S.T.O.P. Program FAQ

Let me say first that I am excited that such a lively discussion has already begun around municipal tax reform. People are making great observations and raising questions that will be addressed in the legislative process. I anticipate public hearings on the new reform ideas as we move through the process. (I know I will be scheduling some in New Milford.)

The plan here expresses initial ideas. I more than anyone know that this is an innovation about which many more questions will be raised. I look forward to working with my constituents, fellow law makers, and municipal leaders to reform our system of municipal taxation to make it more equitable and responsive to the needs of our community.

The questions from my original white paper FAQ appear on this list in case you have not read the white paper. I hope you will take time to read the paper as it gives a fuller description of the S.T.O.P. plan and the details of municipal taxation.

How does this revision improve on our current system of municipal taxation?

First, the STOP plan provides a more equitable distribution of the tax burden protecting our elderly, our middle class, and lower income neighbors who have had a disproportionate amount of the tax burden over the years. It is a reform of the current tax we pay, not a new tax.

Secondly, STOP takes into account the modern economy where ownership of property is no longer a direct measure of a person’s ability to pay. Also consider that the current system is like taxing the principal in someone's bank account. Land is a feeble investment under the current system as your principal is attacked each year by the taxman. A $200,000 investment in land can easily lose $35,000 to $46,000 in principal through taxes within 10 years under the current municipal tax system.

What about other people living with the home owner?

Depending on what those individuals earn and at what floor we set the poverty level (It's 15,000 in the model.), they might pay nothing at all. That floor has yet to be set and might exclude as much as the first 20,000 or 25,000 of income. Only completing the legislative process can tell us that for sure.

Won’t renters be negatively affected?

Renters currently pay municipal taxes indirectly through their rent as landlords pass the cost along. We anticipate that within 3 to 7 years, market forces will cause rents to decline or slow their rate of growth to compensate for the tax savings. Additionally, landlords will be paying taxes against the income they earn from their rental property rather than the assessment of their buildings and therefore will have lower costs as well. There is also a “poverty floor” built into our modeling to allow for low income individuals and families.

It’s been suggested that to allow time for market adjustment of rents we phase in the tax for renters over several years.

What about people who conceal income?

Under our current system people register vehicles out of state and take other measures to avoid property tax. No system is perfect. Fortunately, the costs of auditing and monitoring the income figures will be incurred by the state and federal governments, not by local municipalities.

What about capital gains?

Under this system capital gains will be treated as standard income and assessed tax at the mill rate in effect at the time of the sale of the asset.

How about someone who inherits property?

Inherited property might be handled this way. The property would be appraised and the tax paid at the current mil rate. This would allow the person at the later sale of the property to deduct the initial appraised price and pay tax on only the additional accrued value at the time of the sale. This has the advantage that part of the properties value has been taxed at a lower mil rate.

Example: John inherits a parcel of land from his grandfather. John decides to get an appraisal at the time he inherits and the land is valued at $200,000. John pays tax on the property at the current mill rate. 10 years later, John decides to sell the property. The property sells for $350,000. John pays tax at the mil rate at the time of sale on only the additional $150,000 of additional value, rather than the full sale price.

However, if the person were cash poor and didn't wish to immediately sell the property, they could postpone the payment of tax and hold the property, paying the tax on the entire sale price when they eventually sold the property later. In this case, they would risk paying based on a higher mil rate for the entire value of the property.

Example: Mary inherits a parcel of land from her aunt. Mary has little ready cash and decides to hold the property and to postpone the payment of tax. 10 years later, Mary decides to sell the property. The property sells for $350,000. Because Mary elected not to pay tax at the time of inheritance, she must pay tax at the current mil rate on the entire $350,000.

Isn’t this just another income tax and won’t municipalities risk revenue shortfalls?

Although utilizing income assessment, this is not a traditional “income tax”. Under the traditional income tax model, rates are set independently of a budget, based on projections regarding the economy, and taxes are assessed based on these rates. This may result in revenue excesses or short falls. The STOP (Stop Taxing Owners of Property) program assesses taxes using the traditional equation for municipal tax to set the mill rate, substituting income for property values, and then applies a “flat tax”. (Republican law makers have been crying for a flat tax for years.) This results in a revenue neutral effect on municipal budgets under the STOP model.

What about people who have generous income but live in less expensive homes, won’t they pay more?

The short answer to this question is, “Yes.” But, consider Warren Buffet. Warren is one of the richest men in America and still lives in the same modest house he has lived in since its purchase in 1958. Warren also advocates that the rich should carry a higher portion of the tax burden. He sees this as equitable. He doesn’t seek to conceal or sheild his wealth behind his decision to live frugally. This link (Millionaires) takes you to a story about millionaires who believe the rich should pay a higher share, the second link (Warren B) to an article about Warren.

Gale Alexander
Candidate
67th District
Connecticut House of Representatives