Although details are very sketchy, possibly by intention, it is clear that in order for tax revenue to increase by 6 percent, one target, the city's tax bill for a resident would double. A remarkable achievement.
Notice I didn't say the property tax bill. This is the total tax bill, after allowances for the elimination of the city's B&O and local option Sales tax.
Double? How is that possible? Answer: Because of (1) a net shift from businesses to homeowners and (2) an end to the taxes that can be "exported."
Property is disproportionately residential, so a shift to a property base would shift taxes from business to residents. Sales and B&O taxes are to some extent exported. This quality is underappreciated on the Tax Force, although the 2002 Gates Commission report had only good things to say about it, specifically, "The [jurisdiction] should minimize the tax burden on [its] taxpayers by choosing a tax system that maximizes the extent to which taxes can be exported (paid by nonresidents)." The Commission goes on to give helpful examples. But we have our own.
A Tacoma shopper in a Puyallup store pays into that city's sales tax. The Puyallup shopper returns the favor in Tacoma. The tax burden in each case is exported to the other's city. Add to this the situation of manufacturing and other businesses whose customers dwell outside the city and who pass the B&O across the city's boundaries along with the goods.
The owner of a $200,000 home in Tacoma would see their property tax bill rise by about $1,500. [Mind-numbing details of these calculations are below.] But they would lose, generously, a little over $400 in retail B&O and city option sales taxes. The net boost to the city's revenue stream is 6%, remember. The net boost to the city's portion of the resident's tax bill is 115%, more than double.
Here's the calculation (and an illustration of the type of discussion I enjoy, but which puts others to sleep).
Assume the city's property tax rate is $3 per thousand (about halfway between the 2005 and 2006 rates). The current contribution of the property tax is 22 percent of the General Fund. The target for the City Services Tax (CST) levy is 80 percent. (More, actually, 40% police, 30% fire, 6% library, 4% administration, and the 6% increase to fill the projected gap, or 86% of current GF revenues.)At least we saved the nonprofits.
Increasing the CST levy from the current 22% to 80% is a factor of 3.64.
Using our $200,000 home as an example. Currently the city's portion of the property tax bill is $600 (200 x 3). Under the CST, it would be, yes, 3.64 times this, or about $2,180.
BUT, the plan calls for the removal of the city's 1% local option sales and its B&O taxes. So the homeowner loses a burden associated with those taxes. Great! How much is it?
Assume a resident spends $3,000 per month in Tacoma (not Puyallup) on products and services subject to the sales tax. (Food and drug purchases would not be subject to the sales tax, but we'll pretend they are. Have to be conservative.) Assume the B&O tax on the retail sector is paid by consumers. Assume the B&O tax on other sectors (manufacturing, services, construction, etc.) is paid by businesses or their out-of-city customers. Enough assumptions.
The city's local option sales tax bite would be $360 for the year ($3,000 x 12 x .01). The retail portion of the B&O would nip another $55 ($36,000 x .00153). For a total cost to this homeowner of the Sales and B&O taxes of $415.
Thus, the current bill = $1,015 (600 + 415)
The proposed CST levy = $2,180 (as above)
Just hit me with a rubber hose.
caveat: Utility taxes remain the same under both the current and proposed schemes.
note: Last week's "consolidated proposal" raised the same revenue with no increase to the property tax. It's burden to a resident would be identical to that above.
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