Public Assets Institute > Policy Areas > Education > The governor’s ‘tax relief’ sleight-of-hand

The governor’s ‘tax relief’ sleight-of-hand

Ever hear of the con game pulled on bartenders in busy pubs? A guy strikes up a conversation with a bartender at one end of the bar and says he can make a $100 bill disappear and reappear. He asks the bartender to take $100 bill out of the cash register. The guy marks the bill, performs a simple sleight-of-hand, and the bill disappears. Meanwhile, he slips the $100 to a confederate sitting next to him. The confederate strolls to the other end of the bar and orders a drink from another bartender. He pays with the $100. As soon as the magician sees that the bill is back in the drawer, he tells the first bartender to go check the register. Sure enough, the marked bill has reappeared. The duo, however, has used the bar’s own money to pay for a drink and leave a little tip, but walked away with most of the money.

That’s basically how Governor Douglas’s plan for reducing property taxes would work. He wants local school districts to cut their school budgets. He’ll take the savings, give people a little of their own money as a property tax cut, and keep the rest.

Here’s how the governor does his sleight of hand. He wants to use money from the Education Fund to help close the gap in the state’s General Fund budget. Using money this way from the Education Fund necessarily drives up property taxes, but the governor wants people to think they’re getting a tax cut. His plan would force local school districts to reduce their spending—that’s like asking them to hand over $100 from the cash register. Then he gives them a tax cut—that’s like paying for the drink and leaving a tip. But the tax cut is much less than the reductions local districts would be forced to make, and the difference is the amount the governor wants to keep—like the change from the $100.

The governor’s plan would reduce payments to schools by about $60 million—$18.4 million the Legislature already has diverted to other General Fund uses; $37.1 million in assumed “efficiency” savings; and $5.3 million from reductions to small schools grants, adult education, and reimbursement for state-placed students. In addition, he would take money for teachers’ retirement ($10 million) and school construction ($5 million), which used to be General Fund obligations, out of the Education Fund. In all, the governor’s plan would reduce money available to local schools from the Education Fund by over $80 million.

Of that $80 million, the governor wants to give back $20 million as tax cuts: $4.2 million for primary residences, $3.4 million for renters, and $12.4 million for vacation-home owners and businesses. Not all residential taxpayers would get a cut, though. The governor would actually increase taxes on middle-income families with household incomes between $60,000 and $90,000 who now pay school taxes based on income. The residential tax cuts would go to families with incomes greater than $90,000.

Like the scam in the bar, this trick takes two players. Let’s hope the Legislature doesn’t go along.

Posted by Jack Hoffman on February 3, 2010 at 2:32 pm

3 Responses to “The governor’s ‘tax relief’ sleight-of-hand”

  1. ralph howe says:

    No surprise here. Slight of hand politics is always a vote getter, because it gives the appearance of helping someone, while stealing his/her future. Let’s cut more and more, but effectively cost shifting to guess who? —-the same poor and middle class folks who are already over burdened! I hope not. It is time to invest when the market is down—invest in ways that will address the causes of poverty and low economic productivity up front, rather than after the human casualties accumulate and the factory doors are closed. Investments in people and innovations, really small ventures and expansions of successful small business, plus investments in strong communities will turn the ocean liner around. Cutting all engines and breaking off the rudder will only lead to more icebergs.

  2. Jack,Paul,
    Language is everything. The broad point you make about the Governor’s “give and take” math, though correct, becomes obscured in your choice of metaphor and sets up a polarity very quickly between those who accept your point and those who might if it were couched in a less judgmental metaphor. Is the point of Public Assets to inform or inveigh?

  3. Rep. Cynthia Browning says:

    Readers of this piece may be interested in my summary of testimony by Secretary of Administration Neale Lunderville before the House Institutions Committee on which I serve on the afternoon of Thursday 1/28. The Governor has proposed $5 million to continue to pay off the back log of the state share of past school construction from the Education Fund rather than the Capital Bill, and more such payments in future years until the $35 million is paid off. Secretary of Administration Neale Lunderville said that the justification for this is that all education spending should be from the Ed Fund. While that is a valid topic for discussion in terms of how to pay for this going forward, it seemed odd to some of us on the committee to assert that the back log should be paid off in this way.
    The Ed Fund is largely town property tax dollars, along with state income, sales, and purchase and use tax, and the lottery proceeds. To shift the payment of the accumulated state share of past school construction from the Capital Bill to the Education Fund means that to some extent ALL Town property taxpayers will be helping to pay off the STATE’S share of past school construction for PARTICULAR Towns. We certainly transfer property tax dollars from town to town based on the criteria in Acts 60/68. But in this case the recipient towns are determined simply by historical accident in terms of who built a school or put in a biomass furnace, not any agreed upon policy goal. Mr. Lunderville insisted that it was appropriate to do this.
    Mr. Lunderville also insisted that if all of the Governor’s many other education proposals are implemented along with the shift in the school construction obligation, the net effect would be that property taxes would go down. We finally got him to admit that holding everything else constant, shifting things like school construction onto the Ed Fund would make property taxes go up.

    Rep. Cynthia Browning, Arlington