Lawmakers Savor Notion of Property-Tax Cuts
Lawmakers in the grip of this year's tax-cut fever are more likely to trim property taxes than any other levy, according to a survey of state legislators.
Asked what tax cuts were "most likely" in the 1995 legislative sessions, 67 percent of the lawmakers pointed to local property taxes. That response was more than double the percentage of those who predicted cuts in sales, income, or business taxes.
The survey, released last month by the National Conference of State Legislatures, suggests that the massive tax reform passed in 1993 by Michigan lawmakers remains an intriguing option for lawmakers concerned about inequitable school spending.
Three-quarters of lawmakers reported that disparities in property wealth were affecting local-government services. The survey found that most "seem to favor the replacement of local property taxes with state funding," as Michigan did.
Michigan lawmakers scrapped local property taxes as a source of school funds and overhauled the state's school-finance system to rely more heavily on state taxes. In the end, lawmakers instituted a much lower local property-tax rate for nearly all of the state's school districts. (See Education Week, Dec. 7, 1994.)
Although the warm-up to the year's legislative sessions has spotlighted efforts to cut income taxes in such states as New York and New Jersey, property taxes are a logical target for lawmakers in many states, analysts said.
Since 1985, local property taxes have grown faster than any other levies, said Allan R. Odden, a school-finance expert at the University of Wisconsin at Madison.
"You would expect the squeeze to be there because that's the sector that has been pumping it out for years," he said.
Coincidentally, state budget forecasts are the rosiest in years, meaning lawmakers may have the money needed to replace property-tax revenue. States expect only minor problems balancing their budgets, the N.C.S.L. survey found, and no state projects a shortfall of more than 3 percent.
Where Will Taxes Be Cut?
Governors and legislators in at least 20 states have already put forward significant tax-cut measures, according to the survey. A separate report released last month forecasts that nearly 30 states will move to cut taxes in 1995.
The report by the Center for the Study of the States at the State University of New York in Albany cautions that historical trends suggest that, despite the intense rhetoric, these cuts will amount to less than 1 percent of total state tax revenue.
"In most states, the cuts will be so paltry that they will hardly be noticed by taxpayers," Steven D. Gold, the center's director, contends in the report.
Mr. Gold also notes that while states may at first be attracted to a Michigan-style tax reform, circumstances in other states make such a radical tax shift problematic.
The reports by Mr. Gold and the N.C.S.L. both note strong support in Idaho, South Carolina, and Wisconsin for legislation to cut property taxes. Such measures were pushed unsuccessfully in those three states last year. (See Education Week, March 2, 1994.)