July 27, 1973
Page 26379
SENATOR MUSKIE MAKES THE CASE FOR A LIMITED FEDERAL ROLE IN PROPERTY TAX REFORM
Mr. PERCY. Mr. President, I wish to call to the attention of my colleagues the remarks of Senator EDMUND MUSKIE before the International Association of Assessing Officers in Washington on July 19, in which my distinguished colleague eloquently expresses the case for a limited Federal effort to encourage local property tax relief and reform.
The need for reform of local property taxation is in my view indisputably clear. As Senator MUSKIE points out there is ample evidence showing that the property tax burden falls very heavily on the poor and particularly the elderly poor. Second, there is a long, demonstrated record of inequitable, inefficient property tax administration throughout the country; a sad problem which results in very heavy tax burdens for some, and scandalously light or nonexistent taxes for others. Third, the property tax is demonstrated to be the country's most unpopular tax,
little understood, subject to political manipulation, in need of being brought into the full sunlight of open government.
Senator MUSKIE makes a compelling case for a Federal role in property tax reform and I am in complete agreement with it. He delineates precisely the respective roles of the Federal versus the State and local governments in the property tax field. Property taxes have been, and should remain, the province of local governments. Local property tax administration should under no circumstances be assumed by the Federal Government.
But there is a compelling, even urgent, case for creating Federal Government incentives to State and local reform. This point is hotly disputed. There are those who argue that, no matter how shoddy, how inept, how unfair local property tax administration in all too many States and counties and municipalities has been shown to be, the Federal Government has no reason or cause to intervene.
Senator MUSKIE disagrees, as do I, and makes the case for a limited Federal role with complete persuasiveness:
Where heavy property tax burdens on the poor and elderly undercut Federal programs to guarantee all citizens a measure of economic security, there is a national interest in adjusting those burdens. Where improper administration of the tax results in discrimination against certain classes of property owners, there is a national interest in enforcing justice under the law. And where the tax works against coherent urban growth and sound land use, there is a national interest in coordinating fiscal programs with those of development.
Senator MUSKIE and I are the coauthors of the Federal Property Tax Relief and Reform Act of 1973. The Intergovernmental Relations Subcommittee, of which the gentleman from Maine is the distinguished chairman, has held hearings in Washington on the bill, and is planning field hearings, tentatively including Chicago. Our bill provides Federal incentive to property tax reform by providing Federal payments to State programs of property tax relief for poor homeowners and renters, if States undertake certain reforms. Senator MUSKIE's and my conviction that this is the proper Federal approach to the serious property tax problem is shared by 12 cosponsors of the bill in the Senate. All the sponsors of the bill can derive satisfaction from the policy statement of the Executive Management and Fiscal Affairs Committee of the 1973-74 National Governors' Conference, which endorses the approach in S. 1255 with the statement that–
We ... believe that federal incentives which would promote better assessment administration, or encourage the states to assume greater responsibility for property tax matters are desirable.
Mr. President, I ask unanimous consent that Senator MUSKIE'S speech and the policy statement of the Governors' Conference, both referred to above, be printed in the RECORD.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
REMARKS OF SENATOR EDMUND S. MUSKIE TO SEMINAR ON PROPERTY TAX REFORM, INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS, STATLER-HILTON HOTEL, WASHINGTON, D.C.,
JULY 19, 1973
The last time George Romney and I had a chance to debate the question of the Federal role in property tax relief and reform, George won. He had the votes.
Bob Merriam was the moderator on that occasion, too, as Chairman of the Advisory Commission on Intergovernmental Relations. It voted last December, as you know, to reaffirm the policy that states must carry the burden alone of reforming the administration of the tax and relieving its excessive burdens. I was in the minority.
It may be that this morning I am still in the minority. But in three days of Senate hearings in May on my proposals for a limited Federal program in the field, I found that the long and often angry discussion of property tax has taken a new turning. The question is no longer whether to remove the inequities and inefficiencies in property taxation but how and by whom.
My answer is that all levels of government must be involved in reforming practices which all of us agree must be changed. No one in this room, I am certain, will argue that the property tax is administered as efficiently and fairly as it should be.
