WHEREAS:

State and local taxes account for more than one dollar out of every three paid by the American taxpayer. It is critically important that these revenues are collected in a fair manner, based on the concept of ability to pay; and

WHEREAS:

Recent trends in state and local taxes show a continued shifting away from taxes on businesses and toward taxes on individuals. Equally significant have been shifts toward less reliance on progressive state income taxes, and greater reliance on regressive user fees and consumption taxes that, fail to tax the purchases of higher-income persons and businesses-, and

WHEREAS:

The continued unfair shift of state and local taxes away from corporations and the well-to-do and onto middle- and lower-income families provides fuel for the anti-government tax revolt forces. Under the guise of promoting tax reform and controlling "out-of-control" government spending, anti-government groups are continuing to promote regressive tax initiatives that will dismantle vital public services; and

WHEREAS:

Simplistic and regressive initiatives to cut or limit taxes do not address the inequities of existing tax systems. Effective tax reform strategies are needed, particularly for the major state and local government tax revenues: the personal and corporate income tax, the general sales tax, and the property tax; and

WHEREAS:

The graduated personal income tax is the most equitable mechanism for raising revenues. This is especially true now that most states have conformed to the new federal income tax base, which is much freer of loopholes benefiting the wealthy than the former personal income tax base. It is critical that progressive income taxes be made the cornerstone of state and local tax systems, in order to offset the regressivity of the other state and local taxes; and

WHEREAS:

The income tax is extremely under-utilized by state and local governments, raising only one-fifth of total taxes. Ten states now have no broad-based state income tax. Moreover, four states have only flat rates, and thirteen other states have nominal graduated tax brackets that "top off" at $15,000 or less of taxable income. In other words, in more than one-third of the states that have a personal income tax, it is not meaningfully progressive; and

WHEREAS:

Income tax regressivity is particularly severe at the local level. These taxes typically have no exemption or standard deductions and are levied only on wages and salaries. As a result, most local income taxes are no more than payroll taxes in disguise; and

WHEREAS:

A progressive personal income tax is the most convenient vehicle for reducing the tax burden on low-income taxpayers. It also has the ability to generate new tax revenues automatically during periods of economic growth. Such automatic growth responsiveness is desirable in order to help governments meet the inevitably rising costs of providing public services to a growing population; and

WHEREAS:

The general sales tax is a major and necessary source of state tax revenue. Unfortunately, sales taxes also place heavy burdens on low- and moderate-income families. This regressivity can be severe, but it can be offset by exempting necessities from the sales tax base and/or by adopting an income tax credit for sales taxes paid; and

WHEREAS:

Most general sales taxes do not cover all business transactions. Services such as data processing, advertising and consulting typically fall outside the sales tax. These business sales exemptions are very costly and unfairly place the sales tax burden on individual consumers. Business services meet the needs of business consumers in the same way that purchases of goods do. As the economy becomes more service- and information-oriented, the use of business services will grow and represent a larger share of business sales. Omitting business services from the sales tax base will significantly undermine the adequacy and fairness of the sales tax; and

WHEREAS:

Many states' sales tax systems exclude services purchased by individual consumers from the tax base. Since higher-income individuals spend a greater share of their incomes on services (for example, legal and accounting assistance) than do lower-income individuals, this artificial limitation of the sales tax base to goods results in lower-income households bearing a disproportionate share of the sales tax burden; and

WHEREAS:

The passage of Proposition 13 in California and Proposition 2-1/2 in Massachusetts highlighted the unfairness of the property tax and the excessive burdens it places on low- and moderate-income families. As currently structured in most jurisdictions, the property tax is a regressive tax. Meat-axe cuts of the Proposition 13 and 2-1/2 type actually heighten the unfairness of the property tax; and

WHEREAS:

If properly structured and fairly administered, property taxes are a loophole-free, stable and important source of revenue. In places where the property tax puts an unfair burden on low- and middle-income families, various actions can be taken to redistribute the load. A "circuit-breaker" is now used in a majority of states providing property tax relief based on income and level of tax-in many places to both homeowners and renters. Eliminating business tax abatements improves the fairness of the property tax, by assuring that a fair share is paid by all. Fairness can also be improved by strengthening assessment, approval and collection procedures, as well as promoting public information and input into the process; and

WHEREAS:

Property taxes can be extended to apply to "intangible" property — stocks, bonds, etc. — as well as to real estate. Simple fairness demands that the financial assets of the well-to-do be taxed on the same basis as the major asset of the typical middle-income family, the value of their house. Intangible property taxes have the advantage of being highly progressive, and raising significant revenues at low rates of taxation; and

WHEREAS:

A dramatic shift in the direct tax burden paid by businesses versus that paid by individuals has taken place over the last thirty years. In addition, states have not received the increase in corporate income tax revenues expected from adopting many of the changes of the 1986 federal tax reform. Significant opportunities exist for businesses to legally avoid state and local taxes, particularly for interstate and international firms; and

WHEREAS:

Increased concern over economic development has sparked intense competition among states, and even among localities within states, for industry. Both state and local governments have too frequently opted for tax breaks to businesses, which will continue to increase the disparity in the tax burdens borne by businesses and individuals; and

WHEREAS:

Business tax breaks provided by state and local governments do not promote economic development or entice businesses to remain in or relocate to an area. Large corporations, which tend to be the prime beneficiaries of many tax breaks, are being rewarded for doing exactly what they would have done without any tax advantage.

THEREFORE BE IT RESOLVED:

That AFSCME urges state and local governments to achieve more equitable and responsive tax systems by:

1. Relying on progressive personal and corporate income taxes for a greater share of the revenues from which public services are financed.
2. Following the lead of the federal government by removing families below the poverty line from the income tax rolls and eliminating remaining loopholes that benefit the wealthy, such as preferential treatment of capital gains income.
3. Transforming regressive local wage taxes to broad-based graduated income taxes through such means as piggy-backing on existing state income taxes.
4. Adopting an income tax credit or exempting necessities from the sales tax base to offset the regressivity of sales taxes.
5. Broadening the base of the sales tax to include services. including those purchased by businesses.
6. Adopting a "circuit-breaker" system to provide property tax relief for low- and middle-income homeowners and renters, eliminating tax abatements, and improving assessment and administrative practices.
7. Extending the property tax to intangible property.
8. Rejecting the use of "economic development" tax breaks for businesses, which erode the tax base, promote destructive competition within and among states, and provide a windfall subsidy to businesses without producing benefits to the local economy.
9. Joining the Multistate Tax Commission so that, through uniformity of codes, states can more fairly assess the tax liability of interstate and international businesses.

SUBMITTED BY:

International Executive Board