May 31, 2017

Editorial: Taxes: Who pays and how much?

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Thoughtful, meaningful discussions on tax policy are rare.

This is understandable, of course. The global, post-industrial age has changed the economic circumstances of a wide swath of the middle class. Concurrently, over the past 30 years the narrative that broad-based tax cuts spur economic growth has gained wide adoption.

Indeed, taxation, and the questions of who pays and how much, has apparently ceased to be a topic eligible for rational discussion. The issue has become personal, emotional and subject to the same polarization that plagues politics at all levels.

Some recent headlines suggest, though, that the time for thoughtful, reasonable discussion is at hand.

“State leaders expect potential budget-crippling tax revenue shortfall”

“Trump’s Budget, Breaking Tradition, Seeks Cuts to Service Programs”

“Trump Budget Makes America Land of No Opportunity”

President Trump, backed by a Republican Congress, appears bent on reducing the size and scope of the federal government.

At the same time, the commonwealth is attempting to reconcile a healthy economy with tax collections that are dramatically below expectations. An article by State House News Service, while noting that expected tax collections were marked down by $175 million in October, could underperform expectations by some half-a-billion dollars with just one month left in fiscal 2017.

This had already given pause to Beacon Hill, which now expects there to be “severe adjustments” to the $40B-plus fiscal 2018 state budget proposals, cuts that will impact, perhaps dramatically, state aid to cities and towns.

In Worcester, City Manager Edward M. Augustus Jr., has proposed a $632 million budget for the next fiscal year, a budget, he writes, that “creates the opportunity to make strategic investments in our priorities – education, infrastructure, and neighborhood improvements – all while staying true to our updated long-term financial plan.”

While the merits of Augustus’ proposed budget will be debated by City Council, there ultimately remains a barrier to thoughtful discussion that hampers the city from effectively navigating the changing economic landscape: the city’s dual tax rate.

Since implementing a dual-tax structure in 1984, the debate over the proper size and scope of the municipal government has been overtaken by the yearly struggle over whether owners of residential properties or owners of commercial and industrial (CIP) properties should pay more.

The Worcester Regional Research Bureau recently entered the fray with a white paper, “A Research Bureau Policy Alternative: Tax Rates.”

The Research Bureau writes:

“Since implementation of the dual tax rate in 1984, the City Council has never voted for a single tax rate, has voted for the lowest Residential tax rate/highest CIP tax rate nine (9) times, and voted for a tax rate between those extremes twenty-five (25) times, with an average shift of costs from Residential to CIP taxpayers of approximately 86% of the maximum allowed. Each year, without a framework for debate, the vote on the tax rate is arbitrary and unpredictable to Residential and CIP taxpayers alike.”

The Research Bureau reaffirms its belief that a single tax rate is “a municipality’s best tool to limit extreme tax rate shifts and mitigate the impact of tax rates on economic opportunity.”

The report offers a data-driven approach to closing the gap in tax rates until Worcester can once again operate with a single tax rate. It provides a roadmap for doing so over time, either by slowly increasing residential rates while holding commercial rates steady or by simultaneously raising residential rates and lowering commercial rates.

The Research Bureau notes that “setting tax rates in the City of Worcester is not a fact-based policy decision. The establishment of criteria with strategic approaches would allow City Council to measure annual progress in key areas and consider actual, rather than anecdotal, impacts of votes.”

We agree with the Research Bureau in believing that a single tax rate serves the best long-term interests of the city.

Additionally, as we wrote in a previous editorial, “the focus on dual tax rates detracts from what would otherwise be a substantive debate over the size, scope and priorities of government. To this point, about the only thing upon which the sides can agree is that property taxes in Worcester are too high.”

The long-term challenges of funding government are becoming more acute with each passing budget. Leary of, or flat-out in opposition to, raising taxes, federal and state governments are slowly shifting the burden of providing services back to municipalities.

The lingering debate over shifting the local tax burden between residents and business detracts from the city’s ability to deal effectively with the reality that over time it will need to shoulder a larger share of the burden.

We support the Research Bureau’s attempt to provide a framework for enabling the debate that holds the promise of allowing Worcester to remain a city on the move.

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