A
Dissent in Defense of Our Most Hated
Tax
Of
all the taxes that we pay, the tax on
property is certainly the least popular,
perhaps because it so literally hits
"closest to home." It imposes a perpetual
burden on our domiciles, creating a
payment that seems always to increase each
year, a mortgage debt never to be paid
off, an annoying annual reminder that our
rights in property are not
absolute.
The
tax descends like a hammer every summer
and demands to be paid in cumbersome,
sometimes brutal, installments. For many
homeowners and businesses, it is the
largest single bill to be paid each year.
Our municipalities have no power to
withhold it slowly from our pay or to
collect it in dribbles at the point of
sale or subtly to bury it within the price
of beer or gasoline.
While
payment of the property tax may be
deferred, it can never be ignored.
Punishments for non payment are only
gradually inflicted, but they are
inexorable. If you fail to pay, your
neighbors at the town office have the
power, and the duty, to stretch you slowly
on the rack. They begin by charging
interest. Next comes the shame of being
listed in the town's annual report. Then
comes the lien, 18 months later a loss of
title to your home, still later a quit
claim deed to a local speculator, and
finally eviction followed by a suit to
quiet title.
And
yet this is pain that we impose upon
ourselves each year to meet the tangible
needs of each community in which we live.
Before we too roundly condemn this
contemptible tax, we should reflect on its
virtues.
As
Professor Josephine LaPlante has pointed
out, the chief attribute of the property
tax is its resistance to the "bungee cord"
effect in contrast to other taxes. While
the needs of government are much the same
from year to year, our chief sources of
state revenue, the sales and income taxes,
fluctuate wildly with variations in the
economy. When times are good, our citizens
will more freely fork over the extra 6% in
sales tax on a new snowmobile, a jet ski
or a Lincoln Continental. When company
profits are high, businesses pay the state
8.93% of each new dollar that is added to
corporate revenues. Or they give bonuses
to their employees whose personal state
income taxes may rise by as much as 8.5%
out of each new dollar
earned.
State
income taxes are easy to pay not only
because they are collected primarily when
times are good but also because they come
sugar coated as deductions from federal
taxable income. The feds, in effect, pay
nearly two-fifths of the tax for
us.
But
when times are bad, these same freshets of
revenue dry up like dirt roads under an
August sun--leaving the state's
Appropriations Committee to eat the
dust.
The
property tax, by contrast, is collected
every year in good times and in bad. It is
consistent revenue largely shielded from
the "slings and arrows" of economic
misfortune.
Although
the property owners who pay it will
encounter varying levels of capacity to
meet the burden, the municipal services
they receive remain much the same from
year to year. Through reliance on the
property tax, local governments are able
to operate at consistent
levels.
It
is also the only tax that is adjusted each
year by the voters to reflect exactly the
anticipated needs of the community in
which the taxes are collected. It is a
"demand side" tax.
The
state's budgeting process is just the
opposite. The legislature's Appropriations
Committee projects state tax revenues
first before adjusting expenditures. They
redefine our "needs" until the budget
balances. State appropriations are driven
by the supply--or by the shortage--of
estimated revenue. When our supply of
state revenues rose dramatically in the
1980's, we allowed our list of needs to
expand to a point where now, in the
1990's, we can no longer afford to meet
them.
It
would be a revealing exercise to calculate
the total of all property taxes in Maine
that are paid from sources out of state.
Approximately 65% of the taxes in
Skowhegan are paid by paper company owners
living in South Africa. 60% of Madison's
taxes are paid by wealthy residents of
Finland and the world-wide readership of
the New York Times. Our coastal
communities are blessed with taxpayers
like the Rockefellers and the heirs of
Thomas Watson. Our lakefront villages
collect taxes from those who visit here in
the summer but otherwise work for Boston
banks and Hartford insurance
companies.
These
folks pay their taxes on time; they demand
few services; they send no kids to our
schools; they don't circulate tax cap
petitions. And in truth, the taxes they
pay here are much lower than those they
pay at home--whether in Republican New
Jersey or in socialist
Finland.
While
property taxes are certainly too high for
many Maine communities, the worst property
taxes in Maine are only half what they are
in New Hampshire, a state much admired by
those with conservative fiscal
views.
The
property tax is the easiest and least
expensive method by which a small Maine
community may tax a huge multi-national
corporation whose intangibles elude our
other tax systems. Yet some of these
gargantuan companies get relief anyway.
The recently passed law to rebate property
taxes on business machinery and equipment
is contributing significantly to our
current revenue shortfall. It was the
governor's theory that such refunds would
encourage companies to expand in Maine,
provide new job opportunities and
ultimately enhance revenue from income
taxes.
But
too often, the new machinery simply
replaces manpower in the workplace and
eliminates jobs available to Maine
residents. Such new investments reduce the
costs for extracting our untaxed natural
resources; they enhance the dividends paid
to out of state investors but leave few
residual benefits to those of us who live
here.
Our
tax code does not ensure that the
machinery will be purchased to put more
people to work. But investment tax credits
and the depreciation allowances on such
equipment make it certain that the owners'
profits will be sheltered from our income
taxes for many years to come. And to top
it off, we are now paying back to these
same owners, out of precious state
revenues, the property taxes they have
paid to our local communities for newly
purchased machinery and
equipment.
How
many redundant inducements are necessary
to attract investments of such dubious
value?
And
these tax avoidances are entirely secret.
No ordinary citizen may discover what a
company paid for income taxes last year,
what the company avoided paying by taking
credits, or how much income was hidden by
shifting revenue and costs from one
jurisdiction to
another.
Yet
everyone knows what each company pays for
property taxes within its own community.
If the company doesn't pay by January 1st,
its name goes in the town report right
along with everyone else who falls behind.
This alone is enough to restore one's
faith in democracy.
Maine
is high among the states in per capita
burden for property taxes. Although tables
suggest that Maine citizens are paying
property taxes that average nearly $1000
apiece, this is intuitively untrue. Very
few four-member families in Maine are
paying $4000 in property taxes. Yet we
often hear of such households in New
Hampshire, Massachusetts and New
Jersey.
The
apparent discrepancy is resolved once we
acknowledge that Maine is one of the few
states in the union that still includes
most of its industrial infrastructure
within the property tax base. Imagine, for
a moment, a simple fraction. Place in the
numerator all of the taxable property in
Maine, including the assets of 17 paper
mills, the shipyard at BIW, nine million
acres of industrial forest and every
seasonal home in Boothbay, Belgrade,
Sugarloaf and Sunday
River.
Now
divide this enormous numerator by our
comparatively small permanent population.
It is no wonder that our per capita figure
is so high. We have lots of valuable
property to tax (most of it owned by out
of staters) and comparatively few
residents who personally
contribute.
Among
the choices for property tax reform, we
should continue to focus on reallocation
of educational funding, on circuit breaker
refunds to residents, on capping local
exemptions, and on restraining business
tax credits to those that are
laser-targeted for job creation. But we
need to be careful about condemning the
property tax out of hand. It has an
important place in the mix of public
revenues.
Peter
Mills
November 1996
|
