Nlc Says Tax System Needs Major Overhaul
NLC SAYS TAX SYSTEM NEEDS MAJOR OVERHAUL
Our nations system of public finance is woefully out of date, and it is time for public discussion of some far-reaching changes in how we pay for essential government activities at all levels. Thats the conclusion of a new report released by the National League of Cities (NLC), calling on public officials at all levels of government to act quickly to bring Americas 19th- and 20th-century fiscal system into the realities of the 21st-century economy.
The reform of the public finance system is essential to insuring economic growth while sustaining and improving the quality of life for all Americans in the years ahead, said NLC President James C. Hunt, councilman from Clarksburg, West Va. We must avoid being trapped by assumptions on how revenues are currently raised. No conventional ideas should go unchallenged and no heresies should go unexplored. Given the many ways the world has changed and is likely to continue to change, we may need to be open to new ways of thinking.
The new NLC report, Taxing Problems: Municipalities and Americas Flawed System of Public Finance, calls on elected officials, citizens, community and business leaders to address the problems created by the widening gap between economic growth and the revenue system, decline in intergovernmental partnerships, changing needs of the American people, and governance challenges that are obstacles to reform.
With most current tax cuts expected to end in 2011, Congress is expected to make major changes in the next few years to avoid the mother of all tax increases, according to R. Michael Kasperzak, Jr., chairman of NLCs Finance, Administration, and Intergovernmental Relations Policy Committee, and councilman from Mountain View, Calif.
We have a very complicated set of revenue-generating systems at all levels of government. As local officials, we must get in front of this issue and not wait until others define it for us, said Brian Murphy, councilmember from Cambridge, Mass. and chairman of NLCs CityFutures Panel on Public Finance, which sponsored the report.
The report analyzes key trends and challenges affecting our fiscal system, identifies a set of principles that can be used as pathways to solutions, and raises key questions that need to be addressed by decisionmakers.
Among its findings:
The current tax system is unfair. All users of services, regardless of residence, should pay for their fair share of the costs of services.
Intergovernmental partnerships are unraveling. Decisions at one level of government albeit federal, state or local — affect the entire revenue food chain. For example, the federal government caps spending on Medicaid and the states have to pick up the bill. The states cut back on shared revenues and the locals budgets are thrown out of balance. Cities and states shed staff and forego spending on capital or infrastructure projects and the federal governments efforts to stimulate the economy are undermined.
Needs are changing. Changing populations require more flexible options for raising revenue.
The ability of local governments to deliver services is under fire. Residents are demanding more and improved services from their governments at the same time that those governments are feeling the pinch of new limits on taxation. The perception that government can provide something (or everything) for nothing is making it more and more difficult to govern responsibly.
Our ability to fix the system is being undercut by ideological- and partisan-driven efforts at reform to benefit special interests, Hunt said. The extreme and irresponsible anti-government and anti-tax rhetoric that pervades public debate about tax policy makes it difficult to address problems.
The NLC report finds that any reform must be based on a few core principals. Among them are:
1) Governments should impose equitable and fair revenue burdens on individuals, corporations, communities, sectors, income classes and generations.
2) Users of services should pay their fair share of the costs of government.
3) Taxes and fees must generate sufficient revenue to finance needed services.
4) The system of finance, both revenue and expenditure sides, should be understandable to residents, should be adequately communicated to them by the government, and
should be politically acceptable to them. 5) Cities should decide on roles and service levels, rather than those decisions being forced by federal or state governments (unfunded mandates).
Building from the report, the NLC Board of Directors approved a multi-year action plan on reforming the fiscal system at its July meeting in West Virginia. The plan calls for short-term federal advocacy focused on protecting state-local tax deductibility from the federal income tax, and protecting the tax-exempt status of municipal bonds, while calling for a fix to the federal Alternative Minimum Tax, which is hurting a growing number of middle-class Americans.
The NLC plan also calls for longer-term research and advocacy focused on broader-scale reforms, such as consideration of alternatives to the federal income tax system and the implications of those alternatives for municipal governments. In addition, NLC will conduct a series of workshops on public finance problems at its upcoming national conferences, and is developing a set of educational materials for city officials to use in dealing with the challenges to the system of public finance.
For a copy of the full report, visit: http://www.nlc.org/content/Files/CityFutures%20TaxingProblems.pdf .
