Taxes

I’ve griped a few times in the past about how inefficient Connecticut local government is, due to the state’s 169 towns duplicating functions. (See here and here.)  To put it bluntly, I wish the state had abolished town governments and kept the counties.

Over the weekend, the Courant ran a good editorial on the subject of regionalism which, while I don’t think it goes far enough, is a good start:

"Regionalism" is a rather bureaucratic and imprecise term for expanding the geographical base on which a particular government service is performed. It is a deceptively hard concept to get across, in part because it’s rarely clear what the optimal size of a region should be for the delivery of a particular service. This is reflected in the regional entities we do have. Despite the state’s almost sacred sense of localism, we have, according to a 2000 study by the state Advisory Committee on Intergovernmental Relations, about 1,000 intergovernmental ventures of various types and sizes. These range from two-town health districts to a eight-town sewer and water authority, and from a 39-town police mobile communication system to a waste disposal authority that serves 118 communities. These tend to be voluntary, single-function entities that are helpful without ceding local control.

State statues authorize regional efforts in more than three dozen areas, but most of these laws allow one function at a time — health districts, for example, which provide licensing, regulation, emergency planning and other public health services to member towns.

The question is whether we want to up the ante, to consolidate more services and strengthen the state’s metropolitan regions.

If folks keep thinking about the idea, both through the budget discussions of next year’s legislative session and on into town budget referendum season next spring, maybe part of my wish might be partially realized.

I’ve previously observed that one of Connecticut’s challenges, when it comes to taxes and government funding, is that we have too many towns inefficiently providing the same services.

The New Haven Independent has an article on a town hall meeting in which that concept was tested, ahead of news of an upcoming budget crunch in the state:

Connecticut has 169 municipalities. Sharkey told the group that this method of governance worked 300 years ago, but it isn’t working now.

“This small state we live in still maintains very firmly this idea that each town has to create its own form of taxation and each town has to create its own method for police, fire protection, education, public works, but the basic government we rely on is not the most efficient way to do this. We look around and know this,” he said, alluding to duplication in services and high budgets that are among the factors that drive high property taxes.  […]

“Who is against merging fire departments?” A group of hands went up. But not all.

What about police departments? Or boards of education?   “Right now,” said one woman, referring to the Branford Board of Education.

“Who is against that?” asked Sharkey. No hands went up, but that doesn’t mean they wouldn’t in the future. “I can guarantee you that there are a lot of people who might be against that, particularly with kids in school,” Sharkey said.

I still say that Connecticut should have kept the counties, and abolished the towns back in the 1920’s, rather than the other way around.  Maybe a few folks are starting to think that too.

The Wall Street Journal’s Washington Wire blog offers a reminder about Alternative Minimum Tax fun ahead:

Among the many unfinished items on Congress’s agenda this year is a handful of tax policy issues including a short-term fix for the Alternative Minimum Tax, whether or not Congress will pass an additional economic stimulus package, and tax deductions for college tuition and state sales tax, among other items.

All three could pose a headache for the Internal Revenue Service if Congress doesn’t decide how to act before Election Day, preferably by October, IRS Commissioner Douglas Shulman said in a Wall Street Journal interview today.

You may recall that Congress’s indecisiveness over AMT lead to a bit of chaos this past winter.  We started off early tax season with thousands of middle-class taxpayers wondering if they were going to be hit with AMT.  Then a one-year reprieve was granted, and tax-processing was delayed while new forms could be generated and IRS computers reprogrammed.

I’ll be shocked if Congress acts in a timely matter on this subject.  However, it sounds like something that might be tackled during the lame-duck session after the elections.

So, political convention madness is now almost upon us, and I offer you a thought:

If you should view the multi-million dollar extravaganza of either major political party…or both…remember that about $132 million of taxpayers’ money (or, more likely, federal IOU’s) is being spent to support them — $32 million in the form of grants to the parties, and $100 million as homeland security subsidies.

Don’t you think there is something better that could be done with $132 million, rather than subsidizing two partisan pep rallies?

When contemplating the possibility of disruption up here in Windsor Connecticut from the upcoming revaluation, I’ve toyed around with the idea of my section of town breaking off into its own community, to avoid the tax drain from ineffective municipals schools, and a tendency for the town leadership to push for development in this area despite the town long-range plan’s call for maintaining the exurban nature of the area.

I quickly dismissed the idea as impractical.

Judging by this news from Atlanta (via the AJC), maybe I was a bit too hasty:

The Fulton County Taxpayers Foundation has mailed a glossy four-page newsletter to about 50,000 households in the area, pushing to secede from Atlanta and make Buckhead its own city.

