Property Taxes News



What to Watch for in 2014 State Tax Policy



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Note to Readers: This is the first of a five-part series on tax policy prospects in the states in 2014.  This post provides an overview of key trends and top states to watch in the coming year.  Over the coming weeks, the Institute on Taxation and Economic Policy (ITEP) will highlight state tax proposals and take a deeper look at the four key policy trends likely to dominate 2014 legislative sessions and feature prominently on the campaign trail. Part two discusses the trend of tax shift proposals. Part three discusses the trend of tax cut proposals. Part four discusses the trend of gas tax increase proposals. Part five discusses the trend of real tax reform proposals.

2013 was a year like none we have seen before when it comes to the scope and sheer number of tax policy plans proposed and enacted in the states.  And given what we’ve seen so far, 2014 has the potential to be just as busy.

In a number of statehouses across the country last year, lawmakers proposed misguided schemes (often inspired by supply-side ideology) designed to sharply reduce the role of progressive personal and corporate income taxes, and in some cases replace them entirely with higher sales taxes.  There were also a few good faith efforts at addressing long-standing structural flaws in state tax codes through base broadening, providing tax breaks to working families, or increasing taxes paid by the wealthiest households.

The good news is that the most extreme and destructive proposals were halted.  However, several states still enacted costly and regressive tax cuts, and we expect lawmakers in many of those states to continue their quest to eliminate income taxes in the coming years.  

The historic elections of 2012, which left most states under solid one-party control (many of those states with super majorities), are a big reason why so many aggressive tax proposals got off the ground in 2013.  We expect elections to be a driving force shaping tax policy proposals again in 2014 as voters in 36 states will be electing governors this November, and most state lawmakers are up for re-election as well.

We also expect to see a continuation of the four big tax policy trends that dominated 2013:

  • Tax shifts or tax swaps:  These proposals seek to scale back or repeal personal and corporate income taxes, and generally seek to offset some, or all, of the revenue loss with a higher sales tax.

    At the end of last year, Wisconsin Governor Scott Walker made it known that he wants to give serious consideration to eliminating his state’s income tax and to hiking the sales tax to make up the lost revenue.  Even if elimination is out of reach this year, Walker and other Wisconsin lawmakers are still expected to push for income tax cuts.  Look for lawmakers in Georgia and South Carolina to debate similar proposals.  And, count on North Carolina and Ohio lawmakers to attempt to build on tax shift plans partially enacted in 2013.  
  • Tax cuts:  These proposals range from cutting personal income taxes to reducing property taxes to expanding tax breaks for businesses.  Lawmakers in more than a dozen states are considering using the revenue rebounds we’ve seen in the wake of the Great Recession as an excuse to enact permanent tax cuts.  

    Missouri
    lawmakers, for example, wasted no time in filing a new slate of tax-cutting bills at the start of the year with the hope of making good on their failed attempt to reduce personal income taxes for the state’s wealthiest residents last year.  Despite the recommendations from a Nebraska tax committee to continue studying the state’s tax system for the next year, rather than rushing to enact large scale cuts, several gubernatorial candidates as well as outgoing governor Dave Heineman are still seeking significant income and property tax cuts this session.  And, lawmakers in Michigan are debating various ways of piling new personal income tax cuts on top of the large business tax cuts (PDF) enacted these last few years.  We also expect to see major tax cut initiatives this year in Arizona, Florida, Idaho, Indiana, Iowa, New Jersey, North Dakota, and Oklahoma.

    Conservative lawmakers are not alone in pushing a tax-cutting agenda.  New York Governor Andrew Cuomo and Maryland’s gubernatorial candidates are making tax cuts a part of their campaign strategies.  
  • Real Reform:  Most tax shift and tax cut proposals will be sold under the guise of tax reform, but only those plans that truly address state tax codes’ structural flaws, rather than simply eliminating taxes, truly deserve the banner of “reform”.

    Illinois and Kentucky are the states with the best chances of enacting long-overdue reforms this year.  Voters in Illinois will likely be given the chance to convert their state's flat income tax rate to a more progressive, graduated system.  Kentucky Governor Steve Beshear has renewed his commitment to enacting sweeping tax reform that will address inequities and inadequacies in his state’s tax system while raising additional revenue for education.  Look for lawmakers in the District of Columbia, Hawaii, and Utah to consider enacting or enhancing tax policies that reduce the tax load currently shouldered by low- and middle-income households.
  • Gas Taxes and Transportation Funding:  Roughly half the states have gone a decade or more without raising their gas tax, so there’s little doubt that the lack of growth in state transportation revenues will remain a big issue in the year ahead. While we’re unlikely to see the same level of activity as last year (when half a dozen states, plus the District of Columbia, enacted major changes to their gasoline taxes), there are a number of states where transportation funding issues are being debated. We’ll be keeping close tabs on developments in Iowa, Michigan, Missouri, New Hampshire, Utah, and Washington State, among other places.

