Recently, four city mayors in Connecticut proposed that cities ought to be permitted to impose a 1% sales tax if they chose. Those who spend much time thinking about incentives recognize this as a poor idea. I particularly liked this pair of letters to the editor in the New London Day:
Why Not Create Tax-free Or Reduced-tax Zone? Published on 3/28/2008
The recent suggestion by a group of urban mayors, including New London's own Mayor Kevin Cavanagh, is so unfair, punitive and discriminatory that it deserves no further consideration or comment.
If this same group of mayors wanted to do something truly innovative and financially beneficial to their communities, they would return to Hartford with another proposal -- this one being the total opposite of their first idea.
The mayors would lobby the state to allow for a no-tax or reduced-sales-tax zone in distressed municipalities such as New London. The boundaries of the existing City Center Tax District might be one way to determine the zone in New London, although that is just one way. In essence we would create something like "duty free" shopping that is available when traveling.
In these areas, merchants could sell items with either no tax or reduced sales tax, giving them an edge over huge malls and commercial competitors. If such a zone were to be created, I suspect the current empty storefronts would be rapidly filled with anxious merchants waiting to sell tax-free goods to eager customers wanting to save some money. This would create huge incentive for businesses and customers to want to be in these areas.
In New London, just think of the impact this would have on the 1.5 million ferry passengers just a block away looking for something to do.
The cities would benefit by being able to tax personal property and inventory, and would further benefit by the increased commerce and customer visibility.
This is a real solution of how to inspire and invigorate struggling urban retail areas around the state. Tax less, not more. The people will come.
I'm not crazy about "tax personal property and inventory." That seems unjust ... but the next reader has a better alternative:
Local Sales Tax Could Send People Fleeing Published on 3/28/2008
With New London already bleeding residents and businesses to surrounding communities, a local sales tax would give them one less reason to stick around. Communities that thrive are friendly to businesses, large and small. Making it more costly for them to operate here is akin to shooting yourself in the foot.
A much better proposal would be land-value taxation, whereby land is taxed more so than improvements. By adjusting the tax rate according to zoning, size and location, you discourage land speculation while not punishing those who make the improvements with more taxes.
With land-value taxation you'd see far fewer parking and vacant lots (because the tax formula would more heavily weigh on the land) and less turnover of buyers for a quick flip and profit (empty properties would be taxed much like occupied ones).
Simply proposing more taxes will put us further behind the eight ball as this country struggles with a recession.
All New London (and Connecticut's other cities and towns) need is the enabling legislation. When will our Legislature get behind this?