massachusetts school district – but the truth is that the state is having trouble meeting the funding requirements of the Education Reform Act as it is.

A starting point could be a proposal that Milton tax at a percentage of reported federal AGI for all households residing in Milton. This would be unlike the City of New York plan which taxes incomes earned in the City of New York, regardless of where the taxpayers reside. Let’s say for example that Milton sets the percentage initially at 3% of AGI, so a household reporting $100,000 of federal AGI would pay $3,000 in tax to Milton. A phasing-in of the income tax in Milton would need to occur as a study to determine impacts on the community. And one option is to allow households to offset property taxes owed with income taxes paid to Milton, and it could follow the property-tax collection calendar that allows FY quarterly payments.

In addition, minimum income-levels could be set so that those households with fewer resources would owe no taxes, this going beyond the simple formula that those reporting lower incomes pay less. An estimate for planning is that median income for Milton is $100,000/year, but this is not the same as Federal AGI as calculated on IRS Form 1040. HUD income-levels for individuals are updated yearly, but let’s say that $100000/year is a median income level for individuals residing in Milton. HUD Household-income levels will be somewhat less as it is calculated differently. In a case approximating the HUD median annual income, one household’s property taxes for 2006 corresponded with approximately 3% of federal AGI. Paid quarterly, that calculates to $750/quarter.

Presently Milton uses a mix of state-aid and other local revenues along with property tax revenues. But the property tax as a source of revenue is now over 50% of Milton’s revenues, and it is the only revenue-source Milton may tap when state aid and other sources are not enough to meet rising costs. Milton could also make a commitment to increase its commercial tax-base, but recent proposals have failed, and options are limited within this small town. Cutting costs should always be a consideration, but increases in costs are largely required by state mandates or employee contracts. Should Milton’s revenues be frozen, it would have no real choice but to lay-off a number of employees each year going forward – not a pleasant or wise prospect. Shifting from the property tax to a local income tax as a primary source of revenues would be most fair. Federal tax reform to allow state and local taxes to offset federal taxes owed dollar-for-dollar makes the idea palatable to tax-payers and businesses.