WHEREAS:

State and local taxes account for nearly one dollar out of every three paid by the American taxpayer. It is critically important that these revenues are collected based on the concept of ability-to-pay; and

WHEREAS:

Recent trends in state and local taxes show a continued shifting away from corporate taxes and toward higher individual taxes and greater reliance on regressive user fees and excise taxes. Between fiscal years 1980 and 1984, revenues from individual income taxes and user fees rose three times as fast as revenues from corporate income taxes; and

WHEREAS:

The continued unfair shift of state and local taxes away from corporations and the well-to-do and onto middle- and lower-income families provides fuel for the anti-government tax revolt forces. Under the guise of promoting tax reform and controlling "out-of-control" government spending, anti-government groups are continuing to promote regressive tax initiatives that will dismantle vital public services; and

WHEREAS:

Simplistic and regressive initiatives to cut or limit taxes do not address the inequities of existing tax systems. Effective tax reform strategies are needed, particularly for the major state and local government tax revenues: The personal and corporate income tax, the general sales tax, and the property tax.

Personal Income Tax

WHEREAS:

The graduated personal income tax is the most equitable mechanism for raising revenues. It is critical that progressive income taxes be made the cornerstone of tax systems, in order to offset the regressivity of the other state and local taxes; and

WHEREAS:

The income tax is extremely under-utilized by state and local governments, raising less than one-quarter of total taxes. Ten states now have no broad-based state income tax, five states have only proportional rates, while fifteen other states have nominal graduated tax brackets that "top off" at less than $15,000 of taxable income. In other words, in half the states that have a personal income tax, it is not meaningfully progressive; and

WHEREAS:

Many state personal income taxes have loopholes that undermine fairness and deprive state governments of substantial revenues, including allowing favorable capital gains treatment and conforming to federal treatment of Individual Retirement Accounts.

Property Taxes

WHEREAS:

Income tax regressivity is particularly severe at the local level. There taxes typically have no exemption or standard deductions and are levied only on wages and salaries. As a result, most local income taxes are no more than payroll taxes in disguise; and

WHEREAS:

A progressive personal income tax is the most convenient vehicle for reducing the tax burden on low-income taxpayers. It also has the ability to generate new tax revenues automatically during periods of economic growth. Such automatic growth responsiveness is desirable in order to help governments meet the inevitably rising costs of providing public services to a growing population.

Sales Tax

WHEREAS:

The general sales tax is a major source of state tax revenue. Unfortunately, sales taxes also place heavy burdens on low- and moderate-income families. This regressivity can be severe, but it can be offset either by exempting necessities from the sales tax base or by adopting an income tax credit for sales taxes paid; and

WHEREAS:

Most general sales taxes do not cover all business transactions. Services such as data processing, advertising and consulting typically fall outside the sales tax. These business sales exemptions are very costly and unfairly place the sales tax burden on individual consumers. Business services meet the needs of business consumers in the same way that purchases of goods do. As the economy becomes more service and information oriented, the use of business services will grow and represent a larger share of business sales. Omitting business services from the sales tax base will significantly undermine the adequacy and fairness of the sales tax; and

WHEREAS:

Many states' sales tax systems exclude services purchased by individual consumers from the tax base. Since higher-income individuals spend a greater share of their incomes on services (e.g., legal and accounting assistance) than do lower-income individuals, this artificial limitation of the sales tax base to goods results in lower-income households bearing a disproportionate share of the sales tax burden; and

WHEREAS:

The passage of Proposition 13 in California and Proposition 2½ in Massachusetts highlighted the unfairness of the property tax and the excessive burdens it places on low- and moderate-income families. As currently structured in most jurisdictions, the property tax is a regressive tax. Meat-axe cuts of the Proposition 13 and 2½ type actually heighten the unfairness of the property tax; and

WHEREAS:

If properly structured and fairly administered, property taxes are a loophole-free, stable and important source of revenue. In places where the property tax places an unfair burden on low and middle-income families, various actions can be taken to redistribute the load. A "circuit breaker" is now used in 30 states, providing property tax relief based on income and level of tax-in many places to both homeowners and renters. Eliminating business tax abatements improves the fairness of the property tax, by assuring that a fair share is paid by all. Fairness can also be improved by strengthening assessment, approval and collection procedures, as well as promoting public information and input into the process; and

WHEREAS:

Property taxes can be extended to apply to "intangible" property-stocks, bonds, etc.— as well as to real estate. Simple fairness demands that the financial assets of the well-to-do be taxed on the same basis as the major asset of the typical middle income family, the value of their house. Intangible property taxes have the advantage of being highly progressive, and raise significant revenues at low rates of taxation. Business Taxes

WHEREAS:

A dramatic shift in the direct tax burden paid by businesses versus that paid by individuals has taken place over the last twenty-five years. In 1957, businesses paid 37 percent of total state and local taxes. In 1980, they paid only 31 percent. At the same time, the share by individuals has risen from 63 to 69 percent; and

WHEREAS:

The Reagan Administration's 1981 tax cut contained a time bomb for state governments. Since almost all states follow federal tax rules and definitions, their tax revenues have been cut as well unless they have acted to "decouple" themselves from federal law, particularly federal depreciation rules; and

WHEREAS:

Increased concern over economic development has sparked intense competition among states, and even among localities within states, for industry. Both state and local governments have too frequently opted for tax breaks to businesses, which will continue to increase the disparity in the tax burdens borne by businesses and individuals; and

WHEREAS:

Business tax breaks provided by state and local governments do not promote economic development or entice businesses to remain in or relocate to an area. Large corporations, which tend to be the prime beneficiaries of many tax breaks, are being rewarded for doing exactly what they would have done without any tax advantage.

THEREFORE BE IT RESOLVED:

That AFSCME urge state and local governments to achieve more equitable and responsive tax systems by:

1. Relying more heavily on progressive personal and corporate income taxes for financing public services.
2. Transforming regressive local wage taxes to broad-based graduated income taxes through such means as piggy-backing on existing state income taxes.
3. Adopting an income tax credit or exempting necessities from the sales tax base to offset the regressivity of sales taxes.
4. Broadening the base of the sales tax to cover services, including those purchased by businesses.
5. Adopting a "circuit-breaker" system to provide property tax relief for low- and middle income homeowners and renters, eliminating tax abatements, and improving assessment and administrative practices.
6. Extending the property tax to intangible property.
7. Rejecting the use of "economic development" tax breaks for businesses, which erode the tax base, promote destructive competition within and among states, and provide a windfall subsidy to businesses without producing benefits to the local economy.
8. Decoupling state business income taxes from the Accelerated Cost Recovery System federal tax depreciation rules.
9. Joining the Multi-state Tax Commission so that, through uniformity of codes, states can more fairly assess the tax liability of interstate and international businesses.

SUBMITTED BY:

International Executive Board