The car tax


Jodi Rell is once again proposing to phase out the property tax on cars. (New Attempt To Cut Car Tax, Hartford, Courant, February 3rd)

First, the obligatory disclaimer. The property tax in Connecticut is a bad tax because our local towns must rely too much on it as a revenue source. That being said, Rell's proposal is still a bad idea.

I can't quite understand why Rell seeks to deal with the hated property tax by picking on the tax on cars. No one likes to pay taxes, but people get especially incensed when they think they are being unfairly taxed. There are lots of complaints about the property tax on homes, because everyone is convinced that their own home is being unfairly assessed. Sometimes, those complaints are even true. By comparison, few people claim their cars are unfairly valued.

When I was on the Town Council in Groton we heard a lot of gripes about the property tax and unfair assessments, but never relative to cars. That's because automobiles are, (putting aside collectible cars like those owned by Tommy Hilfiger) basically commodities. There are reliable price guides from which a value for any given car can be gleaned. They may or may not be more reliable than real property appraisals, but people seem to perceive them to be more reliable, because very few people seem to complain about the assessments on their cars. That may be partly due to the smaller amount of the overall tax, but I don't think that's the complete explanation. In any event, eliminating the tax on cars is not going to eliminate any of the frustration with the tax itself. If someone is beating me on the head with a hammer, I'm not going to be grateful if he stops pricking me with a pin at the same time.

On its merits, though, Rell's proposal stinks. As I've written before, the idea is to deprive the towns of a source of revenue over which they have control, and replace that revenue with funds budgeted from the state. We've gone that route before, and as municipal officials point out, the state has always eventually reneged on its commitment. As the Courant article makes clear, the very legislators who would vote on it, are saying out loud that they could not be trusted to keep their commitment to provide replacement funds.

Rep. Christopher Caruso, D-Bridgeport, said he could not support Rell's plan last year because it did not do enough to help poorer, urban residents with older cars. Caruso laughed upon hearing that the proposed phase-out would take five years, noting that many other long-term plans have been constantly revised by the General Assembly.

"Let's see if the legislature will honor it in five years," Caruso said Friday. "Five years is an eternity in politics."

The governor's claim that she will intercept casino money means nothing. The legislature giveth, and the legislature taketh away. There are no guarantees unless they're enforceable in a court of law. Right now, the towns right to impose a property tax on cars is enforceable in a court. The towns' moral rights to a state appropriation are not enforceable.

Unfortunately, the article in the Courant doesn't say how much revenue will be gained by eliminating the property tax credit, though Senator Williams is quoted in the Connecticut Post as saying it won't be enough to cover the amount lost via the auto tax repeal. Rell's website gives no information. Her press release claims that the tax credit elimination would "offset any lost revenue to the state’s General Fund", but she gives no hard numbers. I couldn't find anything on the net, though I'm sure an exhaustive search would turn up something. I did find an old budget report from 1996 indicating that the amount lost was about $100 million, but I couldn't find similar reports from subsequent years. That was when the credit was for $100.00, indicating the amount must have increased by quite a bit since then. Not everyone gets the full credit, so you can't just assume that it would be about $500 million this year. Neither Rell nor the newspapers gave any estimate about the total amount of revenue lost as a result of the car tax elimination either. However, based on a report from last year, it appears that the towns would lose about $500 million dollars in revenue. (Meriden Record Journal, February 10, 2006) At that time the Record Journal stated that casino funds would be needed to make up the balance of the money needed to pay for the tax elimination.

If the Record Journal was right, then the elimination of the tax is not fully funded by eliminating the tax credit. That means that Rell's proposal, if fully implemented, would result in a decrease in state revenues, necessitating a state tax increase or offsetting cuts.

If nothing else, all of us need a little more information before we can properly assess this plan, although even without the hard numbers its clear it's merely a gesture, and does nothing to solve the real problem.

Even assuming that there is no net effect on total tax revenues, this plan would, on balance, achieve nothing for the towns. The towns need more money. Merely replacing a reliable source of revenue with one dependent on the whim of the legislature achieves nothing for them. In fact, it leaves them more reliant on real property taxes.

The plan does nothing to address the core problem: the fact that our towns must almost wholly depend on a partially regressive and unpopular form of taxation. It does nothing to address the distorting effects of that reliance, such as the tendency of town officials to welcome the uglification of their towns via big box sprawl because of the increased commercial property taxes gained in the short term. It does nothing to increase town revenues at a time when they are being increasingly burdened with mandates from on high.

In addition to the above, this appears to be yet another Republican device to shift the tax burden toward the middle class, though at least in this case there is some relief for the poor, who tend to own cars but not homes.

The most distressing thing about this is what it reveals about this governor. Newly elected in her own right by a large majority, she reveals herself anew as a politician totally lacking in vision and/or totally ignorant of, or indifferent to, the real problems facing Connecticut towns. She appears totally uninterested in actually solving a real problem. She is interested only in appearing to do so.

The towns need multiple legally enforceable sources of income. Ideally, those sources of income should be collected on a state wide basis, with the proceeds apportioned according to a reliable formula beyond the ability of the legislature to change. The property tax should yield a small percentage of the overall revenue for each town. Connecticut towns, if I am not mistaken, are more dependent on property taxes than the towns in all states but New Hampshire. There are 48 other states, therefore, from which we can learn, and devise a better system. All it takes is recognition of the problem and a little political will.

Here, by the way, is a section from an FAQ the governor's office posted the last time around:

Won’t the municipalities get short-changed during future bad economic times for the state?
 
That would be highly unlikely.  Under the Governor’s proposal, 100 percent of the annual revenue from the casinos would be permanently intercepted going directly into a fund to reimburse municipalities.  The casino funds would not even be deposited into the state’s general budget fund.  Grants to municipalities are historically one of the most protected parts of the state’s budget.  Even during the state’s toughest economic times, the General Assembly has not reduced revenues owed to municipalities. 

Talk about disingenuous. Ask any municipal official how the state has performed on its commitment to fund education. Ask any of them about how the state has done reimbursing them for revenues lost as a result of the Manufacturing Machinery and Equipment Exemption. These are the precedents to look at, and they're not pretty.
Posted: Tuesday - February 06, 2007 at 08:34 PM          

©