Educators: tax plan skepticism
link: http://www.heraldtribune.com/article/20080319/NEWS/803190317
The article reports the reactions of teachers' and school administrators' organizations to proposed property tax reductions in Florida. I want to focus on a fairly short section of the article:
The plan is intended to stimulate the economy by making homes more affordable and allowing people to keep more spending money.
Under it, lawmakers would have three choices to recoup the lost funds:
- cut spending,
- expand the sales tax to include other items or services, or
- raise money through a new source.
So much money would need to be raised that proponents expect lawmakers would be forced to close sales tax exemptions on everything from bottled water to pet food to sky boxes in sports arenas.
Let's take it point by point:
1. "stimulate the economy by making homes more affordable"
People are used to railing against rising property taxes, but it turns out that property taxes are superior to the alternatives. Not perfect -- but the right starting point nonetheless. In California, where the property tax has been suppressed for 30 years by Proposition 13, housing prices have soared, far faster and to higher levels than the remainder of the US has experienced, including even Boston's and New York's suburbs. Housing affordability has been so miserable that the state's Realtors' association discontinued their decades-old monthly reporting, by area, on it about 3 years ago. (Wouldn't you, if by the long-accepted rules of thumb, less than 20% of the state's households could afford the state's median-priced home?)
Yes, rising property taxes may be a burden to some homeowners. But sales taxes are worse. Wage taxes are worse. They burden the economy, and burden those who produce goods, and those who sell them, and those who work for a living.
Rising property taxes may be a nudge to some homeowners that they need to move to a more modest location within their home town. That may be sad. But I seldom read about tears being shed for tenants who can no longer afford rising rents; we expect them to move to something more modest. Rising property taxes might also be a sign that a neighborhood which was once appropriate for single-family homes has now moved toward being appropriate for redevelopment into multi-family housing or commercial purposes. (Think of the board game Monopoly: some sites should be developed with single-family housing, others with multi-family, and the choicest locations are appropriate for hotels. Putting a hotel on Connecticut Avenue doesn't usually pay back, because there simply isn't enough "foot traffic" there, while keeping only a single house on Park Place or Broadway is a waste of a valuable site.)
Rising property taxes may actually cause some people to move. (But more often, I think, they are a socially acceptable excuse for a move that needed to happen for other reasons.) Rising sales taxes, particularly when essential goods are taxed, may cause people to go hungry, and will ultimately produce unemployment. Rising wage taxes discourage companies from employing the people they need, discourage companies from locating in places which impose them -- reducing the number of jobs available.
In California, if property taxes had not been capped, housing would cost far less than it costs now, and more people would likely own homes (California has one of the lowest homeownership rates in the US, except among its seniors, whose homeownership rate actually exceeds that of the remainder of the US! They were of prime homeowning age 30 years ago when Prop 13 came in. Those who have stayed in the same home for 30 years may have only experienced a 90% increase in property taxes in 30 years; that's a 2% annual increase compounded for 30 years.) Other posts will go into this more.
2. ... allow people to keep more spending money.
If the schools and other vital services need to be funded, those funds need to come from somewhere. "Keeping more spending money" only to have to pay it out in sales taxes seems rather pointless. And since in most towns the most valuable lots are worth many times what the least valuable lots are worth, the big beneficiaries of a property tax decrease will be the owners of the best properties. And those most burdened by an increase in sales taxes are likely to be the lowest income people, many of whom are tenants -- whose rent won't go down a penny as a result of the decrease in the property tax -- or the owners of modest homes on modest-sized lots in modest locations.
3. ... cut spending.
Those who want to cut taxes should lobby their neighbors to get some agreement about which services it is that the town or county is providing they would like to do without. Cutting the funding without getting that agreement is disingenuous. And the services people value are what maintain property values, because they cause people to prefer the town which offers them to otherwise similar towns which force individuals to pay private entities for similar services, usually at a higher cost (e.g., trash pickup, tutors, college counselors, etc.) or do without (prompt street plowing, well-equipped ambulances, paid firefighters, street sweepers, etc.) A town dominated by retirees may not value education, and may be quite content to offer only mediocre schools to the children who live within the boundaries, and work hard to make their town unattractive to people so silly as to have children. (Usually, their own grandchildren live elsewhere.)
4. ... expand the sales tax to include other items or services
Let's tax medical care! Let's tax haircuts! Let's tax milk! Let's tax bread! Let's tax hotel rooms and rental cars (hey -- tourists don't vote here!) Let's tax tennis lessons!
What we tax, we discourage*. Do we really mean to discourage people from seeking medical care? Haircuts? Milk? Bread? Visiting our fair city on their own nickel? (Tourists vote with their feet, and the jobs they create follow.) Staying healthy or having fun? What an inviting place this will be to live! What a great place to try to work! People will just flock here from everywhere!
*There is an exception to this rule -- a very useful exception! -- When we tax land value, not one acre gets up and leaves town. Not even a single building lot can be hidden from view. Land is not subject to production. The supply is inelastic. Very convenient and useful for those who need to design taxes.
Yes, we certainly could raise the sales tax on things that are costly to the economy -- tobacco, perhaps, or alcohol, or low-gas-mileage SUVs and boats, or activities which create pollution. We could tax the recreational drugs we currently simply make illegal.
5. ... raise money through a new source
Like wages? Philadelphia has tried that -- a 4% wage tax -- and their sprawl westward and the resulting traffic problems are quite striking; so is the ill-health of the city itself. St. Louis and Kansas City have 1% wage taxes.
Federal wage taxes and payroll taxes are a heavy enough burden. Why would a state or city impose an additional tax on its people, particularly in order to provide services whose main effect is to support property values??
This has become a bit long .. I'll return to these themes in future posts.
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