Reflections on 9%

I’m somewhat baffled at some of the reactions to the proposed 9% sales tax rate for Montgomery County. Do we really think that a viable option is to simply not fund mandated programs? I think the term ‘mandate’ has a very specific meaning; we can’t substitute the word ‘option’ for ‘mandate’; it doesn’t quite work that way. And I bet the state legislature and courts would agree with that.
What I find most curious is not the specific number of 9% — shocking as it is — but the underlying message of pitching  such a sales tax rate. Let me try to read the tea leaves.
What is immediately obvious is that a projected shortfall is expected in the county budget and that the expectation is that cost-cutting alone will not close the budget gap. What is also obvious is that this is consistent with the trends in the local economy: rising unemployment, lack of growth, and a consequent loss of consumer spending simultaneously fueling declining sales tax revenues. What’s worse is the decline in economy and especially the increase in unemployment creates more needs for social services. And the loss of federal funding through TARP creates even more stress on county finances.
What strikes me is that most conversations fail to account for the harsh reality of the current economic cycle or the fact that we continue to imagine the solution lies in retail growth even as unemployment rises. This is the real message of the 9%.
I do not see the budget gap closing just by reducing costs due to a combination of mandates, lack of political will and the necessity of some services. So the message to taxpayers is how do you want to pay for it: a property tax increase or a sales tax increase? This is where it gets tricky.
What is tricky is that as unpalatable as a sales tax increase sounds , a property tax increase may be even worse in that a property tax increase gets distributed to a smaller number of payers who already pay one of the highest combined and highest county tax rates. The other subtlety in how you choose to raise taxes is that the relative distribution of who pays what in terms of cities and towns will vary widely between the proposals. I’ve not crunched the numbers but it’s apparent that the relative winners and losers under each scenario will be different. In other words, city tax payers may fare better under one approach and than the other.
I can’t help but note that the projected shortfall should be a wake-up call for those who believe that the city’s woes can be solved by shifting costs to the county as if the costs magically disappear. I don’t see how this works given the picture above.
Let me say for the record that I dislike any tax increase. Hello rock, and hello hard place.

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