Fallout Continues from Minnesota Bridge Collapse
Fight Over Federal Gas Tax Brewing
According to the U.S. Department of Transportation, an eighth of bridges in America are "structurally
deficient" which is the same designation that had been given
to the Minnesota bridge over the Mississippi that collapsed on August
1. This designation does not necessarily mean that a bridge is unsafe,
but the Department has stated that $65 billion could be spent immediately
in cost-effective ways to address these deficiencies.
So
it might seem reasonable that one effect of the August 1 tragedy would be to wake the nation up to pressing infrastructure needs. And in fact, Rep. James Oberstar (D-MN), chairman of the House Transportation and Infrastructure Committee, has introduced
a bill to temporarily raise the federal gas tax by five cents to fund
bridge repairs.
But
anti-tax advocates are having none of it. A coalition of 56 right-wing organizations
has sent a letter to
the President and Congress opposing the proposed gas tax increase.
It's not clear which side will win this argument. There is some support
on the Republican side of the aisle for raising revenue to address
the issue. Rep. Don Young (R-AK), the former chair of Oberstar's committee, caused
a stir when he said that hundreds of bridges are "potential
death traps," which would justify a tax increase to fund repairs.
Food Fights in State Legislatures?
Meanwhile, the situation on the state level doesn't look any less cantankerous. Minnesota Governor Tim Pawlenty and legislative leaders have
not yet agreed on the parameters of a special session that weeks earlier seemed the likely result of the horrific tragedy. Recently Governor Pawlenty said on a local radio program "I'm
not going to call a special session if there's going to be a
food fight. Not everybody's on the same page." But if he fears a food fight, he's
strangely ready to throw the first pie. The Governor
said he may add property tax relief to the session's
agenda, which would be oddly placed in a session that is supposed to address the bridge collapse.
The session isn't likely to start until after Labor
Day.
Other states are also taking transportation funding more seriously. Maryland Governor
Martin O'Malley is expected to call for a gas tax increase that would
adjust automatically for increases in the cost of construction. A
thoughtful Baltimore Sun article describes
the crisis that is created when gas taxes are low, but infrastructure
costs are rising. There's no such thing as a free lunch, and certainly
no such thing as a free bridge.
Border Conflict
The
Monty Python character expressed something that all politicians aspire to when he said, "To boost the British economy I'd tax all foreigners living abroad." Every elected official would prefer that any taxes
be paid by someone who can't vote them out of office. It's not any different
in Missouri, which recently triggered a war
of words with its neighbor, Kansas.
Kansas Governor Kathleen Sebelius is
becoming irritated about a seemingly arcane provision in a recent tax
bill signed by Missouri Governor Matt Blunt. The provision does what all states would love to do: It raises taxes on people who work in the state but live and vote somewhere else. And for the Kansas residents who work in Kansas
City, Missouri, that means their taxes have been raised by people unaccountable
to them.
Earlier this year, Governor Blunt signed into law H.B. 444, an
ill-advised bill that created a tax break for better off seniors who receive Social Security benefits. Included in this legislation is a provision ensuring that anyone who works in Missouri, but lives out of state will no longer be allowed to write off their out-of-state property taxes if they itemize on their Missouri income tax forms. This means that many workers who live outside of Missouri will pay higher Missouri income taxes. This is
a good thing for Missouri, which is struggling to provide adequate health care and education.
But
if you're a policymaker in neighboring Kansas you'd quickly understand that workers
who live in Kansas will actually pay less Kansas income tax because they can claim
credits for taxes paid to other states. Governor Sebelius asked Governor
Blunt to repeal this provision, which she says amounts to
a tax increase on nonresidents.
Seeing that shots were being fired at him from the other side of the border, Governor
Blunt relented partially and said that he'll support the provision's repeal in the 2008 legislative
session. But it's really not clear that the Missouri legislature would relent at all. "What
obligation do we have to Kansas people? Why would we want to give them
a break on Missouri taxes?" one Missouri legislator said publicly. Kansas Rep. Kenny Wilk, chairman of the House Taxation Committee, is vowing to retaliate unless
Missouri acts soon. He said, "Missouri just needs to decide whether they want to do this the hard way or the easy way. We will respond to make sure we recoup all — and plus a bit more — of
what we're losing."
Tax Reform? No. Save an Antiquated Pastime that Can't Support Itself? Yes.
In many ways, Maryland's current
debate over legalized gambling is depressingly familiar. Faced with a loophole-ridden and unfair tax system that cries out for progressive reform, some elected officials want to introduce thousands of slot machines as a politically palatable revenue-raising alternative. But Maryland offers an interesting, if bizarre, twist.
Governor Martin O'Malley's
administration is arguing that slot machines would make an excellent economic development tool for propping up the state's ailing horse-racing industry.
