and the
Citizens Economic Research Foundation


Tuesday, April 2, 2002

Memo to the Legislature:
Proposed Proposition 2 tax hikes

To:  The General Court
       April 2, 2002
Re:  Proposed Proposition 2 tax hikes

"He does not want to tap into the free cash account to fund the budget."

The Fall River Herald News, Apr. 1, 2002,
reporting on Fall River Mayor Edward M. Lambert Jr.

Mayor Lambert, president of the Mass. Mayors Association, wants you to hike the income tax rate to 5.95% while he sits on free cash and excess property tax capacity. We suspect that the legislative proposal for "local option" changes in Proposition 2 is your way to let mayors and selectmen know that if they want a politically unpopular tax vote, they can take it themselves.

However, attacking Prop 2 by allowing an increase in the auto excise or excluding the Overlay account from the levy limit is no solution to your and municipals officials' overspending problem that created the present revenue "shortfalls."

1)  In 1980, the auto excise was $66 per thousand of value. Because it was annually paid directly, not as part of the mortgage or withheld from the paycheck, it was much noticed and hated.

So Proposition 2 cut not only the property tax levy but the auto excise to 2.5% of value or $25.00 per thousand. But the amount collected by the cities and towns $266 million in 1980 which dropped to $112 million after Prop 2 reduced the rate had risen to $534 million by FY 2000, according to the Division of Local Services.

Legislators who bemoan that the rate has not increased in 20 years are missing the point: the revenues collected from cars that have greatly increased in value are almost five times higher since the rate reduction. As we and our Mass. Auto Dealers Association allies predicted at the time, the rate reduction was good for business, and increased car sales were good for state revenues.

It was recently reported that zero-percent financing by the auto industry led to such significant sales increases that it lifted the nation's consumer confidence index. With the economy moving into recovery, you don't want to even hint at a reason not to buy a new car.

2)  The Legislature wisely decided 20 years ago not to allow any exclusions from the Prop 2 levy limit except those passed by local voters. Excluding Overlay revenues would hike property taxes by approximately $160 million statewide, effectively doubling the present 2.5% base levy; before adding new growth, various overrides, and the Community Preservation Act. Property taxes could increase by 10% or more next year!

I'm sure local officials would not hesitate to blame you for voters' outrage if this happens. It really is best to just leave Proposition 2 alone: though property taxes are still high and regressive, they are at least somewhat under control, and the Legislature can take credit for preserving the voter-passed limit for over 20 years.


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