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Property Tax Plan Has Hidden Hefty Bite


Property Tax Plan Has Hidden Hefty Bite

E. J. McMahon August 23, 2005

Property taxes are unpopular with homeowners from coast to coast - and nowhere more so than in New York state, which is home to some of the highest property taxes in the nation.

Relative to property values and incomes, the property tax burden might be heaviest of all in Central New York and other Upstate regions.

The situation is bad enough that Albany politicians are taking notice and promising action. For one thing, effective with the latest budget, the state finally has begun to cap the annual growth in counties' share of Medicaid expenses.

But when it comes to school districts, which eat up the biggest share of our property taxes, some state legislators are coalescing around a "solution" that would make New York even less competitive. They want to shift the homeowners' share of school property taxes to a special, countywide income tax.

Such a move could have devastating consequences for the economy.

For example, the current state income tax rate would have to be raised by nearly 70 percent to replace the homeowners' share of school property taxes in Onondaga County.

For poorer homeowners, whose income taxes are low to start with, this would represent a savings. For many if not most middle-income families, it probably would be a wash. But for residents with higher incomes - who already tend to live in expensive homes with high property taxes - the result would be a huge net tax increase.

Since many small businesses and partnerships are taxed primarily through their owners' income taxes, this would amount to a heavy new penalty on job creation and entrepreneurial activity - which is surely the last thing New York needs.

The claim that income taxes are always more "fair" than property taxes is debatable. But it's beyond debate that income taxes are always more volatile than property taxes, swinging wildly with the fortunes of the high-income taxpayers who already bear a disproportionately large share of the burden.

During the most recent economic downturn of 2002 and 2003, virtually all of New York state's revenue losses could be traced to a fall in capital gains and bonus incomes among the wealthiest 2 percent of New Yorkers. Shifting most of the current school revenue base to income taxes would introduce the same volatility into education financing.

The property tax, by contrast, is the most stable and reliable revenue source. The challenge is keeping it down.

Supporters of the income tax gambit are hitching their carts to the wrong end of the horse. The real source of excessive property taxes in New York is excessive spending by local governments. This reflects high staffing and pay levels, an extravagant and fraud-ridden Medicaid program, and state mandates that further drive up costs.

To paraphrase Winston Churchill, continued reliance on property taxes as the chief revenue source for local government is the worst option available - except for all the alternatives.

Legislators who want to do something about high property taxes should start by dismantling costly state mandates.