Check back over the next month for more detailed posts about these four trends and proposals unfolding in a number of states.  



DC Council Gets it Half Right on Property Taxes



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Much like their colleagues to the north, District of Columbia lawmakers are giving serious thought to cutting taxes now that an election is approaching.  According to the Washington Post, “10 of the council’s 13 members [are] running for re-election or higher office this year.”  It should come as little surprise, then, that the Council recently voiced unanimous support for a generous (but ill-conceived) property tax break for one of the city’s most politically popular groups—its senior citizens.  More encouraging, however, was the Council’s decision to delay action on an even more problematic bill that would have showered most of its benefits on owners of the city’s most valuable homes.

The first bill, introduced by Councilmember Anita Bonds, completely eliminates the property tax for any long-term DC resident over age 75 as long as they earn less than $60,000 per year.  But as Ed Lazere of the DC Fiscal Policy Institute (DCFPI) points out: “If you're 74, you get nothing … If you're 75, you have your taxes entirely limited.”  While it’s true that some senior citizens struggle with their property tax liabilities because they are “house-rich” but “cash-poor,” this isn’t a problem limited to taxpayers over age 75.

Rather than wiping out property taxes altogether for those taxpayers fortunate enough to have lived a long life, the District is better off providing this kind of relief more broadly through its property tax “circuit breaker” credit.  The credit, which is currently being expanded, will soon be available to both renters and homeowners of all ages earning up to $50,000 per year.  It also uses a more sophisticated formula than Bonds’ proposal to ensure that Washingtonians’ property tax bills do not exceed the income they have available to pay those bills.  An expert commission created by the Council recently recommended making no further changes to DC’s property tax system, but if the Council nonetheless wants to charge ahead with property tax cuts, the city’s circuit breaker credit is the better tool for the job.

The second bill, introduced by Councilmember (and current mayoral candidate) Jack Evans, would have tightened the District’s existing property tax cap to prevent tax increases of more than 5 percent per year.  As the Institute on Taxation and Economic Policy (ITEP) explains, these kinds of tax caps are poorly targeted, extremely costly, and often grossly inequitable.  Most of the tax breaks doled out under such a cap would flow to owners of expensive homes.  For example, DCFPI estimates that nearly two-thirds of the benefits of Evans’ proposal would go to owners of homes worth over $550,000, despite the fact that this group makes up just 31 percent of all DC homeowners.  Further inequity arises when, for example, a resident who has owned their current home for a number of years (and racked up substantial tax cap benefits over that time) ends up enjoying a significantly lower tax bill than the first-time homebuyer in an identical rowhouse next door.

Mayor Vince Gray opposes the 5 percent property tax cap because of its “negative financial impact on the District’s revenues, its inequitable treatment of District homeowners and because it does not increase the District’s competitiveness regionally.”  These objections are well stated, though all of them also apply, to a lesser extent, to the over-75 giveaway sought by Councilmember Bonds.



Will Indiana Cut Local Revenues Yet Again?



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Having already cut taxes for the state’s wealthiest residents, Governor Mike Pence and Indiana’s legislative leadership have shifted their focus toward cutting taxes for businesses.  Specifically, they’ve declared eliminating or reducing the business personal property tax to be a top priority for the upcoming legislative session.  The business personal property tax, levied mainly on equipment and machinery, currently raises over $1 billion each year for localities, school districts, and library districts.  State lawmakers would not see their revenues directly affected by repeal of the tax.

Governor Pence says that he wants to take this revenue source away from local governments in a way that would not “unduly harm” them, though he did not specify how he would accomplish this goal, or what an acceptable level of “harm” would be.  While some localities collect just 3 percent of their total property tax revenues from business property, others depend on the tax for as much as 40 percent of their property tax collections.

If the tax is repealed, state aid would be hugely important in avoiding deep cuts in local services, but other states’ track records in providing such aid is less than encouraging.  Lawmakers face a constant temptation to renege on promises they’ve made to localities as they begin to look for ways to pay for their own tax or spending priorities, or when the state budget eventually falls on hard times.

