We should raise the Massachusetts income tax

September 4, 2004

Costs are shifting from the (progressive) income tax to the (regressive) property tax. This is a problem.

When we moved to Massachusetts from California, the income tax was 5.95%, double that on out-of-Mass investment and interest income. Since then the income taxes have fallen to about 5.3%, and (I think) the doubling for investment income has been removed. Our property taxes, however, continue to rise, and despite this services are being cut.

There are two reasons for this. First, costs do go up. Second, one side-effect of the recession and the income tax rollback has been less money available for the state to send to the towns.

Reduced state aid has several bad effects. First, because the town must fund more of its own services, they watch every penny. You might think that this is a good thing, because it sounds like it encourages efficiency, but (at least in our town) all the usual efficiencies have been run through; we run the most (or second-most) efficient school in the state, delivering top-10 results in a state known for good schools, for less than the state average in per-pupil spending. Now, children are requested to include “chalkboard erasers” in their school supplies, and minor medical/comfort supplies for the school nurse (e.g., ginger ale for kids with upset tummies). The town’s roads need $2million/year in spending for a decade or so to get them back in good shape, and we’re not funding it. Fees are up, services have been cut, departments have been consolidated.

The cost of educating children also makes the town miserly in other ways. Whatever you may think of affordable housing (a necessary public good, spitting in the economic wind), school costs make us reluctant to promote housing that would have children in it. Some of this is irrational; I calculate that each additional house with two children in it has a yearly cost of about $1.50 per existing house (give or take $.50). But, if you add 100 units, that’s $150/year, and that’s apparently a big deal to many people.

Regressive local taxes also worsen the new-vs-old split in our town. Though the taxes are high, the tax rate is low (houses are expensive). What might be an absurd tax bill to someone who has lived here their entire life, is peanuts to a newcomer. New homes in this town cost at least $500,000, with a tax bill somewhere in the $6000-$7000 range. A 20% down payment is 16 years of property taxes; a monthly mortgage bill in the $2000 range, and the taxes on the income required to obtain and pay such a mortgage, make property taxes just not look that bad. The cost of private schools, if the local schools were not as good as they are, also makes the property taxes not look that bad. So, for newcomers, it’s no big deal, go ahead, raise my taxes. Oldtimers will actually have an incentive to sell out and leave town, and they will be replaced by new home owners, probably with kids, who don’t mind raising property taxes. It’s a hell of a way to treat the people who helped build this nice town, and it’s also a recipe for even higher property taxes in the future.

Supporting schools through property taxes also increases economic segregation. Towns with good schools tend to have higher property values, which tends to attract people who vote to increase property taxes to provide more money for the schools, and so on. This is great, if you can afford to move in and have kids, but if you cannot, then you tend to live in a town that cannot or will not fund its schools. Good schools stay good, but bad schools stay bad.

If the state income tax is increased, and much of that increase is turned back to the towns for education, many of these problems are reduced. There will still be a good-schools-bad-schools effect on property values, and it will select the most motivated parents for the good-school towns, but at least the financial link will be broken; towns with bad schools will be able to afford to try to make them better. Because school funding (half of our town’s budget) will be less dependent on local property taxes, there will be less push to increase them. This will keep taxes down on people who cannot afford to pay them. Affordable housing with children in it will be seen as less of a burden to the town budget, because they will BE less of a burden to the town budget. Long-term retired residents will not be priced out of town.

So, raise my income tax, please. It’s the right thing to do.

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