As I See It: Ending the tug-of-war over property taxes

By Timothy J. McGourthy

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The Worcester Regional Research Bureau’s latest report, Tax Classification: Passing the Buck$ – Ending the Tug-of-War Among Worcester Taxpayers, explores the influence of property tax rates on Worcester’s residential, commercial, and industrial properties. It highlights the disparate impact of tax classification on the various property classes and its potential effect on Worcester’s economic strength.

Since 1984, tax classification and Proposition 2½ have combined to lock Worcester’s residents and businesses in a tug-of-war over taxes. As long as municipal budgets continue to grow, a zero-sum game exists in which a decrease in taxes on one property class necessitates an increase in taxes on another.

Over the last three decades, commercial, industrial, and personal property (CIP) taxpayers have subsidized Worcester’s residents by more than $650 million. It is a staggering figure for a small city like Worcester. Basic economic theory teaches us that costs influence behavior. Economic growth requires the expansion of existing businesses and the attraction or development of new businesses. Looking both statewide and locally, The Research Bureau found definite correlation between significant property tax rate shifts and a change in property values in all property classes. Across the board, an increase in tax rates link to a decline in property values while a decrease in tax rates link to an increase in property values. Yet the Bureau also found that commercial, and especially industrial, properties were far more likely to be impacted by significant tax changes. Since the businesses involved are not only paying taxes directly but also funding the salaries that pay for local residential taxes, Worcester must reconsider its policies that undermine the city’s economy.

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