Unsurprisingly, then, the head of the Indiana Association of Cities and Towns says that “every mayor that I have spoken with is deeply concerned about what the elimination of the personal property tax might mean to local government.”  The Associated Press also provides some important context for their concern, noting that “many communities are still struggling with their budgets five years after the enactment of statewide property tax caps.”

If the business personal property tax is repealed and local governments are left to fend for themselves, Dr. Larry DeBoer of Purdue University estimates that other property owners would be asked to make up about half of the lost revenue.  Specifically, he expects that they would see their property taxes raised by a combined total of about $453 million per year.  In part because of the 2008 property tax caps, however, localities would also have to cut their budgets to make up much of the difference.  Unless state lawmakers devise a plan to truly make localities whole (and actually to stick to that plan), Indiana residents could expect their local services to be cut by up to $510 million each year, on top of the cuts that have already gone into effect.



Scott Walker's Tax Record Will Be on the Wisconsin Ballot Next Year



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Voters in 36 states will be choosing governors next year.  Over the next several months, the Tax Justice Digest will be highlighting 2014 gubernatorial races where we expect taxes to be a key issue. Today’s post is about the race for the Governor’s mansion in Wisconsin.

To many Wisconsinites, it may seem like yesterday that Governor Scott Walker survived a recall election against Milwaukee Mayor Tom Barrett. But in less than a year, he’ll be up for reelection. This time Mary Burke, a Trek Bicycle Corp. executive and state Commerce Department secretary, is the Democrat hoping to unseat him.  During the campaign, Walker will most certainly tout his record of cutting taxes, but anyone who’s paid attention knows his record is nothing to be proud of.

This year alone he signed legislation that both cut property taxes and reduced income tax rates in a way that does little for Wisconsin’s neediest residents – the opposite, actually. In fact, the budget he introduced in 2011 was called a betrayal of Wisconsin values by the Center on Wisconsin Strategy and other public interest groups because he ultimately approved legislation that reduced the Earned Income Tax Credit (EITC), thus increasing taxes on the state’s poorest working families. That budget also included $2.3 billion in tax breaks over a decade, in the form of a domestic production activities credit, two different capital gains tax breaks for the rich, and a variety of new sales tax exemptions, including for snowmaking and snow grooming equipment.

Challenger Mary Burke is being cautious and has yet to put out her own tax plan. She recently told the Milwaukee Journal Sentinel, however, that she would not take a pledge to not increase taxes, saying, “I'd want to look at the totality. We collect revenue in a lot of different ways. I certainly wouldn't look at raising (taxes), but I'd also want to look at it in the context of our finances, our budgets …” When we learn more about her plan, we’ll review it for you here.

 



Governor Scott Walker Appropriates State Budget Surplus for Campaign Season Tax Cut



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Earlier this month, with an unexpected $100 million biennial budget surplus burning a hole in his pocket, Wisconsin Governor Scott Walker proposed to use the one-time surplus to permanently cut local property taxes. In a whirlwind legislative session, a bipartisan group of Wisconsin lawmakers approved Walker’s tax cut with little opposition. Walker signed it into law over the weekend in a media-friendly event, with a red barn as the backdrop and children as nearby props.

The new law adds $100 million in state aid to local school districts over the next two years—which, due to the state’s strict local revenue limits, means that local governments receiving the new aid will be forced to reduce their property taxes dollar for dollar.

But there’s a hitch. The forecast $100 million surplus may be just a memory two years from now, but the new state aid will be permanently on the books. As the Wisconsin Budget Project (WBP) points out, using a one-time budget surplus to fund a permanent property tax cut is a recipe for long-term fiscal difficulties. Down the road, lawmakers will likely be forced to either hike state taxes or cut other areas of spending to pay for Walker’s tax cut. And “down the road” isn’t that far off: the Legislative Fiscal Bureau is already estimating a budget shortfall of about $725 million for the biennium starting in 2015.

Even worse, the new law will offer trivial tax breaks to homeowners, despite its huge price tag. The typical homeowner will see just $33 in property tax cuts over the next two years and many ordinary homeowners will see no cut at all. This is because the Governor’s plan will cut property taxes across the board, offering tax breaks to big corporations, shopping malls and vacation homes in addition to Wisconsin homeowners who happen to live in the right school districts.

In an attempt to disguise this campaign season ploy as a fiscally responsible plan, defenders of the new law argue that a new deal requiring Amazon.com to collect sales taxes in Wisconsin will help pay for the cut. But the estimated $30 million a year from that deal is not “new revenue,” and it’s already got a purpose—it’s legally-owed sales tax revenue that should already have been helping to fund schools, roads and medical care for years.

