Historically, any town in Massachusetts could rely on three sources of revenue: 1) federal aid, 2) state aid, 3) local property and excise taxes. In recent years, federal aid to municipalities has been cut, and the commonwealth has struggled to provide adequate assistance to individual towns, with dire consequences for many. Here in Harvard, our net state aid in 2002 was approximately $4,400,000; for fiscal 2009 that amount was $3,500,000. Naturally, we turned to increases in property taxes and personnel cuts as ways to offset this erosion.
The challenge that emerges is daunting: in small towns, such as Harvard, the rate at which we raise property taxes still can’t provide the level of funding we actually need to sustain our services. We truly do have a revenue—not a spending—problem. We have a small school system, small public works department, and a small police department. We have one beautiful library and one small park, established with private funding. We run the rest of the town on the backs of dedicated volunteers: fire and ambulance, parks and recreation, and numerous committees. Despite the doubling in property taxes over the past eight years, many positions in the schools have been eliminated, and staffing at the Town Hall and Department of Public Works has been cut.
In addition to this lack of scale, property taxes present another challenge: they are likely to provoke an inequitable distribution of the burden; in particular, senior citizens with fixed incomes and homes they purchased decades ago, and those impacted by the economic climate with reduced or eliminated paychecks are often the ones who carry an unsustainable load.
Maybe the time has come to allow municipalities to derive revenue from a personal income tax. The mechanism would be simple: the State Department of Revenue would collect the funds, which would be given back to the town via “cherry sheet” aid. The town would set the rate. By way of example, in Harvard, a 2 percent local personal income tax would raise approximately $7.6 million, which is roughly half of the revenue that property taxes currently generate. We could lower property taxes for all by, say, 40 percent, and realize a net increase of revenue for the town. In subsequent years, Proposition 2½ would still preserve the levy limit. Obviously, these numbers can be adjusted in myriad ways. The point here is to stimulate a discussion on how we can equitably increase local revenue in the face of declining federal and state aid and keep the basic level of services that make Harvard the place we all know and love.
While a shift away from property tax dependence will correct inequitable levy burdens, high-income residents could see an overall tax increase. That’s not a trivial point, but consider this:
- In 2007, Massachusetts residents ranked 38th in the country for total tax paid as a percentage of income. “Taxachusetts” does not exist and hasn’t existed for two decades.
- The United States is not the most heavily taxed country in the world; it’s not even in the top 20 (according to KPMG’s Individual Income Tax and Social Security Rate Survey, published this year).
Along with the other two certainties of death and taxes, there’s a third—the law of unintended consequences. The “local option” income tax may not be a panacea, and is likely only one among several potential strategies to explore. But if we want to preserve what we have here, we will have to help ourselves. It is my hope that we start a dialogue about how to do this in town. A logical place to start would be to place a warrant article for spring’s town meeting, discuss it, and vote on it. If the town supports it there, we would lobby Beacon Hill to enable this option.
Stu Sklar, a member of the School Committee, resides on Scott Road.
