Daily Deduction

from the Tax Policy Center

Taxes, Pensions and Public Schools: A Balancing Act

By :: April 14th, 2014

Congress is in recess and returns in two weeks. The Daily Deduction will be back next Monday and resume its regular schedule on Monday, April 28. Until then: Don’t miss tomorrow’s TPC event on inequality; outside the Beltway, states and cities’ pension and education funding problems persist.

Tomorrow: TPC Tax Day conversation with Thomas Piketty on inequality. TPC’s Len Burman moderates the discussion with the author of Capital in the Twenty-First Century, a new book on the long-term evolution of inequality, the concentration of wealth, and prospects for economic growth. Piketty will be joined by Dean Baker of the Center for Economic and Policy Research and Kevin Hassett of the American Enterprise Institute. Register here or tune in to the live webcast on Tuesday, April 15, at noon.

Rhode Island’s pension fight heads to trial; lawmakers ask for tax cuts. The state cannot reach a deal on a pension overhaul with public employee and retiree groups. Five groups voted to approve a settlement in February, but local police officers, the smallest of the groups, voted against it. One of the cash-strapped state’s largest sources of revenue comes from its sales tax; two state lawmakers introduced legislation to reduce it.

Pension worries prompt Wilmington Mayor Dennis Williams to ask for higher property taxes. In his first term, the Delaware mayor would like a property tax hike in order to generate $3.6 million in new revenue. “The city has pointed to $2.7 million in ‘uncontrollable costs,’ such as contractually required payroll increases and higher pension costs, as reasons for the tax increase,” reports The News Journal.

Chicago Mayor Rahm Emmanuel changed his property tax tactics, but to what end? The city’s mayor had hoped Illinois lawmakers would raise property taxes to help fund Chicago’s pensions, but he was rebuked. His revised pension reform plan lets the Chicago City Council decide on property tax increases, “but even if the General Assembly signs off… and the City Council [raises] property taxes… pensions will ‘continue to weigh heavily on the city’s credit quality,’ Moody’s said,” reports The Chicago Sun-Times.

Property taxes aren’t high enough for Wisconsin voters in some school districts. Out of 35 referenda placed on April 1 Wisconsin ballots by school districts, 23 passed, resulting in higher taxes to pay for schools’ salaries, utilities and other basic costs, reports the Associated Press. Wisconsin voters may be wondering whether property taxes are the fairest way to fund education. “The recession forced many states to cut school spending, but in areas where residents were willing and could afford it, district leaders sought referenda.”

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  2. Michael Bindner  ::  12:40 am on April 15th, 2014:

    If it were not spring break, I might have shown up at the Tax Day event in person. My ten year old does not yet care about public finance, however and I am sleeping in because I work tomorrow night. This anti-public pension hysteria has gone far enough and is part of an effort to shift pensions into defines savings plans – which carry much higher fees than defined benefit plans like the Rhode Island, Wilmington and Chicago pensions. The accounting community sold its soul on this issue in the early 90s and we are the ones going to Hell because of it. Of course, the other problem with public pensions is that these employees don’t contribute to Social Security. This is the first reform to make before either raising taxes or defrauding on obligations. Were it not for Monica Lewinsky, this would have been done in 1998. As for schools in Wisconsin, no they should not be funded by property taxes (which should fund road, fire, police, water, etc). Because education is a redistrubtional activity, indeed the most effective one, it should be funded by income taxes.

  3. AMTbuff  ::  3:53 pm on April 15th, 2014:

    That was a great discussion on wealth inequality! Outstanding panelists all.

    Piketty won the wonk laugh line of the day with his comment to the effect that a consumption tax fails to capture purchases of political influence.

    I’ll make the time to listen to the whole thing again. It’s packed with insights.

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