One of the few responsible legislators who voted against the tax bill offered some illuminating observations. Noting that it amounts to less than a dollar a month for the average home owner, State Senator Tim Cullen said that this trumpeted “tax relief” was aimed at nothing more than ensuring Governor Walker’s re-election. “That at the end of the day is what this is all about — $100 million of property tax relief. Nice headline." More specifically, many share the view that the Governor was more interested in scoring political points than promoting good tax policy, and it’s a shame so many members of his legislature willingly played along.

 

 

 



Census Says Poverty Persists, Here's What States Can Do About It



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This week, the Census Bureau released new data showing that the share of Americans living in poverty in 2012 remained high, despite other signs of economic recovery.  While the national poverty rate (15%) and the rates in most states are holding steady, the number of people living in poverty today is much greater than in 2007, prior to the start of the recession.

The good news is that policy makers have at their disposal several affordable, targeted and effective tax policy tools to alleviate economic hardship and help families escape poverty.  An updated report from our partner organization, the Institute on Taxation and Economic Policy (ITEP), “State Tax Codes as Poverty Fighting Tools,” provides a comprehensive view of anti-poverty tax policies state-by-state, surveys tax policy decisions made in the states in 2013, and offers recommendations tailored to policymakers in each state as they work to combat poverty. As ITEP lays out in its signature Who Pays report, virtually every state and local tax system is regressive, contributing to the challenges of America’s low-income families; State Tax Codes as Poverty Fighting Tools details some options for reversing that.

See ITEP's companion report, Low Tax for Who?

In most states, truly remedying tax unfairness would require comprehensive tax reform. Short of this, lawmakers should consider enacting or enhancing four key anti-poverty tax polices explained in the report: the Earned Income Tax Credit, property tax circuit breakers, targeted low-income tax credits, and child-related tax credits. (Each of these provisions is also described in an ITEP stand-alone policy brief.) Unfortunately lawmakers in a number of states have moved in the wrong direction this year (North Carolina, Ohio and Kansas are top of the list), pursuing massive tax shifts that would hike taxes on their poorest residents while unjustifiably reducing them for the wealthiest individuals and profitable corporations. 

Given the persistence of poverty in the states as documented by the new Census data, policy makers should be focused on finding ways to boost the incomes of low- and moderate-income families rather than taxing them deeper into poverty in order to provide tax breaks to the well- heeled.

 



It Wasn't Property Taxes that Cost DC Residents their Homes



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No one should be taxed out of their homes. It’s a sentiment that finds support across the political spectrum: homeowners, especially senior citizens and low-income families, should not lose their homes because of their property tax bills. Yet as a Washington Post investigation revealed this week, the DC city government’s use of “tax lien sales,” through which the government allows a small number of private agencies to act as debt collectors for unpaid property tax levies, has given “predatory” private investors license to foreclose on the homes of hundreds of city residents over the past five years.  As a result, some low-income and elderly homeowners have been left with nowhere to live and with no equity in the homes many had owned outright.

The Post article profiles Bennie Coleman, a 76-year-old widower who ultimately lost his house after not paying a $134 property tax bill. When Coleman didn’t pay his bill, the city imposed a tax lien on the property, and then sold the lien to a private investor who was allowed to charge Coleman double-digit interest until the debt was paid. But the interest and penalties charged by this predatory investor pushed the total debt up to $5,000, and the investor foreclosed on the property.

Within a day of the Post report’s publication, Mayor Vincent Gray was vowing that “we cannot allow those kinds of things to happen again,” and City Council chair Jack Evans was preparing emergency legislation to limit private investors’ use of tax lien sales.

As the Post’s coverage makes clear, the cause of these foreclosures was not an out-of-control tax system, but rather the practice of allowing private debt collectors to charge exorbitant fees on top of the often minimal property tax debt. As it happens, Washington DC’s property tax system goes further than many states in minimizing property taxes on at-risk families and seniors: the city allows low-income families to claim a property tax credit of up to $750, and also allows low-income seniors to simply defer unaffordable property tax bills.  Until recently, the tax credit was only available to families with incomes under $20,000 – an amount unchanged for 35 years – leaving out many families living at or below the federal poverty level.  But just this summer, the DC City Council made significant improvements to the property tax credit, increasing income eligibility to $50,000 (about 200 percent of poverty for a family of four) and boosting the credit to $1,000.

In most states, there are only limited mechanisms in place to relieve unaffordable property tax bills for low-income taxpayers. And as an ITEP survey finds, virtually every state could take sensible steps to enact more generous low-income property tax relief programs.

