Eight residents of Scranton City in Pennsylvania in the US recently took the city to court over tax rate increases that they maintain are illegal.
Scranton imposes a ‘local services tax’ on residents who work in the city. The tax is subject to a cap, but this has been ignored by city officials who have tripled the tax in just two years to help the city pay off its numerous debts.
As a result, businesses have moved their offices to other municipalities. Economists argue that reducing the tax would reverse this trend and attract new businesses.
Any increase must be approved by the court. The lawyer representing the residents alleges that this requirement was not adhered to for the latest increase, making it illegal.
This is far from being the first time that US residents have dug in their heels over taxes they perceived to be unfair.
In 1978 in California, for example, Proposition 13 was passed when two-thirds of the states’ voters mooted a law to roll back property taxes, which had been spiralling out of control.
The proposition provided that property values be rolled back two years to the 1976 benchmark.
A cap ensured that no increase in excess of 2%/year would be legal. When a home was sold, the sale price became the new property value and a tax of 1% of the value became the new annual property tax due.
Would such a proposal work here? The realities of South Africa are such that the majority of voters do not pay tax: 13% of the population pay tax with the top 1% responsible for 61% of the total – an absurd number!
Given that the public servant wage bill is roughly 36% of the whole cake, it can safely be said that, without that top 1% contributing, government would be hard pressed to pay salaries.
Staying with how the cake is divided, government debt payments are at 10%, municipal subsidies at 8% and social grants at 17%.
The aggregate of salaries, grants, subsidies and debt is near to 70% of the budget! That leaves only 30% for defence, law and order, education, medical services and development (visit rollingalpha.com).
There is something fundamentally wrong with a country where the majority of non-taxpaying voters get to determine how others’ money is spent. Give control of the money to those who earn it, and the financial picture would become healthier.
