View Poll Results: On what basis should municipalities be allowed to levy taxes?

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  • Keep local taxes based on real estate

    3 50.00%
  • Allow towns to augment real estate taxes with income taxes

    3 50.00%
  • Allow towns to replace real estate taxes with income taxes

    1 16.67%
  • Require towns to replace real estate taxes with income taxes

    0 0%
  • Other

    0 0%
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Thread: Local income tax as an alternative to real estate taxation?

  1. #1
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    Default Local income tax as an alternative to real estate taxation?

    Three general reasons that people vote against tax increase include the following.

    1. They think that taxes aren't being spent efficiently, and that the same services can be provided for less.
    2. They don't like paying taxes and/or don't value the services that those taxes provide.
    3. They can't afford the tax increase.


    1. Taxes aren't being spent efficiently
    No budget is perfectly lean, but no one has yet to suggest any significant examples of waste in Wayland's school and municipal budgets. That said, suggestions for areas of improvement are always welcome.

    2. Don't like paying taxes/don't value services
    Not much can be done here except for continual education on the value of school and municipal services.

    3. Can't afford taxes
    No one wants to see taxes increase, even for such worthy reasons as paying teachers, police officers, fire fighters, road workers, librarians, and all of the other employees who serve the town. That said, some in town simply have a difficult time affording these increases.

    In recent years, federal and state governments have lowered income tax rates, and as a result, funds for local services. The burden for providing these services has therefore fallen more heavily on local funds. In Massachusetts, unfortunately, these local funds come not from an income tax, but rather from a much more regressive real estate tax.

    Without downplaying the hurdles necessary to make this happen, it occurs to me that the real estate crunch affecting those with affordability challenges could be eased by one of the following changes to the way that towns raise funds.

    A. Allow towns to augment real estate taxes with income taxes
    B. Allow towns to replace real estate taxes with income taxes
    C. Require towns to replace real estate taxes with income taxes

    I'm interested to know what people think about the idea in general and the specific approaches I've suggested.

  2. #2
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    Interesting thread. I believe that a good way to lower my taxes is to live in a (relatively) smaller house. I am a proponent of the flat-tax effect of real estate taxes. We chose to live below our means and put the money saved for our retirement/ kid's education/ charity/ trips/ fine wines etc. As a result we are not gobsmacked when presented with overrides.

  3. #3
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    Default

    On the Wayland Town Crier discussion board, Alan Reiss posed several questions regarding a local income tax. I certainly don't have all the answers, nor am I a tax expert, but I'll take a stab.

    Quote Originally Posted by Alan Reiss
    I've heard about this local income tax idea... does this eliminate RE Taxes? How is it tied to gross or net and what would be the details of how it would be judged in terms of taxability?
    Local income taxes might augment RE taxes, or they might replace them. As a starting point, I'd assume revenue neutrality relative to current RE taxes. That is, this isn't a mechanism to increase taxes by virtue of the changeover.

    Quote Originally Posted by Alan Reiss
    For example if someone received gifts from family that were not income then that couldn't be taxed.
    Lottery winnings? Couldn't somebody avoid taxes creatively here?
    To keep this idea simple, I'd simply use taxes as reported on either the federal or state return.

    Quote Originally Posted by Alan Reiss
    What about an increase in Mass sales tax to be distributed locally to offset RE tax....?
    I find sales taxes to be generally regressive, just like RE taxes, so I'd stay away from this.

    Quote Originally Posted by Alan Reiss
    What about tax in telecommunications or internet infrastructure to be distributed locally to offset RE tax... ?
    I'm all for the state to return to its prior state aid commitment. I don't have a problem with taxes such as these to accomplish this objective.

    Quote Originally Posted by Alan Reiss
    Also the issue of local income tax... would that be state or federaly deductable? Because RE tax is... so that would have to be figure into the calculations.
    Excellent question, I don't know if the federal tax code allows for this, but would not want to change federal deductions.

  4. #4
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    Default A mix of taxes...

    I think it would be appropriate (if made legal) to make our local taxes a blend of property and income taxes. It would shift the burden towards those most able to pay, and relax the burden on older, fixed income residents - while still requiring them to pay some taxes based on the valuable asset they live in.

    Something like a 50-50 mix would be fine -- with the overall tax levy unchanged, but shifted partly from a property tax to a income tax.

