After nearly three months under a stay-at-home order, my daughter may have had it with my house rules. She sent me a TikTok video of a tearful stuck-at-home teenage girl with overdue school assignments, fractured friendships, a broken heart, and a mother who just asked her, for the 20th time, to clean the kitchen counter. The teen erupts: “This is not the time! This is not the [expletive] time!”
That seven-second video got me thinking—not about my house rules, but about taxes.
Over 40 million Americans have applied for unemployment benefits over the past 10 weeks. Gross Domestic Product fell by 5 percent in the first quarter of the year, and economists expect it to contract further over the summer. Already, state and local governments are in deep fiscal trouble. My Tax Policy Center colleague Richard Auxier warns, “Given what we know about unemployment rates and state tax revenue, the budgetary state and local fallout will be catastrophic. And it will play out over years, not months.”
A decade ago, some states and localities raised taxes to help fill budget shortfalls following—not during—the Great Recession. But they were able to delay tax hikes only because of rapid, effective federal aid. What happens if the federal government does not step up this time and state and local governments ask voters to pay higher state and local taxes this year? Will voters respond like that TikTok teenager?
Politico Pro reported last week (paywall) that many states and localities agree “this is not the time” to ask about raising taxes. But some education advocates argue that the alternative—unprecedented cuts for school spending—would be worse. For them, this is the time to raise taxes.
Take a look at California, Colorado, and school districts in Oregon and Michigan.
Is it time for higher taxes on the rich in California? Nope.
California currently has a $54 billion budget deficit. The state’s Education Coalition (a group of statewide associations of teachers, administrators, school employees and districts, and parents) wants Democratic Governor Gavin Newsom to back tax increases on the state’s richest residents to ease $6.9 billion in proposed cuts in state aid to K-12 school districts.
That tax hike had been proposed long before the pandemic, and proponents say it’s now more important than ever. Opponents call it a non-starter, especially given a separate ballot measure to raise commercial property taxes. That too faces opposition because of the pandemic’s economic damage.
How about temporary higher taxes on the rich in Colorado? Probably not.
In Colorado, state education officials expect to severely cut K-12 education funding due to steep revenue declines. The state predicts a $3.3 billion revenue shortfall for the next fiscal year, about 25 percent of the general fund.
The Colorado Association of School Executives and the Colorado Association of School Boards both want a temporary $600 million tax increase on households earning more than $250,000 combined with a small tax cut for everyone else. But the Colorado Constitution requires a two-thirds majority of the House and Senate to approve an emergency tax measure, and given the current economic and political environment, this proposal seems unlikely to be enacted.
How about tax increases in Oregon school districts, voted on last month? Sure.
Nine Oregon school districts had tax measures on the May 19 ballot, and five passed. The largest was a $121.5 million bond for Lane Community College that would be repaid through higher property taxes. It succeeded in large part because proponents argued it would fund training programs to help the area recover from the economic slump.
How about a property tax increase in a school district in Michigan… In August?
The pandemic has hit Michigan residents especially hard, physically and economically. The state’s unemployment rate climbed 19.1 points between February and April to 22.7 percent. April revenues supporting the state’s General Fund and School Aid Fund fell 43.3 percent from April 2019 levels.
In January, my children’s district approved a bond request for $200 million in capital improvements for 14 buildings, including 50-year-old elementary and middle schools, a new public park, and new swimming pool. Residents would face a 5.5-percent property tax hike to finance that new debt. Average annual property taxes in municipalities served by the district currently range from about $7,000 to $13,000.
Originally, the school board asked voters to approve the bond on May 5, but it moved the vote to August 4 because of the pandemic. Proponents say that the money is vital, especially since the state is likely to cut education funding by as much as 25 percent barring federal aid. Without the bond, they say, the district will have to choose between paying for basic building upkeep or retaining teachers.
But critics say district residents hard hit by the COVID-19 pandemic and its effect on the local economy can’t afford a tax increase. And last spring, a district municipality rejected a special assessment that was half the size of the tax hike that would be required by the proposed bond.
What will happen in August? Will the economy slide more steeply, causing more of my neighbors to be furloughed or endure temporary pay cuts? Will the federal government extend unemployment benefits or send additional aid to state and local governments? Will the pandemic itself worsen? Will it keep students home longer, and, as some neighbors have argued, mitigate the need for capital improvements? Or will voters decide that the tax increase is worth it, despite it all?
I wish I knew.
There is one thing I do know: My kitchen counter is still dirty.
The Tax Hound, published the first Wednesday of each month, helps connect taxes to everyday concerns. Have a question or an idea? Send Renu an email.
