Property Tax Regressive?

“Regressive,” as any practicing progressive knows, is the opposite of “progressive.” Theoretically, a progressive income tax is levied on those who, in the words most often used to defend the tax, can well afford to “pay their fair share,” the fairness of their share to be determined, naturally, by progressives. The sole purpose of the progressive income tax is to shift the burden of tax payments from the poor to the rich.

During the war years, Franklin Roosevelt, spurred on by progressives, signed into law the “Revenue Act of 1935,” a “wealth tax” that raised the federal income tax to 75 percent on incomes over 5 million. The 5 million, as it turned out, was but a foot in the door. Under the administrations of President Barrack Obama and Governor Dannel Malloy, millionaires have come down in the world, and anyone who makes a quarter of a million per year is considered, for progressive tax purposes, a millionaire.  

By today’s standards, Mr. Roosevelt’s “fair share” would be considered unfair by anyone but socialist President of France François Hollande and perhaps American economist Paul Krugman, one of Mr. Obama’s economic cheerleaders. Author and talk show host Chris Mathews, the guy with tingly leg, also is eupeptic on all things Obama, but he is not an economist.

In the Obama economy, some things have changed, partly because of inflation; the dollar just ain’t what it used to be. And though it takes far fewer bucks to make a millionaire, Mr. Obama’s income tax rate increase is far less than that of Mr. Hollande and Mr. Roosevelt.

When Governor of Louisiana Bobby Jindal proposed replacing his state’s income tax with an augmented sales tax, he was whipped by Mr. Krugman as an anti-progressive. “Such a move,” Mr. Krugman wrote in his blog at the NewYork Times, “would shift taxes from the rich to the poor, who are disproportionately hit by the sales tax.”

A progressive tax theoretically is a deprivation on the rich, while a regressive tax – a sales tax, say – is a deprivation on the poor. In reality, the very rich escape many taxes. When Republicans several years ago proposed a flat income tax that would fall equally on the stupendously rich Warren Buffet, the prince of Berkshire Hathaway, and his tax beleaguered secretary, while eliminating at the same time special exemptions enjoyed by crony capitalists, they were hooted out of the halls of Congress by progressive san culottes.

A property tax is progressive rather than regressive because it cannot be levied upon those whose economic circumstances to do not permit the ownership of property. The poor, as a general rule, don’t own property. Therefore, the property tax, the primary revenue generator for towns, is not unusually regressive. The sales tax, falling like the gentle rain on both the poor and the rich, is a regressive – i.e. non-progressive -- tax. It is also a broader based more dependable tax, which is probably why Mr. Jindal prefers it to the less dependable more narrow based progressive income tax.

In the halls of Connecticut’s General Assembly, it is being whispered that yet another tax increase may be necessary to balance the state’s chronically out of balance budget. The new Speaker of the House, Brendan Sharkey, has stepped forward to explain that a sluggish national economy and higher governmental costs have punched yet another billion dollar hole in the state’s revenue bucket.

And therefore the state may be forced to reduce municipal aid, Mr. Sharkey told more than a 100 state and municipal leaders and social service advocates at a state budget forum at the Capitol, which will prompt municipal leaders to raise property taxes or cut services. During his first tax bump, Mr. Malloy and dominant Democrats in the General Assembly held the towns in the state harmless. But “the days of being able to hold cities and towns completely harmless while dealing with the state's fiscal woes likely,” according to one report, “are over.”

“The property tax,” Mr. Sharkey told the property tax reliant mayors and town administrators, “will be the crisis once again.” According to the report, which summarizes the Speaker’s chat with the frozen faced municipal leaders, the Speaker went on to say, that “Besides harming low-income households the most, the regressive levy also places a heavy burden on small businesses and discourages economic development here.”

While it certainly is refreshing to hear any Democratic leader in the General Assembly frankly admit that taxes may be harmful – which is why Mr. Malloy in his first budget arranged his tax increases in such a way as to hold the towns “harmless” – the property tax certainly is not more regressive than the cornucopia of new taxes Mr. Malloy instituted, according to Mr. Krugman, the economic guru to progressives.

It is the state and federal government that has put the towns in crisis by imposing upon them costly state mandates. Town leaders do not have the political power to force the state to remove these yokes from their necks. And expensive state and federal mandates, along with poorly funded pensions and equally expensive benefit and salary increases enjoyed by teachers and municipal workers, have driven up so called “regressive” property taxes.

The chief reason why Mr. Malloy and dominant Democrats in the General Assembly are now considering voiding their often repeated pledge during campaigns to “hold towns harmless” from punishing tax increases is that the state needs the money to cover budget deficits caused by decades of improvident spending, and Democrats are loathed to punish those who consistently vote them into office by cutting increases in salaries and benefits.

Property taxes are not especially regressive.  If Republicans were to propose a dollar for dollar reduction in costly state mandates for every dollar in revenue “saved” by the state in reduced municipal assistance, they just might have a useful campaign issue on their hands, for Democrats in the General Assembly fear a loss in municipal votes almost as much as they fear a temporary loss in state revenue from general and effective cuts in marginal tax rates and business taxes. Mr. Sharkey has proposed that “some of the big ticket items we impose" on communities -- funding for special education, for instance -- should be shifted to the state, but such a transfer of payments would not result in significant relief to taxpayers because municipal tax payers are also state tax payers.