Prop 2 1/2 tax break for seniors is a bad idea

This week, the house passed a measure allowing cities and towns to exempt certain senior citizens from tax hikes tied to Proposition 2 1/2 overrides. It's a bad idea, and the either senate should reject the measure or the governor should veto it. Here is the story from the AP:

[L]awmakers are pushing a bill that would let cities and towns exempt seniors earning less than $60,000 a year from the overrides. Backers say the bill is a tax break for seniors, but critics say it's just a way to help push through property tax hikes.

On Thursday, House lawmakers overwhelmingly approved the bill, which now heads to the Senate....

[T]he new bill more explicitly links the tax breaks to the property tax override itself -- and that's irking longtime supporters of Proposition 2 1/2, who say the bill is just a way to entice many seniors to look the other way.

"Seniors are our first line of defense against overrides," said Barbara Anderson of the anti-tax group Citizens for Limited Taxation. Anderson helped lead the charge for the Proposition 2 1/2 law.

"Senior citizens are defeating these overrides and they are trying to give them a reason not to vote," she said.

Before you think that I've somehow become conservative in my middle age--believe me the thought that I agree with Barbara Anderson on anything is enough to make me want to take a shower--let me explain. The problem with the bill isn't that it will get seniors to suddenly pass overrides, it's that the bill give tax breaks based not on a progressive idea of who can't afford to pay, but gives breaks to a particular group based only on demographics. The bill won't remove the fight over prop 2 1/2 overrides, it will just change the fight over who should pay.

Certainly many seniors have a difficult time affording the property taxed they already owe, not to mention an additional levy thanks to an override. But there are plenty of homeowners under 65 that fill into the same situation. Not only do these families not get a break, but they end up paying a higher tax rate to make up the difference.

Here is a very simplified example: Let's say a town with 5,000 taxpayers decides that it needs to pass a $2 million override to pay for a new fire house. Splitting the override among all taxpayers would mean an average tax increase of $400. But let's say that 30% of the population is over 65 and makes under $60,000. In this case, 1,500 taxpayers would not have any increase at all, and the other 2,500 taxpayers would have an average tax increase of $571.

Should a young family of four that makes $58,000 and holds a mortgage pay $571 additional dollars in taxes, while a pair of well-off retirees with a $58,000 annual pension, no children at home, and no mortgage to pay off is not hit with the tax increase at all? Of course not. But that's what will happen under this plan.

The effect of that will be to change the debate on prop 2 1/2 issues. The debate will first be about whether or not to pass the abatement for seniors. Will those taxpayers that will be footing the entire bill be apt to vote against an abatement, since it will mean higher levies for them? Very possibly. Will seniors automatically vote in favor of an override if the abatement is passed? Not necessarily. Despite Barbara Anderson's Pavlovian reaction to the word "taxes", I think this will make overrides harder to pass since it may now take two divisive votes to get an override through instead of one.

Regardless of what the impact will be, the legislature should not be granting tax breaks to a class of people based solely on their demographics. If they want to argue for a truly progressive tax break that would affect all homeowners under a certain threshold, they could gain my support (although I think that the entire community should be pitching in for local projects like the ones that generally require overrides).

Even better, the legislature should embrace the proposal to allow cities and towns to pass local option meal taxes in an effort to raise revenues in lieu of property taxes.

Tags: Massachusetts Property tax Proposition 2 1/2 Meal Tax

Patrick's tax relief is more bark than bite

Governor Deval Patrick unveiled another piece of his plan to ease the burden of property taxes yesterday, essentially proposing that the tax credits for seniors be offered to a wider group of property owners. While his plan will bring relief for some, it falls far short of the sort of widespread tax relief that the Governor hinted at during the campaign. Here are the details, from the Sentinel and Enterprise:

Single individuals earning up to $46,000, heads of household earning up to $58,000, or married couples filing jointly earning up to $70,000 would qualify.

The tax break would cover the cost of property taxes plus water and sewer charges that exceed 10 percent of the household income up to $870.

Let's take a mythical middle-class family with a $65,000 annual income. For that family, the tax break will not kick in unless they pay over $6,500 in property taxes (plus water and sewer charges). Using Leominster's tax rate of $10.79 per $1,000, the family home would need to be assessed for $602,409 in order to get even one dollar of tax credit. A family with a city-average tax bill of $2,881 would need to earn less than $28,810 in order to receive a credit.

I suggest that there are more fingers and toes on my person than homeowners in Leominster that would qualify for this tax break.

Simply put, almost anyone with a mortgage will have to make more than the maximum in order to pay for their home in the first place. Other than an occasional resident in 40B low-income housing or older folks who have been in their homes for years, have small mortgages, and are either out or work or disabled, I can't see how anyone else would qualify.

The only provision that might open up the credit to a few more people living in the Boston area is the inclusion of water and sewer rates when figuring "property taxes." Including those items won't help the mythical Leominster family qualify, as they are probably paying little more than $300 per year for their water and sewer. But put that family in an MWRA town with a similar tax rate, and you're looking at an additional $1,000 or more per year. That might increase the "tax" to the point that a few more homeowners are included.

If the Governor is looking to provide property tax relief across the board, he should propose that property taxes be deductible on the state tax return, as it is on the federal filing. In essence, everyone who owns a home and pays property taxes would receive a 5.3% cut to their property taxes. Would that provide a huge relief to every taxpayer? No. But that citizen paying the state average $3,800 tax bill would receive an extra $200 in their tax return.

When you boil it down, Patrick's proposal will only benefit the urban poor. In fact, it's hard to see any middle-class or rural homeowners qualifying for this tax credit, except in extremely rare circumstances. The voters of Massachusetts were expecting more.

Tags: Massachusetts Deval Patrick Property Tax Income Tax