Supporters point to the city government’s budget problems and school property tax rates and say the proposed city of Buckhead would better manage their tax dollars. Opponents fear the move would financially devastate Atlanta, which is currently struggling with a staggering budget shortfall. […]

Buckhead is considered home to many of Atlanta’s largest office buildings, some of its most expensive homes and two of the region’s haute shopping malls: Lenox Square and Phipps Plaza.

Reading through the article, it sounds like the plan suffers two fatal flaws – a majority of all voters in Atlanta would need to approve of the secession, not just the voters in Buckhead, and somehow I suspect voters in the balance of Atlanta might not like to see so much of their revenue base leave…at least not without taking their share of the infrastructure costs along with them.

And, as the article notes, there is already an incorporated municipality in Georgia named “Buckhead”.  The Potential Former Atlanta Neighborhood Known As Buckhead would need to find a new name – Hâute Buckhead, perhaps?

In today’s New York Times, Paul Krugman has an interesting op-ed challenging the idea that homeownership should be a goal for Americans:

Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. “If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.” Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic. Bring back property qualifications for voting![…]

O.K., I know how some people will respond: anyone who questions the ideal of homeownership must want the population “confined to Soviet-style concrete-block high-rises” (as a Bloomberg columnist recently put it). Um, no. All I’m suggesting is that we drop the obsession with ownership, and try to level the playing field that, at the moment, is hugely tilted against renting.

And while we’re at it, let’s try to open our minds to the possibility that those who choose to rent rather than buy can still share in the American dream — and still have a stake in the nation’s future.

In his monologue, Krugman gives three disadvantages to the institutionalization of homeownership –

• Financial risk
• Immobility of the workforce
• Increase in commuting / suburban sprawl

Before we bought our current home – or more correctly, contracted with a bank to let us live in our current home – I was rather rabid about not subscribing to the hype of owning one’s home.  Part of my reaction was due to my witnessing the real estate bubble inflating (and knowing it was a bubble), but a fair amount of my thinking was in line with Krugman’s.

Then my wife was disabled in a car accident.  I couldn’t find anyplace to rent which would be acceptable to her needs (extremely limited mobility, noise-sensitive), and we very quickly joined the ranks of “home-owers”.

Since that time, I’ve revised my opinion against home-buying hype.  Yes, I still think it’s hype, but there are some advantages to owning a home which justify somewhat the support provided the concept by the government.  These include:

• Acquiring real property, even if via a mortgage, is a means to build some measure of wealth.  True, it’s not the most efficient means of wealth-building around, and there are likely better investments available for those of us who try to save with an eye towards retiring in 30-40 years.   However, it seems that too many Americans are short-sighted in that regard.  
   
  I’d love to see the government strongly encourage citizens to save for a rainy day, preferably simplifying the process so that folks of limited means don’t have to go through the complexity of allocating their limited disposable income to specific savings goals.  
   
  If we aren’t going to have “mandatory” or “very strongly encouraged” saving programs, the institutionalization of home ownership is a tolerable alternative, I think.
   
• There is, I think, something to be said for the sense of stability that comes from owning your own home.  It’s mine.  It’s a little piece of the earth where I have extra freedom to live as I wish.  I don’t have to worry about a landlord kicking me out or raising my rent to ridiculous levels.  And, while I am at risk from the spectre of property tax hikes, at least that’s a threat I get a say in, thanks to municipal elections and referenda.
   
• Also on the stability front – haven’t I heard pundits bemoan the seeming death of “community” in some parts of the country?  Doesn’t “community” require some stability to form?  If “community” is seen as desirable for society, then shouldn’t society promote stability to help foster community-building?
   
• We have a heckuva lot of inertia behind the American dream of homeownership.   Recall that quite a bit of the foundation for our republic comes from the propertied interests seeking freedom to enjoy and profit from their property, and therefore needing protection from the tyranny of the property-less rabble.   True, the republic could be democratized by removing all of those protections…but isn’t it almost as democratizing to assist the rabble in becoming propertied?
   
• A more practical inertia argument could be made by observing that quite a bit of our economy is tied in supporting homeownership.  If some of the supports for that goal were removed, I’m not sure that the disruption would be any less than what we’re feeling from the credit crunch, and the real estate bubble’s deflation. 

  Surely, my wife and I aren’t alone in our budget relying quite a bit on the mortgage-interest tax deductions in the Internal Revenue code.   Remove that, and we could have a problem.  If enough homeowners develop such a problem…well, home values would presumably decline as the real estate market further imploded, and the resulting economic mess would presumably be extremely ugly.
   
  I could accept an assertion that federal support for homeownership is not justified in theory.  However, so much of our economy is built on the notion that Americans “should” own property, I think attempting to unwind it would cause more harm than good.

