Former Highland Park Mayor: Tax Reform Bad For Local Taxpayers

There are close to 80,000 local governments in this country. At the local level cities and counties work every day to provide quality of life and essential services to their residents. This includes water, sewer, roads, bridges, schools, police, and fire to name a few. The current tax proposal coming out of House and Senate Committees will negatively impact the ability of local governments to provide these services.

The proposal to eliminate the local property tax deduction will hurt every local government in this country as it is often the primary source of revenue in the budget. It will also hurt every homeowner in this country. The property tax is the hardest tax to pay for most Americans as it is not completely correlated with income. That is to say if you are out of work or had your income reduced you still have to pay the same amount in property taxes. The deduction of this item is a form of relief and encourages home ownership along with the mortgage interest deduction.

Another proposal in the tax plan will eliminate refunding bonds. Local governments issue debt to meet basic infrastructure needs. The timing of when a government goes to market is not always based on interest rates but rather to meet a pressing need. For example, if storm sewers need to be upsized because of flooding, bonds will need to be issued. If interest rates drop subsequent to the time of original issuance governments can refinance at a lower rate. The tax plans of both the House and Senate preclude the issuance of refunding bonds. Last year governments and their taxpayers saved $3.0 billion dollars as a result of refunding bonds.

For the sake of lowering corporate tax rates Congress is disregarding local governments that meet the needs of their constituents every day.

What they fail to recognize is that fiscal policy can have good outcomes such lower property taxes and better services.

In fact I would argue that corporations benefit from economic development through high quality services provided at the local level more so than a lower income tax burden.

Michael D. Belsky
Mayor of Highland Park (2003-2011)
Executive Director, Center for Municipal Finance, The Harris School of Public Policy, The University of Chicago
Senior Advisor, Greenwich Investment Management

_{Top photo: Michael Belsky | Courtesy Michael Belsky}