  5. #5
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    Default Unintended consequences

    Jeff, as spoke in person on this and for the benefit of the readers, I believe it was the book "Tipping Point" where an Israeli Day Care center was having a problem with parents picking up their kids 'late' without penalty. The Day Care center then imposed a fine of about $3 and guess what happened? The number of violations went up because now the parents saw that there was a small but reasonable price to pay for being late. $3 was well worth the tardiness and now they no longer felt guilty about being late. I mean they were paying a price for it weren't they? The Day Care center then changed the penalty to a much higher figure and on a ' per minute' basis and the problem promptly went away.

    So the point of this story is that if Wayland were to institute a local income tax then it could have unintended consequences. People who make large incomes but live in small houses might flee and in general, people wanting to move into Wayland would have to do a calculation as to what would be a better deal... taxing their income vs. the type of house they could buy. I could see this getting rather complicated. Wayland real estate might suffer in unintended ways.

    So, if something like this were to actually occur it would have to be at least state wide and even better country wide... (as you also pointed out to me).

    One other note is that the city of Philadelphia (where I grew up) put into place a 4.375% income tax for its residents and even those who had to drive through the city just to get to work. (this happened about 1976 under mayor Frank L Rizzo) That was just about the time I decided to think about moving out of Philadelphia which I did at the first chance I had in 1979... small coincidence huh?

    These are good ideas but have to be modeled and thought through to avoid unintended consequences.

    Regards,

    Alan J. Reiss

  6. #6
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    Default Alan's point is fair...

    Alan, you make a good point. And just as you don't want to scare away the resident with the big income in the modest house, you also don't want to encourage the resident in the big house with the small income to take advantage of the adjusted mix either. So any new policy would have to be well thought out and the dynamics studied.

    It certainly would be best done on a statewide level. And that isn't likely to happen. But it would be nice to have some way to shift the burden to those more able to pay. It's unfortunate that all the proposals on the table (meals taxes, hotel taxes, etc.) aren't likely to do much for Wayland. And the proposal to exempt qualified seniors from Prop 2 1/2 overrides appears dead in the senate (no thank you to Senator Brown on that one).

    In the meantime, we need to do all we can to allow for exemptions, rebates, etc. These are tools we do have, and while Wayland has been great about implementing them, I'm not clear that we've been as good as possible about doing the outreach to see the programs are well-known. Also, they are primarily directed at older residents, not at younger, lower-income residents.

  7. #7
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    Default Freakonomics

    Quote Originally Posted by AlanJReiss View Post
    Jeff, as spoke in person on this and for the benefit of the readers, I believe it was the book "Tipping Point" where an Israeli Day Care center was having a problem with parents picking up their kids 'late' without penalty. The Day Care center then imposed a fine of about $3 and guess what happened? The number of violations went up because now the parents saw that there was a small but reasonable price to pay for being late. $3 was well worth the tardiness and now they no longer felt guilty about being late.
    Alan, I think it was Freakonomics. A fun read.

  8. #8
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    Default Yes Freakonomics

    Hi Kim, yes.. I read Tipping Point first then Freakonomics second so I confused the two books. Both were great reads.

    On your point:
    "In the meantime, we need to do all we can to allow for exemptions, rebates, etc. These are tools we do have, and while Wayland has been great about implementing them, I'm not clear that we've been as good as possible about doing the outreach to see the programs are well-known. Also, they are primarily directed at older residents, not at younger, lower-income residents."

    Also, I agree on your point about taking care of the elderly via our various programs but we must put into perspective what we really offer. Because its really just a token when taken into perspective.... as for the younger families, I'm not sure what mechanism would be available for relief if any.

    But for the elderly...
    The two major ones are the work off program which is paid at $8 / hr up to $460 which may be taxable and since there is about $22K to fund this it covers about 44 households over the age of 60. With a projected, new tax rate of (say) $16 / K and on a median of (say) $544K then the median tax bill is $8700 and the work off program (before taxes) would be about a 5% reduction again on 44 households and we have 2,134 households with the head of the household being 60+. So thats 44 / 2,134 which is a pretty small fraction and those still pay 95% after working 40 hours.

