Radical tax proposal worth considering

Abolish the Property Tax

By Samuel G. Howard in RIFuture.org

In 2010, the property tax came into full view for me. That was the year the Providence City Council was forced to raise taxes on the East Side, whose property values had increased while the rest of the city’s had fallen. 

A friend of mine called me up to turn out with his family to the City Council meeting. Flanked by three landlords (all living on the property they rented) I sat through the proceedings, which brought cries of anguish from the watchers as the Council did what it felt necessary to prevent bankruptcy.

I was working on David Segal’s campaign at the time, and I went back to work the next day. Mr. Segal, himself a former Providence city councilor, later summed up the ills of the property tax in one very succinct sentence (as I recollect): “it’s the only tax that doesn’t take into account people’s ability to pay.”

Sometime after, we were canvassing voters in Woonsocket, and door after door, property taxes topped the list of complaints. It’s hard to stand there and listen to a woman describe how she’ll have to leave the home she raised her children in because she can’t pay the tax and knowing that there’s little the office your candidate is running for will have little to do with it.

Property tax seems to be the forgotten trio of the big three taxes in the state; the other two are sales and income. Duels over the latter two seem to be yearly battles; Governor Lincoln Chafee previously fought ineffectually to broaden and reduce the sales tax, while House Minority Leader Brian Newberry made it his opening salvo for the 2013 legislative session. The General Assembly, which implemented a “flat tax” and then handily “repealed” it by making it permanent. It seems to have had the intended effect, if that effect was for the economy to stay flat.

Property taxes, in the meantime, have shot up, with communities across the state asking to raise them beyond state caps. Anger over the car tax (a form of property tax) has become especially emblematic of the issue; worse, it has turned citizens against large nonprofit institutions who pay only voluntary payments to communities. Unrestricted by property tax, they’re free the purchase real estate and shrink a community’s tax base while greatly enriching the nonprofit. [EDITOR'S NOTE: In Charlestown’s case, it’s open space].

But our communities have little choice to accept this; they are devoid of other funding mechanisms. The General Assembly is unwilling to provide funding for cities and towns, the same funding it cut off years ago. So now we are strangling ourselves with the property tax.

A solution to this revenue dilemma seems to lie in a post on The Urbanophile, (urban analyst Aaron Renn’s blog) post about New England vs. Midwest culture (and yes, I saw Mr. Renn recent post in GoLocal and did some reading):

The manner in which local taxes were levied in Connecticut is very different than in Ohio. In Ohio, income tax (charged where you work, not live) funds much of the local revenue for cities and townships, with property taxes going to fund school districts which are operated as separate governmental subdivisions. In Connecticut, property taxes support most of the local level spending, so property value is king. In a majority (although not all) of the communities the school district is only semi-autonomous and is funded directly as a line item in the municipal budget.

Would allowing Rhode Island’s communities to tax in this manner; levying an income tax based on employment location, while reducing property taxes to cover only school districts; create a better Rhode Island? It would drastically shift incentives, away from maintaining property values (which are already going to be high in one of the most densely populated states) towards job creation.

Furthermore, it would change the tax base away from those who can’t pay the tax to those who can. Rents, likewise, would lose some of their upwards pressure; renters might actually see savings afterwards, and rents might be likely to come down. Resentment towards large institutions might also dissipate. While protected from property taxes, I’m pretty sure nonprofits are not shielded from income taxes, meaning that they would be taxpayers along with the rest of Rhode Island’s citizenry. Negotiations over raising their voluntary payments might permanently end, especially if large institutions found ways to assist their local school systems.

It would undoubtedly be a radical action for the state to take. But when the moderate, timid actions have failed, what else is left? It’s time to give our communities better tools to defeat their fiscal fears.

Samuel G. Howard is a native-born Rhode Islander, educated in Providence Public Schools, went to college in North Carolina and a political junkie and pessimistic optimist.