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Sun, 11 Nov 2007
Taxes are taxes, until you ask who pays them.
[Appeared last week in the Woonsocket Call, Pawtucket Times and other RIMG papers.]
Are taxes just taxes? Does it matter when the state cuts the income tax and towns raise the property tax? As a matter of fact it makes a world of difference, and here's why: Like the federal income tax, the Rhode Island income tax rate gets higher as you earn more income. People who earn very little pay a very small fraction of their income in tax, while people who earn a lot pay a greater fraction. In Rhode Island now, the Greens who earn $50,000 a year will pay about 2% of their income in tax. The Browns earn around $200,000, so pay tax at around 7% most years.
But though one family earns four times as much as the other, they probably don't live in a house four times as expensive. The Greens might live in a house assessed for $250,000, and the Browns in one that's worth $500,000. The Browns have four times as much money as the Greens, but pay only twice as much in property tax. But their bill reflects the value of their property, so fair enough, maybe.
Now let's change things. Say we cut income taxes by half, and make up the difference by raising property taxes by a third, which is very roughly the same amount of money in the real Rhode Island. From the income tax cut, the Greens get $500 back and the Browns get $7,000. But the property tax rates in their town go up, from $12 to $16. The Greens get hit for $1000, and the Browns for $2000. The result is that the Browns are richer by $5000 and the Greens poorer by $500. Meanwhile, the total collected from the two taxes hasn't changed at all. The only difference is who pays.
Over the past dozen years, our state has done exactly that. We've cut the income tax several times, in a few different ways. At the same time, the state (and federal government, too, but to a smaller extent) has piled responsibilities onto our cities and towns. Special education requirements, ADA requirements, transportation to private schools, textbooks for private schools, curriculum requirements, testing requirements and fire code requirements are all recent additions to an already long list. After all that, it's no surprise that municipal budgets have gone up 6% a year since 1996, before accounting for inflation. Outrageous, no?
But over that same period, the state budget (not counting the money given to cities and towns) has gone up 6.8% a year. The take from the state sales tax has gone up 6.7% a year and -- despite several tax cuts -- the money we collect from the state income tax has grown 7.1% a year over that period. Meanwhile, total property tax collections have only grown 4.4% per year. In 1996, the income tax raised about half of the property tax. Today it's about 60%. The income tax is bringing in much more money, with a lower rate, while the property tax rates have gone up and up over that time. The state gets credit for cutting taxes, while the cities and towns have had to suck it up and endure lectures from the Assembly leaders and Governors about fiscal responsibility, not to mention the occasional tax riot.
Does it surprise you that property taxes play a smaller part in the picture than they did ten years ago? For eight out of ten of you reading this, it might. That's because you're the ones paying higher taxes to finance cuts for the other two.
So this is the situation: Governor Carcieri and the Assembly leadership won't say what services are to be cut, but both insist that lower taxes are possible. On what evidence they think this, they won't say. Along with the tax cuts from last year and the year before, we're on schedule to give another $12 million cut to the wealthiest citizens in our state this year, and tens of millions more in the following three years.
To get there, the Governor thinks he can slash a bit here and there in contractors and "back office" positions, and from employee benefits, and the state can keep on merrily building bridges and jailing prisoners like before, and no one will notice. On their side, the Assembly leadership thinks it can stiff the cities and towns, who will keep on merrily educating our children and policing our streets like before, and no one will notice.
They are both doing the same thing: pretending that we can have lower taxes for the same services, year after year. The Governor does it by pretending his Sweeney Todd "trim" of only a couple hundred million dollars won't make a difference, and the leadership does it by forcing town councils and school committees to make the real decisions. I am happy to know that people in positions of such heavy responsibility can enjoy such rich fantasy lives, but I'd be happier still if I didn't have to beg my school committee not to cut the music program each year.
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