    The second program is circuit breaker which covers 65+ and has a $750 benefit with a match by the state of $750 so its $1,500. We have 1,569 65+ households and about 2% of those households are able to take advantage of it. Using the same median arithmetic above 2% of the 65+ households will see a 17% reduction in RE tax.

    I've called this a token... you may have a different view of it but I believe that these numbers are a pretty good estimation of what is happening. I've vetted most of these numbers through the CoA and am using a data base of Wayland citizens which is about 4 months old.

    Regards,

    Alan

  9. #9
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    Default

    If you liked Tipping Point and Freakonomics, be sure to check out William Poundstone's "Gaming the Vote: Why Elections Aren't Fair (and What We Can Do About It)." (And no, I don't work for amazon.com.)

    Far from an arcane treatise on the mathematical workings of various voting methods, it's a fascinating and well-written story of how we make important decisions. I won't give away his recommendation, but had it been in place in, oh, I don't know, say, Florida in 2000, we might be on a different national path right now.

    You see, Kim, the future is book reviews!

  10. #10
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    Saw this article this morning, and wondered if anyone might have anything new to say on the topic: http://www.boston.com/news/local/mas...al_income_tax/

  11. #11
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    Some unintended consequences....

    1. Rich person with lots of liquid worth and stock (which is not cashed in)
    Puts interest income into trust and gets trust allocations not subject to income tax.
    Has expensive house but now doesn't pay much in RE tax and pays little tax on his social security stipend.
    Good deal for him.

    2. Over time people with very high incomes move out and sell to people with lower incomes but can still afford that house and be house poor.
    Town transitions to less affluent and collects less and less income tax and much less RE tax due to reduced rate.
    Over time town can't pay for insatiable budget increases and has to increase RE tax rate.
    Now we have an income tax and an increasing RE tax rate... the worst of both.

    Always remember: "The power to tax is the power to destroy" Daniel Webster..... and he could spell too.

    http://www.bartleby.com/73/1798.html

  12. #12
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    Quote Originally Posted by AlanJReiss View Post
    Some unintended consequences....
    Although I'm in no way an expert on taxation and how different types of taxation change people's actions, I suspect that the motivations driving the sheltering of income are already in strong force by virtue of federal and state income taxes. That said, the cautions raised above certainly warrant careful consideration.

    And while I'm no fan of Proposition 2 1/2 (why wasn't it Proposition 3, or 3 1/2, for instance?), I don't see any reason why some sort of taxation cap on increases couldn't also include income tax. If the town's real estate plus income tax levy limit can't increase by more than 2 1/2% without voter approval, then there really isn't the "worst of both" situation that Alan raises above.

  13. #13
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    Quote Originally Posted by Jeff Dieffenbach View Post
    And while I'm no fan of Proposition 2 1/2 (why wasn't it Proposition 3, or 3 1/2, for instance?),
    Jeff, I'll bet you thought the original CLT initiative was prop 25 and you were overjoyed... and discovered to your dismay later that it was actually prop 2.5 [GRIN]

    Quote Originally Posted by Jeff Dieffenbach View Post
    I don't see any reason why some sort of taxation cap on increases couldn't also include income tax. If the town's real estate plus income tax levy limit can't increase by more than 2 1/2% without voter approval, then there really isn't the "worst of both" situation that Alan raises above.
    Jeff, We've had a taxation cap on RE taxes of 2.5 for 25 years. Since when did that stop Wayland?

    Another tax revenue stream for the 'taxsayers'? No thanks.

  14. #14
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    I'm suggesting (as are others) two smaller tax revenue streams versus one larger one. The two smaller ones just hit those with lower incomes less hard. Setting aside the perhaps considerable implementation details, Alan, do you really prefer a real estate tax to an income tax or a hybrid tax, total revenue being equal?

  15. #15
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    I would prefer to not provide new avenues for government to tax its citizens.
    I don't trust the idea that if another taxation stream were added then somehow both would combine in such a way to provide fairness or not become overbearing in time. Politicians change, times change, priorities change and we would be giving government a legal means to grab ahold of both our income and our real estate. There would nothing in place which could guarantee that the additional taxation would not be abused either separately or in combination with the RE tax. I simply don't trust government enough to increase their taxation power and I would hope that the majority of people would feel this way.

    Jeff, you could not guarantee it and neither could the most well intentioned politicians.

    Keep the system the way it is... keep it simple.

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