Property tax plan unacceptable without overhaul

THE TAX REFORM legislation the House will debate this week helps rich school districts maintain their edge, forces the poor and middle class to pay for tax cuts for the wealthy, shifts the tax burden onto businesses, sets the state up for revenue shortfalls in years to come and intrudes on the ability of every community in this state to decide what level of local services it will have.

Other than that, it’s a great idea.

That is, the idea of increasing the sales tax in order to reduce property taxes is not a bad one — if it’s done correctly. And it still can be done correctly, but that means changing the goals. Lawmakers need to shift their focus from doing whatever it takes to satisfy an angry faction of homeowners to creating a better way to distribute the tax burden — and to spend tax money. Specifically, representatives should amend the legislation so that it will:

• Replace only school property taxes with a higher sales tax. The state constitution requires the state to fund schools, and there are good reasons to move toward a statewide funding system. City and county governments, on the other hand, should be funded by the people who live in those cities and counties, at whatever level they choose; the Legislature has no business taking over local funding decisions. On a related note, that’s why a provision that requires a three-fourths vote for a city or county council to increase property taxes beyond a set amount should also be eliminated.

• Send school funds where they are needed, rather than simply replacing the amount of money each school district receives from residential property taxes. Richer districts spend far more property tax revenue on each student than poorer districts — because they can afford to — so simply replacing local funding with state funding locks in that inequity.

Supporters of the proposal argue that this will shift over time, as additional revenues are distributed under a formula that favors poorer districts, and that’s good. But that formula doesn’t favor poor districts enough to address the need. And even if it is changed (as it should be), there is no justification, even in the short term, for the state taking action to increase the disparity between poor and rich school districts.

• Retain the current method for setting property values. There may be a better method, but the proposal in the House to lock in the taxable value of property at the sale price will shift the tax burden from homes to businesses and from more expensive homes to less expensive homes. If eliminating school property taxes is not enough to accomplish the alleged goal — that is, helping that small portion of homeowners who can’t afford to pay their property taxes — then legislators should consider any of dozens of targeted tax relief plans that are used in other states. That would be worth doing.

• Extend tax relief beyond just homeowners. Lawmakers should consider including business and industrial property. And they should share the tax cut with renters. Contrary to popular belief, landlords pass their property taxes on to renters in the form of higher rent; and rental property is taxed at a substantially higher rate than owner-occupied property. The tax swap would make the situation worse, by requiring renters to pay that higher sales tax to fund a property tax break they don’t get. If legislators don’t trust landlords to pass lower taxes along to renters, then they should give renters an income tax credit.

• Broaden the sales tax base, by eliminating some tax exemptions and increasing the number of services that are taxed. Americans spend less of their money on taxable goods every year, which means sales tax collections aren’t keeping up with inflation. It is crucial to counter this trend if the state increases its reliance on the sales tax.

This debate is not merely about property tax relief, as some supporters insist. It is about how government will be funded, an issue that involves where the money comes from as well as where it is spent. This legislation ignores that fact and makes irresponsible, unfair and counterproductive changes to the state’s taxing and spending systems, while intruding on citizens’ right to control their local governments. Unless they change it, lawmakers should kill the legislation.

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