In seeking to remedy that situation, the Federal Government has a limited but essential role to play. Where heavy property tax burdens on the poor and the elderly undercut Federal programs to guarantee all citizens a measure of economic security, there is a national interest in adjusting those burdens. Where improper administration of the tax results in discrimination against certain classes of property owners, there is a national interest in enforcing justice under the law. And where the tax works against coherent urban growth and sound land use, there is a national interest in coordinating fiscal programs with those of development.
The program I advocate, however, would rely on the states to be the instruments of relief and reform. They would receive support – if they want it – from the Federal Treasury for measures which relieve excessive tax burdens. They would receive financial aid – if they want it – for efforts to improve and professionalize the quality of local assessment. They would receive encouragement – in the form of outside expertise and information – for programs of equal and uniform assessment and for projects to link land use planning to tax policy.
States which received help for relief plans would have to meet only two fundamental requirements. They would have to show convincing progress toward the difficult goal of equal and uniform assessment. And they would have to insure that their citizens could understand the workings of the tax and contest inequities where they arose.
The reasons for bringing the Federal Government into this field – one of traditionally local concern – are many. Let me present the ones I view as significant.
In the first place, there is substantial evidence to indicate that the property tax burden falls most heavily on those who are least able to pay it – the poor and the elderly. Statistics compiled by the ACIR demonstrate that in all regions of the country, persons at the low end of the income ladder pay a higher percentage of their income in property taxes than those at the upper income levels.
In the case of millions of taxpayers, this burden is not merely regressive, but confiscatory.
For example, there are approximately 1.3 million elderly homeowners with incomes under $2000 a year who pay an average of 15.8 percent of their support to property taxes. Every week, my office receives numerous letters from such persons who are finding that they simply cannot afford to live in their own homes any longer.
An elderly couple from Bethel Park, Pennsylvania, living on a total yearly income of $6000, is now paying 12.5 percent of that income in property taxes. Another elderly couple, from Lewisboro, New York, writes that property taxes consume 29 percent of their yearly income of just over $6000. And a widow from West Bridgewater, Massachusetts, living on a combined Social Security and pension income of $3100, pays a shocking 34 percent of her income in property taxes.
For the poor in general, the tax bite is even more painful. Over 400,000 Americans under the age of 65 and living on incomes of less than $2000 a year see property taxes consume nearly 19 percent of their meager subsistence.
It is true that a number of states – 21 at last count – have acted to provide circuit-breaker relief for elderly homeowners. But the pattern of progress has been uneven, and these scattered initiatives are small consolation to the millions of non-elderly homeowners and renters who still face property tax payments far in excess of their ability to pay.
The problem is not an isolated local one, to be solved through piecemeal response. It involves the commitment of government at all levels, including the Federal Government, to the poor and the elderly, and so demands a response from all of us. Where states have not acted to deal with the situation, the Federal Government has an obligation to encourage them to do so. Where states have begun to come to grips with this form of inequity, the Federal Government has an interest in hurrying them along.
A second major reason for Federal involvement in the property tax field is that the states themselves have done so little to bring about effective reform of property tax administration. As long ago as 1963, the states received thoroughgoing, professional recommendations for assessment reform from the ACIR. Yet today, ten years later, the response to these recommendations has been most disappointing.
Last winter, my Subcommittee on Intergovernmental Relations conducted a survey of the states to determine the degree to which administrative reforms had been achieved.
We found that although the property tax is the single largest source of local tax revenue, states – on the average – spend only one-tenth of one percent of those revenues to supervise administration of the tax.
We found that only a handful of states have established any professional qualifications for persons holding the office of assessor or appraiser, with only five states providing bonuses to assessors who receive special training.
We found that by far the majority of the states continue to rely upon the exemption mechanism as a means of providing tax relief to various groups and individual interests, and that well over half the states make no attempt to determine the value of any revenue lost from such exempt property.
And finally, we found that very few states insure that taxpayers get the statistical information from which they can judge the fairness and quality of assessment practices.
At the same time, the Federal Government, through general revenue sharing, is shifting major spending decisions once taken at the Federal level to state and local officials. The quality of those decisions is certain to depend in large part on the degree to which state fiscal policies are uniform, integrated and professionalized. As long as administration of such a major revenue source as the property tax is slack, we cannot expect that our revenue sharing funds will be used for the maximum benefit of either the government or the taxpayer.
