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The way local governments raise their money needs to change

This article is not an anti-tax manifesto. Nor is it to suggest that the city government is betting big on some far-fetched financial market scheme.

What it is: the spotlight on a proposal from a group isn’t exactly a household name, problem-solving can seem like a confusing topic – except that their ideas may have potential. The power to change nearly everything about the American economy and civil society.

The proposal comes from the Association of Government Finance Officers, a national lobbying group for those who run city budgets, and it proposes a radical overhaul of how we fund governments. Locally, a rethink can reduce inequality, help balance city budgets, and create a better and fairer regional economy.

NS “Review Revenue” The project was necessary, the GFOA task force wrote, “because local government revenues are inconsistent with modern economic realities.”

Consider: most services – salon appointments, home improvement, financial services, etc – not taxed, even though our economy is increasingly leaning towards the consumption of services rather than goods. Until 2018, Sales tax can be applied uniformly to online purchases, although e-commerce now accounts for about 19% of all sales nationwide, according to eMarketer.

Fuel taxes are not keeping up with the increasing fuel efficiency of cars, let alone the ongoing transition to electric vehicles.
DRIVE,
+ 0.92%
.
And as MarketWatch reported, the cable TV franchise does not reflect the “string-cutting” phenomenon of consumers using streaming services like Netflix
NFLX,
+ 3.81%

and Hulu.

In many cases, the way communities raise their revenues does not align with the existing regional economic structure. For example, in an area dependent on local sales taxes, a city with a shopping mall in the area may receive most of the money paid by people from other cities shopping there. Or maybe there are cities that have a lot of people going to work every day but pay little taxes to support public services there. MarketWatch reported on such a situation in Lansing, Mich ..

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Source: GFOA, Urban Institute, Census Bureau

Why is all this important?

First, there is a large and growing backlog of things that governments should invest in but cannot, most notably, the infrastructure, the public health and education system, Prepare for climate change, and more.

Furthermore, local governments are increasingly vulnerable to economic downturns. Only when the economy turns south will people tend to need more public services, so government revenues should follow the business cycle as much as possible. Historically, property taxes have helped: they move with a long lag, as it takes time for the downturn to show up in home prices, then appreciation, and finally is tax collection.

But politicians and citizens have limited the amount that can be collected from property taxes, meaning governments are less dependent than before.

Between 1977 and 2017, property taxes rose from 31% to 26% of total local revenue, the report said. “Some of the revenues that have replaced it, like sales tax, hotel tax, or income tax, are much more vulnerable to the economy. An ideal revenue system would provide more stable resources so that local governments have sufficient resources available during recessions but also do not put undue pressure on constituents at any time. any “.

MarketWatch also reported on another revenue spike, numbers featured in the GFOA report: fines and pre-arrest fees. “The abuse of fees and fines can lead to unfair and counterproductive outcomes for citizens,” the report said. “There have been documented cases where local authorities have spent more money on enforcement of overdue court fees and fines than they collected.”

The issue of fines and fees is perhaps the best example of unfair government revenue, but it is not the only one. As the GFOA reports, it often happens that residents who pay a particular tax are not those who can afford to pay or who benefit from public services funded by those taxes. In most cases, that disproportionately burdens lower income earners, who spend more of their income on taxable goods than those on higher incomes. .

The sources of revenue that local governments use to finance themselves must reflect a fundamental value of a democratic system of government: fair and equal treatment, the report adds.

“However, the current inequity in the local government revenue collection system does not match that value. It is more important than ever to align our local government system with this fundamental value and create a fairer system of taxes and fees as people’s trust in government is growing. reduced. ”

What to do about it?

The task force that wrote the GFOA report summarized here intends to make recommendations, they said, noting that it could be a tall order.

Local government usually bound by their state’s taxing rules – and even if it is legal to impose new or different tax structures, local residents may not be supportive, or the local economy may not be.

The report concludes: “A redesigned revenue system will provide all communities with revenue options that are relevant to the local economy and at the expense of public services.” concluding report. The GFOA project “can provide much-needed flexibility to local governments, while maintaining accountability for how much revenue is increased and how it is used.”

https://www.marketwatch.com/story/the-way-local-governments-raise-their-money-needs-to-change-11636554051?rss=1&siteid=rss | The way local governments raise their money needs to change

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