Demographics, the Decline of the Middle Class and the Wage (Income) Tax
In the run up to the November election for issue #3, the City of Findlay’s request to make the quarter percent temporary income tax permanent (for a total rate of 1.25%) has been hotly contested. The debate over the tax renewal largely revolved around the question of whether Findlay has a spending problem or a revenue problem. After a two hour meeting with the City of Findlay Auditor Jim Staschiak II, I discovered that the City of Findlay has a demographic problem. This demographic problem could be systemic and long term.
In an effort to explain Findlay’s financial position, Mr. Stashciak produced a graph he named “What’s the Employment Trend?” that illustrates that the number of employed individuals in Hancock County dipped in 1999 and has remained flat ever since, while total population continued a slow but steady rise.
Our population is aging, which is not really big news. But, when you add in other demographic and economic factors and you understand how the City Income Tax really works, we may find that the City Income Tax cannot sustain the City of Findlay’s operations or capital improvements.
Let’s start with the City Income Tax. First, the City income Tax is really a wage tax. The income tax does not tax investment income, pensions or social security income. And while the city income tax does tax businesses, the revenue that the City of Findlay receives from businesses is just a small percentage of revenue collected from the income tax. This disparity between what businesses pay and wage earners pay means that workers, in effect, pay the city tax for the services they use and for the businesses where they work.
The second thing we need to know is that with the elimination of other taxes like the tangible property tax and the estate tax and the cut backs in state revenue sharing, the city wage tax has become the primary source of city financing.
So, we already know that our population is aging which means that fewer people are directly supporting the finances of the city. But a key number that I do not have is the per capita wage tax receipts.
With fewer workers supporting a larger population we are already starting in a hole. But what if those workers are, on average, making less money? Given the transition we have seen in Findlay of manufacturing jobs to the service industries and knowing that at least one major manufacturer in Findlay has a two-tier wage system, average wages could very well be in decline. This combination of aging population and a workforce with a declining income or income that is not keeping up with inflation could spell real trouble for the City of Findlay.
If my hypothesis is right, the per capita wage tax receipts are in fact declining, that would mean the City of Findlay will be in a constant battle to match revenues with services. It would also mean the traditional way of fixing a city’s flagging finances through growth could, in fact, make matters worse.
If we add businesses or build out subdivisions in Findlay that attract residents and workers that earn less and therefore pay less than our current per capita tax receipts, we would only be dragging down the average, making it harder for the City of Findlay to maintain its current level of services and provide service to support the growth.
We need to put some real math behind this issue. We may find that the current tax base for the City of Findlay (and other cities in Ohio) that relies on a wage tax is unsustainable and anti-growth.
To find the graph referred to above and other information about the City of Findlay’s finances see the Auditor’s webpage: http://www.ci.findlay.oh.us/?id=57