Commentary

Changing the antiquated property tax system
COMMENTARY
By Paul Flynn

Andrew Jackson said "The wisdom of man never yet contrived a system of taxation that would operate with total equality" and, of course he was right.

The property tax came into existence during an era when the value of land reflected the value of what that land could produce (an income tax?). It seems to be accepted, from the current brouhaha, and the year-in and year-out furor over its adequacy, that the property tax has become antiquated and is no longer a sensible or equitable way of funding local budgets.

Now if the basic idea of a property tax was sound, one could tweak it and make improvements. However, if the basic concept loses its validity, but has become institutionalized, it will take a total tax reform to wipe out the old and begin with a more valid system. But what are the choices?

If each municipal function could be charged directly to the one receiving the service; for example, each child's tuition to its parent; each frontage foot plowed for every storm to each property owner; each police or fire call to the one receiving the service, etc.; similar to the doctor's or lawyer's office, or the grocery store or the hairdresser's, then one could do away with taxes altogether and just apply the user fee.

Government services do not work that way, although towns could probably do a better job of charging direct costs for services rendered. Most government functions are, however, beneficial to society as a whole (education, public safety, public works, recreation, etc.) and therefore have to be funded by society as a whole. The question is what costing system is best to fund these societal costs.

If it is accepted that the property tax is antiquated and that total user charges are socially unacceptable, what do we have left? Possibly two other options; the sales tax or an income tax. Although the sales tax is employed on the state level and is being discussed on the national level, we will probably find a consensus opposing such a tax on the local level on the basis that is regressive; that is, hurting those least able to pay.
This brings us to the last possibility, the income tax.

Is an income tax totally fair? Of course it isn't. But is it more fair than the property tax or the sales tax? If you weigh and measure it against the other choices, it probably is. The resident woodsman would pay his share based on his income and the resident president of the company would do the same; as would the non-resident just like they do now on both the state and national level.

The ability to pay, just like the federal and state tax systems, would be the basis on which to determine the taxpayer's (personal and business) obligation to support the municipal operations deemed important to the society of the town.

Would it be difficult to even consider such a change? Of course it would. But where there is a will, there is a way. Would the legal hurdles be daunting and formidable? Of course they would be. But where there is a will, there is a way. Would the conversion to such a system, if it were considered, be a torturous exercise? Of course it would, but where there is a will, there is a way. Are there privacy and other issues to be addressed and resolved? Of course there are. But where there is a will, there is a way. A broad outline might be useful as a guide if such an attempt were considered.

Let's assume a town like Gray, agreed to the basic assumptions that the only solution to fund its governmental functions in the fairest manner, would be by an income tax. The town would have to petition the state for special legislation authorizing a trial program for converting from a property tax system to an income tax system. The annual Gray budget income requirement is a known factor.

That is the annual gross revenue, after adjustments, that has to raised to run the municipal operations. The Federal Adjusted Gross Income for every resident income earner (and for every non-resident property owner and every non-resident business) is known to each of these people (or it should be if they are truthful with their fed income tax filing).

If a test model were authorized, the town (like the feds and the state) would initially send out a form to each resident and each non-resident property owner and each non-resident business owner in the town, in the first year of conversion, asking one simple question (under a penalty of perjury, just like the Fed and State forms); what is your Federal Adjusted Gross Income?

When that gross number is in, the town, still operating under the current system, would then be able to develop a local rate for an income tax (the proposed annual budget divided by the total federal adjusted gross income of every resident and every non- resident business and property owner). That rate would then be used as the next year's tax rate to develop a tax bill for each resident and every non-resident property owner to satisfy the demands for the next fiscal year.

When the conversion from the property tax system to the income tax system is completed, (probably 5 years once the decision is made to try the new system) the town can then eliminate all the messy property assessment headaches associated with the current system, and probably save money in the process, If the installation of such a system proved successful in Gray, then the same process could be applied state-wide. Who knows, Gray might also be able to generate consultant's fees assisting other state municipalities in making the change.

Such a system would not, of course, resolve whatever beefs the municipalities have with the state over shared responsibilities for education, etc., But it could possibly make the local tax structure more equitable for those operations for which the municipalities are directly responsible.
The only reason this possibility is presented is because it is obvious that there is dissatisfaction with the present property tax system and frustration with the state's inability to reform the problem on the state level. If that is the case, then the time is appropriate to consider alternatives and let the debates begin.

Paul Flynn is a New Gloucester resident