Further, a study recently released by the Arthur D. Little Company, based on property tax administration policies in ten of the nation's largest cities, provides substantial evidence that outmoded property tax structures are working at cross-purposes to Federal efforts to deal with the problems of our inner cities. The study concludes that poor property tax administration is an obstacle to the upgrading of poor quality housing, that it is a contributing factor to urban blight, and that in a number of the cities studied, existing property tax appeal structures do not offer any real remedy to the average taxpayer for inadequate assessment practices. In five of the ten cities studied, the median effective tax rate in blighted neighborhoods is many times higher than that in stable or upward transitional neighborhoods.
Finally, the neglect of property tax reform has resulted in the tax being both the least liked and least understood of all taxes. Fairly or not, it has come to be regarded as a symbol of the inflexibility and remoteness of government.
These consequences cannot be ignored for ever. Americans have developed a widespread mistrust of government – at all levels. They are profoundly cynical about government's ability to respond to their concerns. The polls tell us that public confidence in elected officials is at an all time low.
All of us have a stake in reversing that attitude. Tax reform is crucial to the process of restoring confidence. Without it, both taxpayers and government will suffer.
All of us stand to benefit from positive action. The taxpayer will have greater confidence that he is being taxed fairly in relation to his peers. The assessor will benefit from increased public understanding of his job and from greater technical and administrative assistance from the state level. And government at all levels will be strengthened by a more fair and workable revenue- raising structure.
Having outlined the reasons for a Federal role in property tax relief and reform, let me discuss what that role should and should not be.
Starting with the negative, I am convinced that the Administration proposal for a direct Federal circuit-breaker is a serious mistake. Such an intrusion of Federal power would actually work against the twin interests of relief and reform. While it might have some short-term political attraction, a direct Federal relief program would undercut local control and accountability, both of them necessary for a smoothly functioning revenue system.
And the Federal relief would work only as a shot of morphine for a patient with a serious and painful illness. Relief might kill the pain for a time, but it would in no way help to cure the disease which caused the pain to begin with.
My prescription is based on the conviction that relief and reform are inseparable goals of a sound Federal policy. First and foremost, it is necessary that the states – and not the Federal Government – serve as the agents for relief and reform. The property tax is the principal source of revenue for most units of local government, and local officials must remain accountable to those who pay the tax.
The role of the Federal Government should be one of encouraging and aiding the states – not coercing them – to undertake what is a very difficult task.
The Property Tax Relief and Reform Act of 1973, which I have introduced, is, first of all, a program for limited Federal involvement, but a plan that turns words of encouragement into tangible assistance, It is directed toward the goal of relieving both the inequities and the most severe burdens of existing property tax systems.
First, under its provisions, the states would remain the agents of relief and reform; and second, it would promote cooperative effort between Federal and state governments. No state would be compelled to participate if it did not choose to do so.
Under the relief provisions of the bill, the Federal Government would contribute to state programs compensating the poor and elderly, homeowners and renters, for that portion of their property tax payments which exceeds a reasonable level of their income.
Those states which qualify for Federal funding of their relief programs would be required to show progress toward reform of their property tax administration. But all states, whether or not they enact relief mechanisms, would be eligible to receive Federal assistance to modernize their tax-collecting machinery.
The reform provisions of the bill are directed at speeding those reforms which the ACIR agreed ten years ago were needed to strengthen the states' own financial structures. They are intended to assure taxpayers easy access to a system whose complexity alone now generates distrust, and to streamline and professionalize the information gathering process.
I see this reform program as a finite task to which the Federal Government must contribute the initial financial impetus if reform is ever to get off the ground.
With this push from the Federal Government, states can at last begin the job of revising inefficient, unfair and unduly secretive systems of property taxation. Where the cost of reform is an obstacle to its achievement, the Federal contribution can help the states achieve sound administration and make it self-sustaining. And where the burden of the tax falls too heavily on those least able to pay, Federal assistance can help states meet the national goal of economic security.
We would not be engaged in this debate if we did not recognize that American taxpayers must have a fair, orderly and understandable system of property taxation. We will not profit from this debate if we do not recognize that both relief and administrative reform are tasks that can no longer be deferred. For the health of our Federal system, we must move now from debate to action.