Introduction:
A tax is a compulsory payment or charge paid by an individual to the government for participation in the activities of the state. Tax limits herein mean the imposition of a cap on the government’s power to charge tax more than its prescribed limits. Tax Limits are just like ordinary laws which restrict the existing tax rates and revenue. These laws act as a safeguard to ensure that the government has been properly utilising the public revenue, arising out of tax from people. To understand this concept better, we need to understand first what is local democracy?
Scope
In this article, we will be discussing the concept of Tax limits and its relation to the growth of local democracy. Though the concept of tax limits has not been existing in India, we will limit our research to U.S laws about their tax limits and its system of local government. The crux of the article is not to stress the importance of Tax limits in one context but also in also different spheres. Meaning and importance of the local democracy will be discussed too in order to have a perfect understanding. Tax limit seeks to create a political relationship between taxpayers and policymakers. By enabling the relationship, the government can encourage the participation of taxpayers or citizens in framing effective and feasible tax laws
Meaning and Importance of the Local Democracy
In simple layman’s language, local democracy is the self-government or local government of cities, towns, villages, and districts by democratic means; managed and administrated by elected councils and other local authorities. . In the other words, local democracy is the decentralization of power and obligations to autonomous democratic institutions at the village, town, urban, district level. The concept of local democracy has been constitutionally recognised by India by 74th amendment of the Indian Constitution
Every local locality or area wants their preferences to be fulfilled by the government. As it is not possible for the national government to reach out to every locality, the concept of local democracy comes into play. Local Democracy makes sure that local policies reflect the needs and preferences of the local communities. A nation with good local democracy at its level can achieve public participation, improved public relation & control, service delivery and development outcomes. Moreover, lack of interest and absence of public participation severs the feasibility of local democracy. It is submitted that voter turnout and lack of financial aid to be responsible for the failure of local democracy
History of the Concept
The concept of tax limit has been in operation in all 50 states of America. The need for tax reduction realised when in the garb of the Great Recession, fiscal crisis and bankruptcy have grabbed the attention of the general public[1]. It has been noticed that local government finances have always been a matter of controversy. In America, at local level taxes especially property tax are being levied by the municipal or local government of that town
In the 46 states of America, tax limits operate in the background of these fiscal decisions of the government. Tax limits can be of different types but due to the limited scope of this article, we are going to focus on property tax and income tax. Although tax limits can be beneficial to the taxpayers nevertheless they do more harm than good. By restricting the capacity of the government to raise revenue, it acts as a blockade to the development plans. Moreover, it has led to the disruption of public services too[2]. On the contrary, the importance of tax limit cannot be overlooked, because of public participation and taxpayer’s voice
The evolution of the concept of tax limit or tax reduction owes its existence to the Tax Revolt, which was originated in the U.S in the late 1970s. The tax revolt movement is an integral part of modern tax limit laws. Though the movement was interpreted as an anti-tax revolution, but it could be inferred that the movement sought to improve the public opinion by improving better governance
How the Concept of Tax Limit Works
It has been observed that all the states of America had adopted tax limits laws in their states in the late twentieth century, As a result of tax revolt movement; many states followed the same policies in their respective states. Property taxes and income taxes were gradually reduced by the local governments.
It was the first time in California on June 6, 1978, when all the voters passed a resolution 13 by a majority two-to-one majority. This caused a nationwide movement in the U.S about the reduction of taxes. In 1978 and 1979, around thirty-five states substantially reduced property and income taxes; it was arguably one of the most impactful tax reduction revolutions. It was subsequently supported by President Ronald Reagan, on his appointment, thus, it became one of the conservative anti-tax movement[3]t. It is submitted that restraints passed in pursuance of resolution, which placed caps on property tax or revenue, restricting the power of the government. It is quite evident from the fact that both the voters and legislators want to reduce the tax burden and restrict the growth
A recent poll in America supports the system of tax limits. The poll showed that at least 70% were not satisfied with their “existing tax system”, and the same proportion of people was in the opinion that they did not receive the true value. Furthermore, 66% of Americans believed that present tax laws were unreasonable and arbitrary. It must be noted that ‘Property Tax” was chosen by the Americans as the most discriminatory and unreasonable tax. A majority of people supported tax reduction initiatives, as they believed that those laws would reduce their personal tax burden. Commercial property interests such as Landlords, and Commercial businessman, played a major role during tax revolt movement and afterwards too. Although they did not support the tax limits because of major reasons[4]
Relation of Tax Limits to Public Control
There exist a direct relationship between tax limits and public control. The purpose of tax limits is not only to reduce the tax burden but also to improve public control over government fiscal policies. The concept of tax limits can only be possible if the public is able to influence tax laws. The term Public Control here means residents power to ensure that their interests are adequately represented by the local government policies. By ensuring effective public control, there would be a better understanding equation between taxpayers and the local government. It must be noted that the term Public Control if stretched far to the meaning could include government responsiveness, public participation, and government accountability. It includes all the basic tenets of democracy.