For the past couple of weeks, I’ve noticed that Obama and McCain have started to beat upon one another on various dimensions of the issues of taxation and Social Security.

Annoyingly, real life has prevented me from offering my €0.02 worth until now.

Oversimplifying, the discussion seems to be focused around Obama’s various plans to increase taxes on individuals earning more than $250,000 year, both through income/capital gains taxes, as well as Social Security payroll taxes.   McCain is publicly calling for making the Bush tax cuts permanent, reining in spending, and promising to work across the aisle on Social Security reform.

A few thoughts come to my mind:

• A hat tip goes in Obama’s general direction for daring to broach the subject of Social Security.  It takes political chutzpah to touch such a sensitive subject on the campaign trail and daring to make a specific proposal, and I respect Obama for having done so.  It’d be nice if McCain would offer some specific ideas, rather than just railing against the hit to the $250k+ income crowd.
   
• Having said that, I can’t help but wonder if anyone’s thought through the potential implications to the economy of imposing such a potentially large shock to the super-affluent crowd.  Granted, such folks are already making plans for the lapsing of the Bush tax cuts at the end of 2011, but I do wonder about unintended consequences of major, short-notice changes to tax law.
   
• I am disappointed that so much of the public debate seems solely focused on the tax side of the equation.  Surely I’m not the only person concerned about the unsustainability of our current spending spree.  Yet I don’t think I’ve heard much discussion on just what the two candidates are thinking of doing about that problem, other than bickering over tax policy.

Seen at CTNewsJunkie:

Gov. M. Jodi Rell today asked legislative leaders to expand the legislature’s special session next week to allow for a vote on postponing the July 1 increase in one of the state’s two gasoline taxes. [...]

Earlier this week Rell said in order to postpone the half percent increase in the gasoline gross receipts tax the legislature would have to help her find $25 million in spending cuts to make up for the lost revenue, a suggestion that has one former Democratic state legislator crying foul.[...]

“Even if gas prices don’t increase at all from this point forward—the most basic simplistic assessment reveals that in FY 09, the General Fund will not receive the $311 million (that was projected last June) but will actually receive well over $410 million,” Pelto said in an emailed statement titled, “Reality Check on Gas Tax Issue.”

Although my inner conservationist was looking forward to Nutmeggers being further encouraged to conserve from the incremental increase in gas prices, I do have to admit that I get a depressing pang in my stomach every time I drive by a gas price sign.  Not accelerating the increase in those numbers would be nice.

I am, however, truly disappointed that our state legislature seems disinclined to take the opportunity to have a revenue cut be an excuse for cutting other costs.  After all, our state government agencies are, by and large, horribly inefficient.  If we aren’t going to get a bang for our tax bucks, why not fund them according to the quality of service they currently provide?

Besides, the CTNJ article also points out that the state is expected to run at a deficit next fiscal year, in which case reducing spending in the face of reduced revenues is the sort of good sense you’d expect an elected leader to exhibit.

This evening, after submitting my scantron in the second town budget referendum, I had the dubious honor of buying gas for $4.279/gallon.  Then I cam home and saw this article in the Courant:

[T]he state’s gross receipts tax on both gasoline and diesel will be going up July 1, and those prices are based on the wholesale price of fuel.

As a result, the state tax on diesel fuel in Connecticut will rise 7.7 cents per gallon, the tax department announced Monday.

And gasoline prices will jump three to four cents per gallon, depending on the wholesale price on that day. The increase is in addition to the 25-cent-per-gallon state tax on gasoline.

Well, I did say that higher gas prices would incent efficiency and conservation, and I am all for efficiency and conservation.

But still…unless there’s a significant drop in diesel prices before then, we’ll pass the $5/gallon diesel barrier that we’ve been flirting with locally for the past couple of weeks.

Wow.

Today was budget referendum day here in Windsor.  I didn’t mention it here, in part because hardly anyone from Connecticut, much less Windsor, reads this blog, and in part because it seemed like a non-issue.   The proposed budget called for a 2½% hike in the mill rate, plus an additional 4½% hike in revenues coming from grand list growth.

I voted against it on general principle — any non-obligatory increase in spending seems unwise in the current economic environment — but I expected that the last two years of holding the line on the mill rate, combined with no visible opposition would pass muster with municipal voters.

It didn’t.

Referendum failed  - 1571 votes no, versus 843 votes yes.

I may have to go to the next town council meeting.  It could be rather entertaining.

Oh, and on the off chance that any of the town leaders do end up reading this, I offer a word to the wise:  robocalls suck.  If you want to call us to advocate for the next iteration of the budget, feel free to do so, but please put a human on the line, not a machine.