Federal tax reform should help, not hurt, cities and towns

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From the Beacon, December 2017
 
The MMA has joined with the National League of Cities, the National Governors Association, the Government Finance Officers Association, and dozens of other organizations to express our grave concerns regarding the income tax plans that are making their way through Congress.
 
Unfortunately, the House-passed tax bill and the version teed up for a vote in the Senate would be damaging to state and local budgets and services, and would undermine municipal finances for decades to come.
 
The MMA is a nonpartisan, nonpolitical association, and we are focused exclusively on what works to make our cities and towns stronger. Unfortunately, it is abundantly clear that these tax bills would not work for communities, and would make our cities and towns weaker. Regrettably, congressional leaders are advancing shortsighted proposals that would engineer federal tax policy through a partisan lens, benefiting red states and punishing blue states, which is an unfair and divisive framework.
 
Sens. Ed Markey and Elizabeth Warren have been highly critical of the legislation, and Gov. Charlie Baker has voiced his opposition, pointing out that the measures would be harmful to middle-class households in Massachusetts. This is the bipartisan view from our top officials.
 
We are particularly grateful to Sen. Markey for immediately reaching out to the MMA within hours after the first version was unveiled to join with us in publicly discussing how the legislation would harm cities and towns.
 
Here are the major aspects that would hurt our communities:
 
The tax bills would violate a 104-year promise against double taxation. The federal income tax has always – always – provided for the full deductibility of state and local taxes. The federal tax code has done this so that average taxpayers are protected from double taxation. The bills put forward by the president and congressional leaders ignore this basic promise to taxpayers, and the result would be bad for our state and our communities.
 
The bill would increase the tax burden on average families in Massachusetts and make it harder for cities, towns and the state to fund education, public safety and transportation – services that are the foundation of our economy.
 
Why? Because more than half of all Massachusetts taxpayers deduct their state and local taxes, and the proposals before Congress would hit them hard. There is cold comfort in Massachusetts that the property tax deduction would be partially allowed in the House bill. The $10,000 cap would be painful. There are two dozen communities where the average property tax bill is already higher, and thousands of homeowners in all other communities would also be impacted. The Senate bill would prohibit property tax deductions entirely.
 
The property tax funds our public schools, police and fire services, and much more. Capping or eliminating the property tax deduction would make it harder for taxpayers and communities to adequately fund these essential services. Further, the legislation would make it much harder for cities and towns that need to pass a temporary property tax increase to pay for rebuilding their public schools, or a new fire truck or police station. Why? Because Massachusetts taxpayers would pay twice – once for the new or renovated school and a second time to the federal government. And those new federal taxes wouldn’t come back to Massachusetts – they’d be used to reduce the corporate tax rate. That’s a troublesome shift – away from public schools and into corporations.
 
The state income tax pays for health care, public colleges, addressing the opioid crisis and other important social programs to support families. Completely eliminating the state tax deduction would make it harder for taxpayers and state leaders to adequately fund these essential services.
 
This tax plan would weaken the state and local revenue base and increase taxpayer costs without generating any benefits. In the long term, this would weaken state and local finances and make it harder to deliver quality education, public safety and family-based services to the citizens of our state.
 
And even more, limiting the mortgage interest deduction would drive up the cost of housing and make it harder for young families to fulfill their dream of homeownership. It is hard to imagine that the federal tax code would still allow businesses to deduct a considerable portion of the interest they pay on debt (up to 30 percent of their earnings before accounting for interest, taxes, depreciation and amortization), but restrict the interest deduction for homeowners. The proposed mortgage interest cap would hit many in Massachusetts hard – because the underlying cost of owning a home is already above the national average.
 
The tax plan would also hurt investment in our communities, by eliminating the historic tax credit that finances the restoration of historic and abandoned buildings, by eliminating tax-exempt private activity bonds, which are used to leverage private investment in vital housing and economic development projects, and by eliminating advanced bond refunding, which allows taxpayers to save money on municipal bonds during a downturn in the economy. Taken together, this tax bill would make it more difficult to finance investment and improvement in our infrastructure and neighborhoods. These public benefits are being eliminated to fund the 43 percent cut in the corporate tax rate, another shift in the wrong direction.
 
Finally, the tax package would blow a huge $1.5 trillion hole in the federal deficit over the next decade. And we know how this would be funded – by cuts to important programs, such as health care and hospital reimbursements, Community Development Block Grants, federal education programs for needy students, brownfields reclamation, transportation, and public health and defense research grants. Each one of these is essential to economic growth here.
 
The bottom line is that this tax plan has been written to benefit some states, but not our state. We are thankful that Sens. Markey and Warren, Gov. Baker, and the entire Massachusetts congressional delegation are standing up and fighting to restore the state and local tax deduction and all the other important provisions.
 
We respectfully call on all members of Congress to reject these tax plans, and instead renew the century-old pledge to support strong cities and towns across America by opposing double taxation. We need more investment in communities. We need tax reform that helps, not hurts.​