Members of the Cass County Council have begun talking about enacting a new local option income tax to make up for revenues lost under state property tax caps.
They say local taxing entities have already cut spending to the bone and they now have no choice but to look for other sources of revenue.
Part of the problem, they say, is that the impact of the tax caps on local government has been greater than expected. The projected loss in January 2009 was $3.7 million, but the actual loss was closer to $5.8 million.
In light of such numbers, it might well be true that the council has little choice but to enact the new tax.
A more difficult argument is that the move would be “tax neutral.” Council members note that what they’re proposing to do is add a 1 percent local option income tax that would go entirely toward property tax relief. In other words, they would be shifting that portion of the tax burden from property owners to wage earners.
What the argument doesn’t consider is that of the current 1.5 percent in local income taxes, one-sixth, or .25 percent, is already going toward a homestead credit. Under provisions of the new tax, the revenue from that portion, estimated at roughly $1.5 million, would go instead toward public safety expenses.
Clearly, the impact of the proposed new tax will vary from taxpayer to taxpayer.
For a retiree with a fixed income and a relatively large house, the result would be a lower overall tax bill. For someone with a larger income and a smaller house, the impact would be a larger tax bill.
And for someone who doesn’t currently pay property taxes, the impact would be a significantly larger tax bill.
Of course, advocates of the new tax point out that that’s only fair. After all, they say, it’s not only property owners who benefit from government services.
Critics, on the other hand, argue that a flat income tax means those at the low end of the wage scale bear a disproportionate share of the tax burden.
If you have an opinion on the issue, now would be a good time to weigh in. For the new tax to take effect by next year, the county council must act to adopt it by July 31.