About
the best one can say about the idea of providing tax subsidies for such
a
small and distinctly 19th-century industry is that it's less expensive
than the more conventional smokestack-chasing other states continue
to engage in. But Maryland isn't the first state that's had this idea
-- and neighboring Delaware's experience has
not exactly yielded dividends for that state's racing industry. And as an excellent Washington Post editorial explains, the environmental and economic policy goals the administration allegedly seeks to achieve with slots are a red herring.
The author of the O'Malley administration report that
makes the economic development-based pitch for slots, Thomas Perez,
claims that the introduction of slots in neighboring states has "revitalized the previously moribund horse racing industries in those states." Perez describes his report as "a
fact finding tour of racetracks in Delaware, West Virginia and Pennsylvania." Perez's research techniques included counting the number of Maryland
license plates in a West Virginia parking lot -- but his time might
have been better spent just asking West Virginia's Racing Commission
chairman,
who sees "no correlation... inverse, in fact" between their 1994 introduction of slots at racetracks and
the current health of that state's racing industry.
How Not to Deal with the Property Tax Issue
Property
tax reform continues to make headlines in several states. Some Indiana property
taxpayers are revolting against what they perceive to be an unfair
system. Recently more than 3,000 Hoosiers signed post cards addressed
to their state policymakers urging them to fix the state's property
tax mess permanently. In fact, a legislative commission began hearings last month and Governor Mitch Daniels' appointed blue ribbon commission started work this week. The problems are that taxes are not based on a homeowner's ability to pay and that assessments are executed
poorly.
One thought-provoking solution described in the Indianapolis Star is to closely study the property in the state that is not being taxed. Indiana, like most states, exempts nonprofit organizations and religious institutions from paying the property tax.
In Marion County alone millions
of property tax dollars could be collected if religious institutions
paid property taxes. Estimates show there is $2.7 billion in property
that goes untaxed in Marion County. Should churches and nonprofit organizations pay property taxes? It's probably the case that no politician in Indiana would seriously propose to tax churches, but the fact that some are contemplating such a move could startle legislators enough to enact real reform.
Are
Rebates the Answer?
Indianans will receive locally-funded
property tax rebates this winter, but those rebates aren't being greeted with
much enthusiasm. Many question the motives of the legislators who approved these rebates. The Post-Tribune writes that instead of offering credits that would be applied to a homeowner's property tax bill directly, "The
General Assembly instead decided property owners should receive checks in
the mail, so they can see what their elected officials did for them this
year."
This week Montana homeowners can begin to apply for a $400 state-funded property tax rebate. The rebates were a highly contested issue in the legislative session as Republicans pushed for permanent property tax cuts instead of the one-time rebates supported by Governor Brian Schweitzer. The Montana rebates shed
light on a problematic aspect of property tax rebates and circuit breakers.
Because states don't often know how much property tax a homeowner paid,
it becomes the homeowner's responsibility to know about and apply
for the credit.
Itemized
Deductions on State Tax Are No Better
Another
misconceived approach to property tax reform is the itemized exemption for property taxes, which is allowed for most states' income taxes. One problem with this is that in the low- and middle-income families hit hardest by property taxes typically don't itemize. Also, income tax deductions are an "upside-down" tax break, since deductions are worth more to the wealthy taxpayers who typically pay higher income tax rates. If property taxes are problematic for some families, offering a deduction that is largest for the wealthiest and not available at all to many middle-income families is certainly not the
solution.
In the current skirmish between Missouri and Kansas discussed
above, some Missouri legislators have asked why people should be granted such an itemized deduction for property taxes paid in another state (which certainly angers those who pay Missouri income taxes because they work in Missouri, even though they live in and pay property taxes in Kansas). But the better question is why should Missouri allow an itemized deduction for property even if its located in Missouri. The deduction probably does little to help those who could
actually use some help.
Film Tax Credit Corruption in the Pelican State
Louisiana is
the number three film producing state in the nation, but behind the multi-million dollar films and flashy actors lies the dirty side of what can only be called the state's tax credit industry. As explained by
an article in the magazine Fast Company, the FBI is investigating whether or not a company was improperly granted film
production tax credits, which in Louisiana can
be converted to cash by resale to another party that pays state taxes. One
credit granted was worth more than the entire budget of the film produced.
In 2002, when the state first developed these credits there wasn't even a
system in place for the independent auditing of expenditures.
Louisiana's
former Film Commissioner, Mark Smith, is currently under investigation
and, in a perhaps predictable twist, now works for the movie industry.
The lack of oversight is not the only reason to question the whole
idea of tax credits for film production. Their impact on economic development
is questionable, particularly since nearly all states now have some
type of film tax credit.
