Opinion: City’s occupational tax balances budget on backs of working poor

By JIM BROOKS
Nelson County Gazette

Friday, Aug. 12, 2011, 11 a.m. — After weeks of debate – and multiple votes for and against various ordinances – the Bardstown City Council finally approved an occupational tax ordinance that will go into effect on Jan. 1, 2012. The ordinance raises taxes –, er, “revenue” —  by removing the exemption on the first $15,000 of income, and raising the cap from $75,000 to $100,000.

As an observer, it’s been an interesting sight to watch. And a disappointing one too. Why? After all the mayor and council’s discussion about “fairness,” the occupational tax is not fair. In fact, the new occupational tax balances the city’s budget at least partly on the backs of the working poor – and that is not only unfair, but also unjust.

The biggest revenue-producing change to the occupational tax is dropping the exemption on the first $15,000 of income. The first $15,000 has been exempt from the occupational tax since the tax was established in the 1990s. The existing tax is capped at $75,000; the occupational tax is only applied to earnings between $15,000 and $75,000.

But in the interest of “fairness,” that’s going to change.

Dropping the exemption on the low end will generate more than $700,000 of additional revenue. There’s no break down on how much of that comes from people who earn less than $15,000 or slightly above, but consider this – someone working full-time (2,080 hours a year) earning minimum wage of $7.25 an hour makes $15,080.

Dropping the exemption also – of course – hits those who earn more than $15,000; they simply begin paying the tax at $1 rather than $15,000. I never heard discussion of how many low-income earners would be impacted by removing the exemption at any of the meetings I attended.

In the interest of “fairness” there was considerable debate about leaving a cap on the tax. Mayor Bill Sheckles called the council’s move to leave the tax capped as “unfair.” There was this notion that it would be more palatable to low-income earners who would now be taxed if you show them you’re hitting the higher income earners by removing the cap.

I’m not sure anyone who makes $15,000 a year would buy that argument; I sure didn’t.

The discussions about the tax generated little interest at the council meetings; former councilwoman Ann Rosalie Ballard was the most vocal person to protest the tax, and she was only protesting leaving a cap on the tax.

THE TAXING PROBLEM. Mayor Sheckles and the council members will probably be quick to tell you that for someone making $15,000, the tax rate of ½ of one percent means their total occupational tax bill will be only $75. That’s true, but $75 isn’t chump change to someone making minimum wage.

Someone making $100,000 will pay an occupational tax of $500; individuals with incomes at that level usually have more disposable income than the guy bussing tables at a local restaurant trying to make ends meet.

“OK, Brooks, you’re whining about $75, what’s the big deal?” you are probably asking yourself. It may be no big deal; but with the exemption gone, what happens the next time a future mayor wants to “enhance revenue”? The next change will likely hike the tax rate – and unless the council makes some changes, a higher tax rate will increase the burden on lower-income workers.

One of the mayor’s occupational tax proposals was to remove the cap, leave low-income earners exempted and raise the tax rate to 1 percent – which would have more than doubled the city’s occupational tax revenues.

I thought this was a fair proposal and a great starting point for negotiations. This would allow those who can pay more to pay while protecting lower earners. In my mind, I expected the final ordinance would be a compromise – one that would exempt the low end, remove the cap and raise the tax rate to something between the ½ and 1 percent.

I was surprised when the council opted instead to remove the $15,000 exemption. The discussions of “fairness” from this point forward rang hollow in my ears. Raising taxes on the low-end earners during one of the most challenging economic times since the Great Depression seems truly unfair.

“Fairness? What’s all this fairness crap, Brooks? You don’t live in the damn city limits anyway!” you’re probably thinking to yourself. And yes, it is true; my wife and I live outside the city limits. But when you discuss fairness, I think of the fact that 80 percent of the people who pay the occupational tax don’t live in the city. Is it fair to raise taxes on people who ultimately have no say in city government? I’ve heard the contorted arguments that when you work in the city, you enjoy the city’s paved streets, police protection and clean water. Somehow I doubt those who will see their tax bills increase will take much comfort in these facts — particularly the guy making minimum wage.

If the mayor and council wanted to consider fairness, how about this: Continue the exemption on the first $15,000 of income; raise the rate to ¾ of 1 percent and remove the cap. This will generate at least $400,000, which will balance the city’s budget for 2011-12 while shielding low-wage earners from an additional tax they are less able to afford.

And while you have fairness on your minds, I recommend looking at the structure of Louisville Metro’s occupational tax. The tax for those who live and work in the city is set at one rate, while those who work in the city but live outside it pay a lower rate. Check the Louisville Metro Revenue Commission FAQ for more details.

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