Reply #4: Local governments [View All]

[Gaedel]

Most local governments operate on ad valorem taxes such as the real estate property taxes and business property taxes. Some may receive a share of sales taxes collected in their jurisdiction. Very few localities (counties, cities, townships, villages, and independent school districts have access to an income tax. As a result, comparison to federal income tax rates is apples and oranges. The fiscal shitstorm through which most local governments are now passing is a result of the collapse of the real estate bubble. During the big run up in real estate prices and consequent rise in property evaluations, many localities figured (as did the rest of us) that the good times would roll on forever and quickly incorporated the "bubble money" into their permanent budgets instead of considering it "pennies from heaven" and using it for one time expenditures. Now that property evaluations have collapsed, limiting the local government's take, they are faced with the choice of cutting the permanent budget, increasing the property tax rate, or trying (if their state constitution allows) to institute a local income tax.

Federal income tax rates are totally outside the scope of the localities' problems.