By achieving the goal of public control, which is the main ingredient of tax limits, voter’s satisfaction and taxpayers’ voice and opinions could be taken into consideration by the local government. The object here is not to propagate the averment that all states should implement tax limits in their states but to support the fact that states (American) which have adopted tax limits in their respective states should frame their tax laws in such a manner to ensure that every taxpayer voice and public needs will be taken into account. There should be a fine balance between public control and government revenue. Public Control cannot be sacrificed at the cost of generating revenue. Though sometimes voters may get quite selfish about their interests, but the need for Public Control is must to strengthen the pillars of the democracy[5]
Role of Tax Limits in Improving Local Democracy
It is well-established that tax limits can help in improving public control in many ways. For instance, voter’s opinions, public engagement about the introduction of new taxes with the local government, prior notice to the public by the government are the ways in which tax limits can be emphasised. Since property taxes are the major concern of the people, these tax limits are well-suited to improving local fiscal oversight, because property tax is the major source from which the government earns revenue. Therefore, if the local government focus on property taxes, then it would amount to constructively focussing on every tax.
Though it seems useful to allow voter’s approval for a hike in tax but in the reality, this theory is difficult to apply, as most of the voters would prefer their own personal interests than to public interests, Overall it is a good measure to keep the fairness of the government in check so it cannot raise the taxes arbitrarily
A perfect example of tax limits laws in America is “Property tax rates cannot exceed 2% of assessed value, except with majority approval of all qualified electors[6]”
The aforesaid law or statue indirectly supports the concept of public control by shifting decision making powers to the voters’ satisfaction. Moreover, if the taxes are fixed with prior approval of voters by the government, there would be no misunderstanding between both of them. By setting their preferences, they can exert pressure on the government to look after their interests otherwise they would not give approval to the hike in tax. Consider an imaginary situation, there is a state called Plato, where the local government of Plato wants to increase the taxes. On the other hand, voters of Plato want better roads and better infrastructure. Now if the local government gives an assurance that they will improve the roads as a part of a development plan. The voter would not also hesitate to give their approval too. Thus, it shows how the perfection of democracy could be achieved through limits.
Furthermore, in many states of America, there are tax laws where voter’s approval is a condition precedent for the hike in taxes[7]. There are many effective tax limits by which the local government can educate the public about tax laws, highlight the importance of fiscal revenue.
Let us interpret another law of U.S “All local governments must provide public notice of proposed tax rate increases as well as hold a public hearing at which members of the public may voice their opinions on the local tax rate and budget” This law is silent about tax reduction but provides an alternative remedy to public. Before raising the tax, the local government has to intimate the public by a notice and public hearing for rise in taxes. This will ensure that the public will be informed, will be able to exert pressure on the government via campaigns, debates, elected representatives of the public against hike in tax. No doubt it is the most effective law for ensuring fairness in taxes.
Conclusion
After reviewing every scenario and laws, we have reached a point where it could be concluded in the end how tax limits can flourish the spirit of local democracy. It will not only foster public participation, awareness of people at the local level but also at the national level. It is also submitted that local democracy cannot be developed without the support of the national government. Therefore, the government should take initiatives to support the cause of local democracy at every level.
Tax limits which are an inherent part of local democracy should not be merely used to reduce taxes but also to create a general awareness about tax laws among the public. In the end, transparency and responsiveness is a prerequisite for a good local democracy
References:
- Https;//harvardlawreveiew.org/2020/org/04/tax-limits-and-the-future-of-local-democracy/
- www.idea.int
[1] Municipal bankruptcies have always been captured by media attention.
[2] Cuts to public services such as police departments have also drawn attention in reference to tax limits
[3] The tax protests of 1970s as a critical component of the New Right’s rise to power and a contributor to the conservative politics
[4] They feared that it would trigger increased business taxes to fill revenue deficit.
[5] To take back political power and to win back tax money- these were the twin objectives of the tax revolt movement
[6] Allowing property tax rate increases only after voter approval unless annual district revenue on general payments on obligations pensions, bonds exceed annual district revenue or in case of emergency
[7] Some states, like California & Colorado, require voter approval for all new taxes at the local government level
0 Comments