A local income tax?

Forty-four bills relating to state government revenue were scheduled for public hearings this week by the Legislature’s Joint Committee on Revenue, and if one bill in particular gets through the legislative process, it will signal a significant shift in how Massachusetts cities and towns are allowed to levy taxes.

The bill, filed by Rep. Cory Atkins (D-Concord) and Sen. Michael Barrett (D-Lexington), would allow communities to provide property tax relief to its residents by shifting some of the tax burden to a local income tax. It would have to be accepted by local option and require a town meeting or city council vote, followed by a ballot question at the polls.

If both votes are successful, property taxes in that community would go down and an equal amount would be raised through the local income tax. The state Department of Revenue would add the additional amount onto the state income tax and then return those locally-generated funds back to each participating municipality on a quarterly basis.

This would be the first time Massachusetts cities and towns could tax their residents’ income, a revenue source the state has retained for itself.  This is nothing new for many states, where they have been levying county and municipal income taxes for years, but in Massachusetts, it’s a big change and will generate plenty of controversy.

Currently, the principal source of revenue for most Bay State cities and towns is the property tax, but in some communities with a poorer property tax base, state aid represents a much larger percentage of their annual revenues.

But, with some exceptions for low income seniors, veterans, blind persons and  surviving spouses and children, all property owners in any given community must pay the same rate for the real estate they own, regardless of their ability to pay.

This means that if a typical family of four owns a house valued at $352,756, which is the statewide average single family home value, they are going to have an annual property tax bill of $4,870, also the statewide average.

It doesn’t matter if the family earns $50,000, $500,000 or $5 million a year, they still pay the same amount. The property tax is a regressive tax.

The purpose of this legislation is to make those with higher incomes pay more in income taxes, while at the same time providing property tax relief to those who may own properties that have become more valuable over the years, but whose incomes are significantly lower.

Shifting some of the local tax burden from property to income requires only an amendment to state law; in other words, approval by the Legislature and the governor’s signature. Unlike a constitutional amendment, such as one that would be needed to create a more fair graduated state income tax, no statewide popular vote is required. 

 But many legislators are likely to be leery of any significant tinkering with state tax law this year, as they are faced this session with the governor’s large annual tax and fee increase for transportation and education.

Even though the new bill would simply move some of the municipal tax burden from one group of taxpayers to another and not be an overall increase in taxes, some folks would pay more income taxes, and there’s the rub. A similar bill was sent to a study committee in the last session and never came out, dying at the end of the year.

But Atkins, Barrett and their like-minded legislative colleagues deserve credit. They’re trying to establish some badly needed progressivity in the system of local taxation. The bill may not be successful this year, but there’s always next year.

Posted by Bruce Garlow on April 4, 2013. Filed under Berkshire Beacon Hill Spotlight,Columns,Opinion. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry