One way to get more money for Cape schools.

One definition of crazy is doing the same thing over and over again and expecting different results. State Rep Eric Turkington (D-Falmouth) believes that Cape Codders may be acting crazily when it comes to our continued attempts to get the state to adjust its school funding formula.

Turkington is quoted in the CC Times (4/29) as saying that “Since 1993, we’ve been arguing this fight…I’m starting to think that we’ve got to find another way to direct local aid to our towns than trying to modify this education funding formula. It was designed to be stacked against our towns. It has operated in that fashion for 13 years. It is going to continue that way.”

We agree with Eric. We have heard no argument that is likely to convince a legislator in any district that he should reduce funding in any town he represents so that Sandwich can have additional funding.

We’ve been saying for some time that the only way Cape Cod is going to get more school funding from the state is if everyone gets more school funding. Fortunately, we may be at a moment in state history where a little out-of-the-box thinking could make this happen.

Right now, many people think the state should continue the staged cuts of the income tax to 5%. Many others think that would be fiscally irresponsible. Suppose we do it this way: Instead of reducing the 5.3% income tax rate to 5%, we would take that extra revenue, which could be about $600 million, and send it directly back to the cities and towns, based on the residence of the taxpayer who paid it.

Every taxpayer has an official residence, and every address is in a city or town. The money that comes from a town would go directly back to that town. The state would process the money, and simply return it to the town.

This would produce significant additional revenue for the cities and towns.

We believe that the voters should decide how this revenue would be used. To allow those who paid the taxes to have their say, its disbursement would have to be subject to a vote of the residents of every city and town.

Those who want a tax cut would vote to have their property taxes reduced proportionately. That would reduce taxes in that town or city by the same amount as they would have been reduced by a reduction in the income tax rate.

Other towns might vote to have the money used to increase the school budget, or for some other municipal purpose. In any case, there is no increase in current taxes, just a shift in its allocations.

It’s our money, so let the people speak!

Mass should play to its strengths, not join race to the bottom

State Representative Jeff Perry sent a letter to some business owners on Cape Cod asking for their suggestions to help Massachusetts become more business friendly. He quotes Barbara Anderson to explain what is wrong with Massachusetts:

” ‘A lot of the states you’re competing with were really backwater states, and now they’re attracting the businesses and we’re losing out’ said Barbara Anderson, President of the Citizens for Limited Taxation. ‘You’ve always dealt with a Legislature that doesn’t have a clue about how business works, people with a business mindset think that Massachusetts is nuts, and that word spreads throughout the country’ Anderson also said the State’s total per capita tax burden is the Nation’s fourth highest”

I believe that both Barbara and Jeff are making a big mistake. Instead of trying to compete with “backwater states” Massachusetts should emphasize what we have that others states do not. We should not join a “race to the bottom.” We should play to our strengths, of which there are many.

Perhaps the single greatest strength of our state is the level of education of our citizens. We have one of the best educational systems in the country and a huge number of colleges and universities.

Private colleges are a huge business in Massachusetts. According to the Statistical Abstract of the United States, Massachusetts is the only state with more students enrolled in private degree-granting institutions than enrolled in state institutions. Many of those students are from out of state or from other countries.

So higher education is one business that we should be selling, and, wonderfully, it leads to others. There is a long list of successful local businesses started by professors and graduate students who came here to attend or teach at our various colleges and universities.

Our educational system has also given us the most educated work force in the country. Almost 30% of Massachusetts’s adults are college graduates. Only Connecticut has a similarly high percentage of college graduates.

Educated workers make Massachusetts a wonderful place for some businesses to locate. Computers, communications, biotechnology, medicine, finance and businesses dealing with military and marine technologies need the kind of educated employees that Massachusetts can provide in abundance.

Years ago textiles and shoes were two of the leading industries in Massachusetts. (Lowell was built to be a textile manufacturing city; Brockton and Weymouth were shoe manufacturing centers). Both of these industries moved south in order to get lower wage employees, and Massachusetts suffered from their loss. But then came computers. And a huge new industry developed. Long before anyone ever heard of “silicon valley”, Route 128 became known around the world for high technology.

Meanwhile, textiles and shoes kept seeking cheap labor, and ended up in going abroad. The south took the hit this time.

We should not compete for businesses that depend on low wages. We should do what we do best: Find business that can benefit from our incredible network of colleges, and our highly educated citizens.

Cape Cod will not get free cash from state. Here is realistic plan.

Recently the state legislature’s Joint Committee on Education held an open hearing in Barnstable to discuss the formula used by the state to distribute educational funds.

Cape Cod speakers, led by a large contingent from Sandwich, attacked the formula as unfair. They argued that because the formula allocates funds based on property values, and does not take median income into account, the Cape, with relatively high property values and relatively low median income, gets the short end of the stick. (We have not heard anyone who makes this argument mention that unlike most towns, the Cape has many second homes that pay property taxes and do not put any kids into the local schools.)

Second homes aside, we agree that the formula is unfair and The Cape deserves more money from the state. The problem is that no one is willing to talk about where the state is going to get the money.

Those who push for formula change seem to think that the money will come from the existing pool, thus reducing what other cities and towns get from the state. For example, Rep Perry from Sandwich said on WZAI recently that the legislature could identify those cities and towns getting more money than they deserve and transfer that money to the Cape.

We think it’s time for everyone to realize that this is not going to happen. There is literally no chance that any significant number of legislators are going to vote to cut funds to other districts in favor of Cape Cod. We repeat: No chance.

The formula will change in the Cape’s favor only if the state increases the pool of money to be sent to all cities and towns, promising more to every district in the state. As part of this the legislature might be willing to change the formula so the Cape gets proportionately more than other areas.

But where is the money going to come from? Some of the same legislators who want more money for their districts are also pushing to have the state cut the income tax rate from 5.3% to 5%, eliminating most of the surplus revenues the state might use to increase school distribution.

You can’t have it both ways. If we want the state to distribute more money, we have to find a way for the state to get that money. We have argued for a long time that it is a good idea to shift taxation away from the regressive property tax to the progressive income tax. That is especially good for people living on fixed incomes.

So, our proposal is not to decrease the income tax, but to put it back to its old rate of 5.9%. All of the extra money collected would be sent directly to cities and towns for use in education. Part of it would be distributed on a per pupil basis, and some by a revised formula, but any town getting this money would have to agree to cut its property tax by at least one half of the amount they get, and to set a new lower base number for proposition 2-1/2.

It is magical thinking to believe that Cape can have more money at the expense of other towns, or that the state can distribute more revenue while lowering taxes. We have to look for realistic solutions.

Paul Schrader and Jasck Edmonston

Let’s Help Seniors Live in their Homes

You’d have to live six feet under a sand dune not to be aware that housing costs on the Cape continue to rise, making it increasingly difficult for senior citizens — especially those on fixed incomes — to make ends meet. While the consumer price index has been relatively tame lately (keeping social security increases to a minimum), the items that comprise a good portion of senior’s expenses have been rising rapidly, including healthcare premiums, prescription costs and local property taxes. The elderly should not have to choose between living in their homes or having to eat dog food.

There are some things we can and should do to help seniors live in their own homes. Specifically, we propose to freeze the total annual amount of property tax a municipality imposes on the residence homestead of an individual 65 years or older.

This freeze would come in two levels. Those seniors (65 and over) whose incomes were below pre-set limits would simply pay the same amount of property taxes they pay now until the home was sold or they stopped using it as primary residence.

Those seniors who earned more than the income limits could postpone tax increases until they sold their home or stopped using it as primary residence. (The freeze would not apply to second homes.) The town would place a tax lien on the property for the unpaid taxes every year. The total amount, plus minimal interest, would be collected on sale, unless paid earlier.

These exemptions should be in addition to the existing programs that allow some seniors to work for the town in exchange for a tax reduction and the so-called “Circuit Breaker” which allows lower income seniors to get partial tax refunds from the state.

Freezing property taxes would help seniors live in their homes secure in the knowledge that they would not be squeezed out as property values and taxes increase. They would no longer have to cringe every time a school budget override came up for a vote.

There would have to be some limitations to avoid having people take unfair advantage of the law. (For example, additions to any residence would be subject to added taxes.) But there are many precedents for this kind of exemption, and it would be easy to model our law after one that is known to work effectively.

Now for the hard part: How do towns make up the lost revenue? We could simply raise property taxes on everyone else, but this brings its own set of problems. The property tax is regressive, in that it hits lower income people harder than higher income people.

A much fairer way to do this would be raise state income taxes. The state school aid formula could simply be adjusted to add the lost revenue to school aid in each town, and the state income tax could be raised to cover the new distribution. This would give at least some help to Cape towns that are now shortchanged by the school aid formula being used by the state.

Conservatives will call this another liberal tax and spend proposal. But they are wrong. It is not increasing either taxes or spending. It is simply shifting some of our tax burden from those who cannot afford to pay to those who can.

What Happens When You Eliminate The Income Tax

Forty-five percent of Massachusetts voters – including Democrats, Republicans and Independents — went for that idea last fall. What were they thinking? We are reminded of the old Peanuts cartoon showing Lucy standing there, fists clenched, shouting, “I just want up, ups up and ups!!!”

The income tax accounts for more than a 40% of state revenues. If it were eliminated, the first thing that would go would be local aid. There would be very little choice. No school aid. No money for roads. Nothing.

Cities and towns would then be faced with severe reductions in basic services.

Most of us would demand that our schools and roads and other “vital state services” be maintained. So, in all likelihood, two things would happen:

1. The state would have to pass a major increase in the sales tax, expanding its application and raising its rate.

2. Cities and towns would have to increase real estate taxes significantly, requiring prop 2-1/2 overrides in most cases.

We are willing to bet that many of the people who voted for the elimination of the income tax would be showing up at town meeting to speak in favor of the overrides to save their schools.

Most of these overrides would pass, we believe, and in the end, all we would have accomplished is a major shift from a progressive tax (the income tax) to two regressive taxes (sales and real estate) that have far harder impact on people in the middle and lower income brackets.

That’s what can happen when delusional thinking takes over!

We can’t have it both ways.

Jack Edmonston and Paul Schrader

Why Local Aid Should Not Be Cut

What they show is that from 1989 to 2002, the Massachusetts tax system has become increasingly regressive according to The Institute on Taxation and Economic Policy. That is, taxes have been taking higher percentages of income from people in the middle and lower brackets, while people in the top brackets have been paying a lower percentage of their income in taxes.

Here are some figures, taking all taxes into account (including income, sales and real estate, as well as the federal credit for state taxes):

— The total state and local tax impact on the middle 20% of taxpayers (those earning between $34,000 and $56,000) is roughly 8.6% of income.

— People in the bottom 20% (those with incomes under $19,000) pay about 9.3% of their income in taxes.

— People earning between $182,000 and $413,000 pay only 6.2% of their income in taxes.

— The top 1% (people earning more than $413,000 a year, with an average income of $1.4 million), pay the least of all groups in percentage terms, 4.6%.

This is called “regressive” taxation and it has been criticized by economists since Adam Smith. In his famous “Wealth of Nations” (published in 1776, the year of the Declaration of Independence), Smith wrote:

“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state…. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.”

Smith pointed out that some taxes were more equitable than others. Today, for example, the state income tax is the only one of our state taxes that is not regressive. People in the top 1% pay an average of 5.1% of their income in income taxes, while people in the middle 20% pay only 3.5% on average.

Sales and property taxes are, however, quite regressive. People in the lowest 20% bracket pay 5.4% of their income in sales taxes, for example, while those earning between $90,000 and $182,000 a year pay only 1.8%.

Here is what Smith has to say about a type of property tax used in 18th century England.

“The principle objection to all such taxes is their inequality, an inequality of the worst kind, as they must frequently fall much heavier upon the poor than upon the rich.”

You would think that when the state government was thinking about raising taxes, they would look at the income tax; and not sales or property taxes. After all more voters are middle income than upper income. But that is not what they have been doing.

What they have been doing is cutting the income tax and tightening up on local aid. That means that the cities and towns of the state have had to raise the only tax they have available to them—the property tax.

Cutting local aid simply moves the burden of taxes from the progressive income tax to the regressive property tax. Think about that next time you are asked to vote for an override.

Paul Schrader and Jack Edmonston

Real Estate Tax Is A Poor Way To Fund Public Education

In Massachusetts we use the real estate tax as the primary method of funding our public schools. Only New Hampshire relies on it more. There are better ways to pay for the education of our children.

There are many problems with the real estate tax. For one thing, it pits people without children in school against families with students. Including building costs, most towns use well over half of their real estate tax dollars on their schools, and frequently the only way to keep taxes down is to starve the schools.

The real estate tax puts retired people on fixed incomes in a very difficult situation. Even if they want to have good schools they find it more difficult to meet other needs as their taxes rise.

On the other hand people with kids in school are still at work, getting raises; and even high taxes are a lot less expensive than private education.

The real estate tax is also somewhat regressive. According to Citizens for Tax Justice (CTJ), non-elderly married couples in Massachusetts with a family income up to $58,000 (in the middle income bracket), pay about 2.8% of their income in property taxes.

Lower income working families pay more. CTJ says that Massachusetts couples with only $19,000 (or less) in family income pay 3% of their income in real estate.

On the other hand, when you get into the highest brackets, real estate taxes drop as a percentage of income. Families with incomes over $182,000 pay only 2,4%; and the top 1% (those with incomes in excess of $413,000 a year) pay only 1.1%.

The real estate tax is also impossible to administer fairly. Accurate assessments cannot be done no matter how hard one tries. To show what we mean, we checked the sales of 23 home sales as reported in one issue of a local paper against their “market value” assessments as recorded in the tax office. It’s not a pretty picture.

Two properties were assessed above their sales price, one at 25% more than it sold for. On the other hand, three houses were assessed at less than half of their sales price, one for only 28% of the amount it sold for. There were six houses whose assessments were between 50% and 70% of their sales price.

Only half of the houses had assessments that ranged from 75% of 96% of their sales price, which is generally considered the “acceptable” range.

Imagine. You could be paying taxes on a 100% assessment while your neighbor’s taxes reflect only a 30% assessment. This is not fair.

There are better ways to fund our schools. One would be to make more use of the income tax. The income tax, unlike the real estate tax, is progressive. In Massachusetts, non-elderly couples in the lower income ranges pay less than 3% of their income in taxes, while those in the highest brackets pay between 4.3 and 5.1%.

People on fixed income also have fixed income taxes. Unlike real estate taxes, income taxes do not take ever-increasing amounts of the money they need for the necessities of life.

The simplest way to do this would be for the state to pass an increase in the income tax which would be passed directly to the city or town in which the taxpayer lived. In return the cities and towns would reduce their residential tax rates (not the commercial property rates), and landlords would be required to reduce rents to reflect their lower taxes.

This tax would probably not cover all school expenses. But it would provide more money for our schools in a fairer manner. The pressure of ever increasing real estate taxes to fund new students should be significantly lessened.

Jack Edmonston and Paul Schrader

There is Help for Seniors Who Want to Stay in Their Homes

While the consumer price index has been relatively tame lately, keeping social security increases to a minimum; the items that comprise a good portion of senior’s expenses have been rising rapidly, including healthcare premiums, prescription costs and local property taxes. Seniors should not have to choose between living in their homes or having to eat dog food.

Fortunately, Massachusetts has a program that offers some help and not just for lower income seniors. A couple with gross income (in 2001) of as much as $61,000 on a joint tax return can qualify if their house is not assessed for more than $412,000. (The income limits are lower for single filers, but still reasonably high.)

Here’s how this “Circuit Breaker” program works: When you file your income tax, you can get an income tax credit of up to $750 to offset your property taxes. If you rent your home, you can treat 25% of your rent like property taxes, so you do not have to own your home to take advantage of the program.

This is a tax credit, not a deduction. All of it comes right off of your income taxes. If you do not pay any income tax, the state will send you a check.

