Newspapers in New London ("Urban Mayors Push For Local Sales-tax Option") and Stamford ("Malloy: Cities should have sales tax option") had articles today describing 4 Connecticut cities' mayors' aversion to increasing the property tax.
Four urban mayors, including Kevin Cavanagh of New London, urged the legislature Monday to give municipalities the ability to levy a local sales tax of up to 1 percentage point to raise revenue without resorting to property-tax increases.
The articles quote Dannell Malloy of Stamford, Kevin Cavanagh of New London, Bill Finch of Bridgeport, and Dan DeStefano of New Haven as endorsing the idea.
Malloy, along with mayors Bill Finch of Bridgeport, John DeStefano of New Haven and Kevin Cavanagh of New London, said cities need other options for raising revenue besides burdening constituents with more property taxes.
The Mayors are half right. Raising taxes on our buildings is a poor idea. Lowering taxes on our buildings is a fine idea.
But the way to do that is NOT to substitute a tax on sales within their borders. Sales taxes are a poor idea. They raise costs for everyone, and particularly hurt the poor. They suppress demand for products, and therefore destroy jobs. They discourage industry and enterprise. They cause shoppers to leave town and shop elsewhere for as much of their purchases as possible; for those who lack access to cars, they make life even more difficult. (See Chicago's 10.25% sales tax.)
If their towns need more revenue, the right way to raise it is to increase the millage rate on land value, without raising the millage rate on the buildings. A tax on land values has a number of very favorable incentive effects. It coaxes the underused land within the central business district into better use. Landholders become motivated to make that land productive -- now, not 10 years from now, or when their children or grandchildren enter college.
The Stamford Advocate article goes on to say,
"We don't want to sound desperate, but our revenue growth is pretty stagnant," said Finch, who until his election in November served as a state senator.
And revenue growth is going to stagnate further in towns that impose a sales tax. The state is already charging 6% on one's purchases. Adding another 1% is going to drive away the shoppers who have the means to go to neighboring towns to do their shopping, further reducing economic activity within the afflicted communities.
If revenue growth is the goal, raise the tax on land value. Not a single acre is going to leave town. Not a single commercial tenant is going to be negatively affected (economists agree that a tax on land value can't be passed to a tenant; it must be borne by the landholder -- though I suppose that "triple net leases," in the short term may mean that the tenant pays -- I've got to look into that one).
Pennsylvania has had the enabling legislation for taxing land value and building value with separate millage rates. Harrisburg has been using it for 35 or so years with tremendous success, and a number of smaller towns and cities use it to good effect, including some towns whose biggest problem is closed steel mills.
Connecticut's cities need legislative approval -- enabling legislation -- to permit at least these four cities -- and probably some others, too, the option of using this excellent tool for financing their spending.
What's so good about land value taxation?
- First of all, the incentive effects lead to the (re-)development of the downtown by the private sector, which makes for a healthy local economy and slows or reverses sprawl at the edges.
- Second, it doesn't penalize those who have already put heir land
to good use; they get a reduction in their share of the city's tax
burden.
- Third, not one acre is going to leave town or go underground.
Every site is visible, and a gathering of 10 local folks could tell you
the relative value of each location with far more accuracy than the
assessor can value land and buildings.
- Fourth, the development it sets in action creates jobs, and
creates an environment in which wages will tend to rise and not merely
flow permanently into the pockets of landlords!
- Fifth, a tax on land values collects for the community the economic benefits of whatever pork spending the state's and city's representatives in Washington bring home in the way of pork spending. New highway exits raise land values. Put that value in the town's pocket, not individual or corporate landholder's private portfolio. New transit system raises land values? Ditto. New high-capacity bridge reduces congestion, promotes access, raises land values? Ditto. Increased spending on education enhances local schools, drawing more residents to town? Ditto. The community harvests more of the value, as our COMMON treasure, not the private windfall of a few lucky or well-connected landholders, or even a single neighborhood or elementary school district.
- Sixth, we don't take from the individual (or corporation) that which he/it creates (the value of his buildings), and we don't allow him/it to privatize that which all of us together created.
- Seventh, we get more housing, more economic activity, more jobs, more opportunity for all.
And those benefits are just off the top of my head.
Who won't like it? The fellow who has the "hole in the ground," the 4.3 acre site which has sat vacant for the 32 years I've lived in Stamford. The owners of the downtown lots with chain link fences and queen Anne's lace. But they can't take the land out of town in response to an increase in their carrying cost. They employ no one on these choice sites. They sit and wait for Stamford to do something to make them rich. Let's motivate them to do something useful, or to step aside and let someone else. Now, not 10 or 20 years from now.
A sales tax is a poor alternative. We need to seek legislative approval for land value taxation.
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