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May 1, 1981
Council Comments 922

State Ballot Issues–Proposal A: State Subsidy of Local Taxes

Proposal A is a tax plan developed and placed on the ballot by the governor and legislature. The plan includes amendments to five sections of the present constitution and a number of tie-barred legislative bills that would add certain features to the plan and implement the new constitutional language.  While the bills have not yet been enacted into law, the major features of the plan are apparent.

The primary aims of Proposal A are to reduce local property tax payments on homesteads and city income tax payments by individuals, and to pay for these tax cuts with increased state sales taxes, net reductions in state income tax credits, and governmental budget reductions.  The plan would also limit the growth of property tax revenues without voter approval.

THE PLAN IN BRIEF

PROPERTY TAX PAYMENTS ON HOMESTEADS WOULD BE REDUCED:

  • Proposal A would amend the constitution so that the state would pay 50% of homestead property taxes for operating (i.e., nondebt) purposes, up to a “cap” of $1,400.
  • By legislation, the formula for the property tax credit against the state income tax would be liberalized to provide additional relief to senior citizens, renters, low-income property owners, and those with high property taxes in relation to income.
  • Proposal A would limit to 6% the annual growth of tax revenue from any class of property (e.g., residential, industrial, etc.) without voter approval.  Also, all millage increases would require voter approval.

CITY INCOME TAX PAYMENTS BY INDIVIDUALS WOULD BE REDUCED, BUT RATES COULD BE INCREASED:

  • Proposal A would amend the constitution so that the state would pay 50% of city income taxes on individuals on up to $40,000 of taxable income.
  • By legislation, present limits on city income tax rates would be increased or removed.

THE PLAN WOULD BE FINANCED BY AN INCREASE IN THE STATE SALES TAX AND BY OTHER SOURCES:

  • The state sales and use taxes would be increased by 37.5%, from 4.0¢ to 5.5¢.
  • State revenues would increase as a net result of the adjustments to present credits against the state income tax.
  • Budget reductions would finance the remainder of the program.

THE PLAN INVOLVES CROSS-SUBSIDIES AMONG THE STATE, LOCAL UNITS AND TAXPAYERS:

  • Initially, local tax revenues could decrease by $1.4 billion of which $1.25 billion would be reimbursed by the state.
  • State tax revenues would increase by $1.1 billion.
  • This leaves a $300 million net saving to the taxpayers and net loss in state and local revenues.

The potential incentive effect of a state subsidy for local taxes on individuals could lead to higher local taxes which would increase costs to the state and reduce the saving to taxpayers .

May 1, 1981
Council Comments 922

State Ballot Issues–Proposal A: State Subsidy of Local Taxes

Proposal A is a tax plan developed and placed on the ballot by the governor and legislature. The plan includes amendments to five sections of the present constitution and a number of tie-barred legislative bills that would add certain features to the plan and implement the new constitutional language.  While the bills have not yet been enacted into law, the major features of the plan are apparent.

The primary aims of Proposal A are to reduce local property tax payments on homesteads and city income tax payments by individuals, and to pay for these tax cuts with increased state sales taxes, net reductions in state income tax credits, and governmental budget reductions.  The plan would also limit the growth of property tax revenues without voter approval.

THE PLAN IN BRIEF

PROPERTY TAX PAYMENTS ON HOMESTEADS WOULD BE REDUCED:

  • Proposal A would amend the constitution so that the state would pay 50% of homestead property taxes for operating (i.e., nondebt) purposes, up to a “cap” of $1,400.
  • By legislation, the formula for the property tax credit against the state income tax would be liberalized to provide additional relief to senior citizens, renters, low-income property owners, and those with high property taxes in relation to income.
  • Proposal A would limit to 6% the annual growth of tax revenue from any class of property (e.g., residential, industrial, etc.) without voter approval.  Also, all millage increases would require voter approval.

CITY INCOME TAX PAYMENTS BY INDIVIDUALS WOULD BE REDUCED, BUT RATES COULD BE INCREASED:

  • Proposal A would amend the constitution so that the state would pay 50% of city income taxes on individuals on up to $40,000 of taxable income.
  • By legislation, present limits on city income tax rates would be increased or removed.

THE PLAN WOULD BE FINANCED BY AN INCREASE IN THE STATE SALES TAX AND BY OTHER SOURCES:

  • The state sales and use taxes would be increased by 37.5%, from 4.0¢ to 5.5¢.
  • State revenues would increase as a net result of the adjustments to present credits against the state income tax.
  • Budget reductions would finance the remainder of the program.

THE PLAN INVOLVES CROSS-SUBSIDIES AMONG THE STATE, LOCAL UNITS AND TAXPAYERS:

  • Initially, local tax revenues could decrease by $1.4 billion of which $1.25 billion would be reimbursed by the state.
  • State tax revenues would increase by $1.1 billion.
  • This leaves a $300 million net saving to the taxpayers and net loss in state and local revenues.

The potential incentive effect of a state subsidy for local taxes on individuals could lead to higher local taxes which would increase costs to the state and reduce the saving to taxpayers .


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