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Follies 2004: hard sell for the sales tax



With his 2004 budget announcement, County Executive Jack Doyle showed even a lame duck can spin like a top.

            Consider his proposal to increase the sales tax in Monroe County by 0.6 percent, making the full rate rise from 8.25 percent to 8.85 percent. Doyle characterized this increase, designed to erase almost $42 million of a $52 million deficit, as "six-tenths of a penny." Here penny surely is meant to convey one dictionary sense of the word: "a trivial sum." But it drapes a political veil over the truth: Doyle is asking for a 15 percent increase in the 4-cent local component of the sales tax.

            Imagine the reaction if Doyle had proposed hiking the county property tax by a similar percentage. (In fact, in his announcement, he warned that without the sales-tax increase, "we could be talking about a job-killing, more-than-20-percent property-tax increase.")

That's not the end of the spinning, though.

            After commenting that items like library services afford no more opportunities for cuts, and maintaining that a property-tax hike would be "irresponsible," Doyle said a sales-tax increase is simply "unavoidable."

            Which may be true in a purely political sense, but not otherwise.

            Some counties in New York State demonstrate that there is another option. And state taxpayers, wherever they live, see evidence of it on their tax forms.

             The option is a local income tax. Right now, only New York City and Yonkers use this tax, which can add a few percent to a person's or a couple's tax liability. (Of course, these two jurisdictions have around 40 percent of the total state population, so the practice is hardly marginal.) Yonkers has a "commuter tax," by which non-residents who work there pay some income tax to the municipality.

            New York City no longer has a commuter tax, though it almost made a comeback during New York City's recent fiscal crisis. Ultimately, Mayor Michael Bloomberg used an income-tax hike, among other things, to help close his city's huge budget gap. The hike, said the New York Times this past July, will affect only the highest-earning 5 percent of city taxpayers. The city also enacted a sales-tax increase of 0.125 percent --- obviously much less of a hike than up here in Monroe County.

            There's a parochial tendency to say: Well, New York City is remote from our experience, practically another planet. Not true. But some people quite close to Rochester are discussing an income tax to deal with the kind of deficit that plagues every corner of the state.

            Earlier this month, Tim Joseph, chair of the Tompkins County Legislature, unveiled a plan for a new county income tax. Joseph suggested a 10 percent surcharge "piggybacked" on a filer's state income tax payment.

            How did the proposal fly? Mainline opinion can be gauged from an October 21 editorial in the Ithaca Journal: The proposal, said the editorial, has "strong appeal" because of its fairness, but it might have a negative impact on local workers and entrepreneurs and thus "is not a good fit for Tompkins County."

            "I'm getting mixed feedback," Joseph admits. In his capacity as chair of the Lej, Joseph sits on the board of the Chamber of Commerce; C of C members, he says, weren't as negative about the idea as he expected.

            The proposal has outright fans, of course, and Joseph sounds convinced of its plain good sense. For one thing, there's the cash flow. He estimates the 10 percent surcharge would bring in around $6 million, taking much pressure off the budget. And a 50 percent surcharge, he says, would bring in enough to eliminate the county property tax entirely. (That big a political item is not on the agenda, though.)

            On one particular, Joseph sounds a little like Jack Doyle: He says Tompkins County's problems are grounded in mandates. But he tracks other relevant trends. "It's the second year in a row of a big shift" of the tax burden onto localities, he says. He notes that state and federal income taxes have been flattened in recent years, making the pressure on localities even greater.

            "I see it as a direct transfer from the income tax to the property tax, a transfer from the wealthiest people to the middle class," he says.

Some might say: Pick your poison. When it comes to taxes, how much difference can there be between one type and another?

            It can make a huge difference, depending on where you sit on the economic ladder. In the classic formulation, consumption taxes are the most regressive kind, and graduated income taxes are the most progressive. But what's beyond the abstractions?

            Matthew Gardner, a University of Rochester alum who's now an analyst with the Washington-based Institute on Taxation and Economic Policy, has detailed the tax burden across the income scale. Looking only at "non-elderly taxpayers," Gardner's study includes the taxes people pay directly and those they pay indirectly --- as with business taxes that are "hidden" in commodity prices.

            Using data for 2000-2002, a chart Gardner prepared says New Yorkers in the bottom quintile (average annual income $8,700) spend 9.5 percent of their income on sales and excise taxes. These taxpayers on average spend only 4.4 percent of their income on property taxes, often by way of their rent. But this group actually makes a little more than 1 percent back on income taxes, via earned income credits.

            According to Gardner's data, the entire bottom 80 percent of taxpayers in the state pay more percentage-wise in sales and excise taxes than they do in property or income taxes. The break point is income of $74,000, beyond which the sales tax starts looking much better in relative terms. At the very top, there's no contest: Those making $634,000 or more --- the group average is an income of $1.6 million --- pay 1.2 percent in sales and excise taxes, 1.6 percent in property taxes, and 6.3 percent in income taxes.

            These numbers have to be put in context: People with the highest incomes naturally pay more in dollars, as opposed to percentages, than those at the bottom. And certain taxes are more "optional" than others; you can simply avoid buying many taxable items, for example. Still, looking at the numbers, it's clear a shift to the income tax would benefit the vast majority.

            And yes, a 0.6 percent sales-tax hike would obviously add more than a few bucks to the price of a Ferrari. But how big a hit would the financially distressed take?

            Frank Mauro, head of the Albany-based Fiscal Policy Institute, crunched some of Gardner's numbers a little further. He took Jack Doyle's proposed sales-tax increase of 0.6 percent and calculated its likely current effect on households here. A typical household with an income of $20,700 --- that's the second quintile from the bottom --- would see its direct layout for general sales tax going from $773 to $830 per year, he found.

            That may not sound like a lot --- unless you're one of the multitude who struggle to make ends meet on a near-poverty income, and who may soon be enlisted to fix the county budget deficit through more sales-tax "contributions."

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