To calculate your credit, you take your total income (including social security payments, interest, dividends and pensions) and multiply by 10%. If your property tax, plus half of any water and sewer charges you may have paid in the same year, exceeds 10% of your total income, you can get a credit for the excess up to $750. We believe the $750 cap should be increased annually by 2 % to partially compensate for increased property taxes.

As an example, a couple whose total income is $30,000 and whose property taxes plus half of water charges are $3,500 would be eligible for an income tax credit of $500, as long as their house assessment was not more than $412,000.

A single person paying rent of $1,000 a month and an income of $20,000 would be eligible for the maximum credit of $750. (They can subtract 10% of their income — or $2,000 — from 25% of their annual rent — $3,000 and get a credit for the difference, up to $750.)

These tax credits apply every year in which you qualify. Over time, they could help seniors avoid a large number of property tax increases.

The “Circuit Breaker” program does not cost your town a cent. The money comes from the state income tax, which is a much more progressive tax than property taxes. With an income tax, the amount you pay is related to your income. This program effectively shifts some of the burden of school costs from regressive real estate taxes to progressive income taxes.

Seniors may wish to take advantage of other Property Tax exemptions and deferrals available under Chapter 59: Section 5 of the Massachusetts General Laws. As affordable housing costs continue to climb, we believe that seniors should not be embarrassed or timid in requesting access to these programs.

If you would like more information on this useful program, you can contact your local Board of Assessors, the Executive office of Elder Affairs or the Mass Department of Revenue’s Customer Service Bureau (800) 392-6089 http://www.mass.gov/dor

MAKING MASS. PROPERTY TAXES FAIRER

About three decades ago, the cities and towns of Massachusetts changed their system of assessing real estate for property tax purposes. This was necessary because the courts had ruled that the haphazard systems being used were in violation of state law, creating essentially unequal taxation. People with the same value of house in the same town might have very different tax bills.

In Massachusetts, assessments are supposed to represent the full market value of the property. The system set up in the 70’s was supposed to make sure that happened. There was an initial careful assessment based on viewing of every home, followed by updates at least every three years. Most towns use a computer-based service for this.

This was a huge improvement over the old ways, and we are aware that accurate assessments are very difficult; but we have found some troubling indications that the system could still be flawed.

Lacking a research staff, we did a small, unscientific study to compare assessment to market value of 38 more or less randomly selected homes both across the state. What we found surprised us.

Of the 38 homes we checked, just over half had assessments that were between 75% and 100% of the market value (which in two-thirds of the cases was measured by actual selling price). While anything less than 100% is not really “full market value,” most real estate people we have talked to believe it’s acceptable, given the difficulties involved.

But if half of the assessments were in what some consider to be the acceptable range, almost half were not. Two houses were assessed at more than their market value. One quarter of the houses were assessed between 50% and 75% of their estimated market value, and about 16% had assessments that were less than half of the selling price (one was assessed at less than a third of the selling price). In any individual case there could be some special reason (like a sale under duress) for an assessment outside the acceptable range, but we doubt that this would apply to half of all homes sold.

If our unscientific study proves to be accurate, this is not fair. The homeowners in our survey whose assessments were more than the real market value could be paying almost four times as much in taxes per thousand dollars of real house value as the house with the lowest percentage assessment.

Our results are not enough to reach any definitive conclusion, but we think they merit a call for more study. We recommend that state tax officials organize a scientifically valid survey of assessments versus selling price. It would not be very hard (with a computer and a good data base) to check the assessment of every house sold in the last year against its selling price. If they find the same unequal spread we did, we think it would be a good time to hold an open debate on how we might make property taxes more fair and equal. We have a suggestion we would like to submit for discussion:

It is a variation on what they do in California: Reset assessed value every time a house is sold to the actual sales price. The market does not lie. But, unlike California, which freezes assessments until a house is sold again, we think the assessed value of all houses in a town should be raised by exactly the same percentage annually. That number could be the percentage increase of the median increase of all houses sold in the county or state that year.

This system would make no changes in the ability of every town to set its own tax rates. It would affect only assessments. It would make assessments much more predictable, and it should be fairer and cheaper.

Jack Edmonston and Paul Schrader