The clear lesson of the abuses documented by the Post is that Washington DC's system for collecting unpaid property taxes must be overhauled. But a more basic lesson any state’s policymakers can learn from this harrowing tale is that it’s vital to design property tax rules in a way that don’t jeopardize low-income, fixed-income and senior homeowners through judicious use of “circuit breakers” and tax deferrals.



Iowa Debates Property Tax Cuts



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The debate over how to effectively tax property in Iowa has raged for years. A new report from the Iowa Fiscal Project (IFP) compares and contrasts the property tax reform proposals put forward by the Iowa House and Senate. The report was described in this Des Moines Register editorial with high praise: “No matter which approach prevails, the Iowa Fiscal Partnership deserves credit for an unbiased examination of the impact of the competing property tax proposals on real businesses in Iowa.”

Currently, commercial property taxes are based on 100 percent of their actual values. Residential property is treated very differently. IFP reports that most recently residential property was assessed at just 52.8 percent of actual value. This disparity is something that Governor Branstad, the Iowa House and Senate are working to address. The Senate bill would create a property tax credit which would ultimately mean that some commercial property would be taxed like residential property. The House bill (which has the support of Governor Branstad) would ultimately tax commercial property at 80 percent of its actual value. In its report, IFP raises important questions about how local governments will be reimbursed for the resulting reductions in a significant local government revenue source should either bill become law. The Senate bill provides more targeted tax relief to corporations, whereas the House bill provides a property tax reduction to all businesses.

It could be that this issue gets put on hold for yet another year because Senator Joe Bolkcom (chair of the Ways and Means Committee) is vowing, as he has before, that no compromise on a tax bill will be reached until an increase in Earned Income tax Credit (EITC) is signed into law.



It's a Fact: Undocumented Workers Pay Taxes



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After a year in which tax issues dominated national policy debates, President Barack Obama has signaled that immigration issues will be at the forefront of his legislative agenda in 2013. With immigration reform evidently gaining momentum, some old tax-related bugaboos are sure to resurface as the debate gets underway: in particular, some have argued that undocumented immigrants pay no taxes to states or to the federal government.

A couple of years ago, the Institute on Taxation and Economic Policy (ITEP) worked with the Immigration Policy Center to assess the truth of this claim. Our finding? Far from being tax avoiders, undocumented families pay many of the same regressive taxes that hit all low-income families at the state and local level. We estimated that nationwide, undocumented families paid about $11 billion in state and local taxes in 2010.

The main reason for this is that the sales and excise taxes that fall most heavily on low-income taxpayers don't depend on your citizenship status. Anytime you buy a cup of coffee, a pair of jeans or fill up your tank up with gas, you're paying state and local sales and excise taxes. There are also property taxes, including for renters, who pay them indirectly because landlords frequently pass some of their property tax bills on to their tenants in the form of higher rents. And, many undocumented taxpayers have state income taxes withheld from their paychecks each year.

The bottom line? Even if there were 47 percent of the population paying no taxes (and there isn’t), undocumented immigrants would not be among them. In fact, to find people who don’t pay taxes, take a closer look at the wealthiest among us.

 

 



Quick Hits in State News: Tricks, Treats and Taxes!



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Happy Halloween to our readers!

In honor of the spookiest of all holidays, we want to start by sharing this recent Wall Street Journal piece called Meet One of the Super-PAC Men which profiles Missouri’s Rex Sinquefield, the masked financier behind of one of the scariest state tax policy proposals around -- eliminating Missouri’s income tax and replacing it with increased sales tax revenues.

Word is that fracking taxes, income tax cuts, bank “tax reform” and possibly privatizing the Ohio Turnpike could all be priorities for Ohio’s ghoulishly anti-tax governor, John Kasich. Given the Governor’s track record of supporting tax cuts above all else, we are more than a little afraid about what is to come in the Buckeye State.

Kansas Governor Sam Brownback recently proposed a “property tax transparency” plan which will prevent automatic property tax increases when property values rise. But this proposal leaves local governments who depend on the property tax at the mercy of a zombie math formula. Brownback’s plan should spook all the citizens who depend on local government services.

This one will send a shudder up the spines of supply-siders who want to cut taxes on businesses and the wealthy under the guise of economic development.  The Wisconsin Budget Project is reporting on a national poll which found that a “majority of small-business owners believe that raising taxes on the top 2% of taxpayers is the right thing to do.” On this issue, anyway, it looks as though the good goblins are giving Grover a run for his money!

 

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