Learning from the Massachusetts tax cap
In 1978 Edward J. King was elected Governor of Massachusetts on a platform pledge to cut state property taxes by $500 million, a cut of 50 percent for many if not most Massachusetts homeowners. This, he insisted, could be done without shifting any of the tax burden to the state sales or income taxes.
While Governor King failed utterly to deliver on this pledge, he did persuade the state legislature to enact a 4 percent cap on increases in local spending financed by property taxes.
So far there have not appeared to be any substantial reductions in local services as a result of the cap.But a day of reckoning will come in Massachusetts, as in many other states, if further steps are not taken.
Property taxes among the nation's highest have been a Massachusetts hallmark for many years. This service-conscious state has hesitated to use the broader-based sales and income taxes for property tax relief and has used them instead to fund additional programs. The resulting spiralling property taxes, especially in the larger cities, have threatened low- and middle-income homeowners with bankruptcy. In 1978 Massachusetts local governments raised 56 percent of their revenue through property taxes as against a nationwide average of 33 percent, according to the Massachusetts Taxpayers Foundation (MTF), a business-funded group that keeps watch on state and local government finances.
Now, under the King cap, most local expenditures are not allowed to exceed the previous fiscal year's expenditures by more than 4 percent. A two-thirds majority of a city or town's governing body may override the tax cap. Towns with under 5,000 population are exempt from the cap. New Jersey, with a similar tax base, has a 5 percent cap on local spending.
Exempt from the cap are pensions, debt sevice costs, school district, transit , and other regional assessments, unemployment insurance costs, costs of court-mandated programs, and matching money for federal and state grants-in-aid.
The 4 percent cap has facilitated a net property-tax reduction of $30 million for the commonwealth's cities and towns for fiscal 1980 over fiscal 1979 -- or 1 percent of the state's $3 billion property tax load. This is a far cry from the
While total local expenditures were up roughly 4 percent in fiscal 1980 over fiscal 1979, those expenditures covered by the tax cap exceeded the previous year's expenditures by only 1.5 percent.
While most towns were well below the limit, a few larger cities including Boston spent right up to the limit. Local officials took it upon themselves to cut expenditures and were not unduly constrained by the cap. The biggest element in the local service picture is school costs, and they will decline as school enrollment declines, explains Susanne Tompkins, vice-president and director of research for the MTF.
She adds that a cap on local expenditures financed by the property tax without relief from the broad-based taxes freezes the present taxation pattern with all its inequities. The 1979 full-value tax rate of the low-income blue-collar city of Chelsea, for instance, was nine times that of the affluent Cape Cod community of Orleans. Even so the Orleans per capita expenditures on local services for fiscal 1980 exceed those of Chelsea by over $150. Inequities like this help ensure good schools for affluent communities, poor schools for low-income communities, and so on.
These inequities can be alleviated only by a much greater reliance on broad-based sales and income taxes and the substantial increases in state aid to the cities and towns that greater use of these taxes will make possible. Any tax increases are politically unpopular, especially in election years, and Governor King continues to oppose any increase in the broad-based taxes to fund property-tax relief. He also strongly opposes amending the state constitution to permit graduation of the state income tax in accordance with the ability to pay. Currently Massachusetts has a flat rate income tax of 5 percent on earned income and 10 percent on unearned income regardless of the total amounts on which a tax is owed. There is also a 5 percent limited sales tax.
Since no tax is more regressive or imposes a greater burden on low- and middle-income people than the property tax, alternative means of helping to carry the load must be found among the more progressive taxes. A tax cap on local expenditures is a logical first step, but cannot alone solve the problems created by excessive dependence on property taxes for the financing of local services in Massachusetts and in many other states.