8/31/06
Tax fairness is quality of life issue and once again will be issue addressed during political campaigning
In Minnesota, politics and property taxes are inseparable. This election season youíll hear plenty of complaining about property taxes, much of it from DFL candidates. For decades politicians have tangoed over complex fiscal relationships between state and local governments that essentially boil down to who pays how much for local services and who gets most of the blame.
ìItís a bind for city officials because the property tax is the least popular tax,î says Eric Willette, manager of policy analysis for the League of Minnesota Cities. ìItís not one you like to use. Citizens hate it.î
Politics aside, there is cause for concern about the direction of property taxes in Minnesota.
The last major tax reform was in 2001, when the Legislature sharply raised its contribution to K-12 education and cut school property taxes.
Relief was the order of the day for taxes payable in 2002, but since then property taxes have crept back up. Total property taxes are now higher than they were before the 2001 reform, according to Willette.
Republican Gov. Tim Pawlenty and the 2003 Legislature handled the stateís $4.5 billion budget deficit without raising state income or sales taxes. Cuts in aid to cities led to property-tax hikes in many (though about a third of aid revenue was restored in 2005). In 2003 and 2005 the Legislature also took steps that made it easier for school districts to raise property taxes. Many of the school referendums on this Novemberís ballot are there because the Legislature raised a ceiling on how much districts can collect in voter-approved levies.
Meanwhile, the state has continued to phase out the Limited Market Value property-tax relief program. Partial loss of a program that helped shield homeowners from liability on fast-rising property values has contributed to overall property-tax growth.
Cities that had depended heavily on state aid were understandably jittery about replacing the revenue by shifting more of the burden onto local taxpayers. The League of Minnesota Cities was right when it urged the Legislature to consider raising state revenues to help
offset the recent budget deficits. That didnít happen.
But for most property owners, itís hard to argue that higher property taxes are the catastrophe some candidates would have you believe.
For one thing, the property tax is close to the people who pay it. Through the truth-in-taxation process, citizens are more than able to speak their peace about local taxing and spending.
And, state and local taxes are down in Minnesota. During the years of pre-recession budget surpluses, lawmakers made several permanent cuts in property, income and motor vehicle registration taxes. According to the Department of Revenueís most recent Tax Incidence Study, the percentage of income Minnesotans paid in state and local taxes dropped from 12.4 percent in 1994 to 11.3 percent in 2002, the last year for which data is available. By 2007 the tax bite is estimated to fall to 11.1 percent.
But as we said, thereís cause for concern. The property tax is a regressive tax, meaning those with lower incomes pay a higher share of their income for that tax than those with higher incomes. With state tax cuts, ìtax fairnessî has eroded, says the Minnesota Budget Project, an initiative of the Minnesota Council of Nonprofits. Tax progressivity tends to rise along the continuum from lower- to middle-income households, but drop off from middle- to high-income households. In 2002 the wealthiest households - those with incomes of more than $323,340 - paid 9 percent in state and local taxes, compared with the 12 percent paid by households with incomes between $45,440 and $57,590.
Minnesotaís slightly regressive tax system is less regressive than in many other states, thanks to reliance on a progressive income tax that helps balance the regressivity of other taxes, says the Minnesota Budget Project. That is proper. Tax fairness isnít a red state-blue state issue. Itís a quality-of-life issue, and a measure of how well government balances competing interests for the greater good.
Voters should remember that as the perpetual tango over taxes heats up this election season. -- (This editorial is the product of the ECM Editorial Board.)
HometownSource.com
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