What level of government should benefit from local property taxation? And who should set the rates?
From opposite sides of our Atlantic pond come two divergent approaches, starting with a man who never met a tax he didn’t like, the mayor of Boston, Tom Menino:
Menino: Thanks to the state-imposed revenue structure, Boston must derive a significant portion of its annual revenue from property taxes. In fiscal year 2005, nearly 58% of the city’s revenues came from property taxes, followed by state aid at 24%. Excise taxes, permits and fees, and other departmental revenue represent the remaining 18%.
Menino: Boston must develop the tools to tap into these successes to diversify the city’s revenue streams — income streams that other cities already possess. For example, almost 50% of cities have their own sales tax, The Boston Globe reported in 2003. Many cities have other revenue-generating mechanisms — parking garage fees in San Francisco and Philadelphia, a meals tax in Denver and Atlanta.
A long-time foe, Barbara Anderson of Citizens for Limited Taxation (motto: “Every Tax is a Pay Cut … A Tax Cut is a Pay Raise”), the driving force behind Massachusetts‘ Proposition 2-1/2, thinks she knows:
Anderson: But for some reason related to experience with Massachusetts tax proposals, I know that advocates of local taxes aren’t thinking in terms of substitution. They want to pile on more taxes overall.
Mr. Mayor, are you seeking to diversify income, or to raise taxes?
Menino: Getting tools like these will give Boston a level playing field with our urban competitors. This is what will help us maintain our hard-won status as a world-class city.
Anderson: Mayor Menino wants the state to allow him to charge a 10% tax on off-street parking, then make more money on meals and entertainment taxes for commuters and tourists. In the 21st century, if city taxes get too high, Boston could face more telecommuting and location moves to the suburbs, which compete with each other for business and shoppers.
The Boston Tea Party, a rave to demand higher taxes!
No, wait ….
What about diversifying the base?
Anderson: A few years ago, I was a member of a commission to study alternatives to the property tax. Though certainly eager to find an alternative, we couldn’t get past the “freedom” problem: the fact that taxpayers would be free to live, work, and shop in the lower-tax communities, just as some shoppers now drive to no-sales-tax New Hampshire.
“Drat that freedom problem!”
As a moderating voice, let’s hear from municipal watchdog Samuel Tyler:
Tyler: Over the past four years, the state aid share of total revenues has declined while the property tax share has increased, bolstered by new growth. Indeed, over the past five years, the city’s property tax levy has increased by 5.8% a year, on average, due to new construction and, to a lesser extent, efforts to capture more personal property value.
Raise British taxes that high and you’ll get a nasty letter from the Labourites:
The Government today began moves to cap nine councils who it says are proposing “excessive” council tax rises.
Nick Raynsford, Local Government Minister, named the offenders in a Commons statement, in which he also stressed that the average rise across England was 4.1% — the lowest in more than a decade.
The nine councils had however set budget rises of more than 6% and put council tax up by more than 5.5%, he said. They now have 21 days in which to respond before final decisions are taken.
“Hey, raising taxes is Gordon’s department.”
Tyler: Receipts from the sales tax, meals tax, and liquor tax all go to the Commonwealth. Only a third — 4% — of the 12.45% hotel/motel room occupancy excise tax is returned to Boston.
Tyler: Any new consumption taxes that would allow Boston to tap its strength as an economic engine should be used to reduce its reliance on the property tax, not increase its revenue overall. The tax burden on homeowners is increasing and the tax burden on business is disproportionate, with business property representing 32% of taxable value but paying 64% of the tax levy.
In other words, business pays at least double the rate of homeowners. Mayor Menino’s reaction?
Menino: State agencies such as the MBTA and Massport are leasing space to commercial businesses on land that Beacon Hill has made tax-exempt. And telecom companies are using loopholes and antiquated exemptions to shelter an estimated two-thirds of their property from the local property tax.
Who’s paying what?
Tyler: For example, the mayor wants Boston’s medical and educational institutions to increase their payment-in-lieu-of-taxes (PILOT) contributions to the city even though these institutions are key drivers of Boston’s economic activity and their continued strength is vital to the city’s interests. The city also wants to tax hotels and commercial activity at Logan Airport like other commercial properties, even though Massport currently pays $11 million annually in PILOT contributions (an amount that is up for renegotiation) and receives no direct services from the city, instead providing its own fire, street maintenance, snow plowing, and water and sewer services paid for by the commercial leases.
In the UK, real estate taxes are a national campaign political issue:
The high cost of council tax has become an important pre-election issue. The Tories have promised pensioners a rebate of up to £500, while Gordon Brown, the Chancellor, responded with a one-off £200 payment for all pensioners to help with bills.
The Liberal Democrats propose replacing council tax with a local income tax, saying it is a fairer way of spreading the burden.
Hey, boys? You might want to make a Boston field trip before you try that ….
