Monday, July 30, 2007

Abolition of Property Taxes and Reality

The outrage over property tax increases is justified and understandable. However, some special interest groups are trying to use this opportunity to push their agenda and Don Villwock, president of the Indiana Farm Bureau, is a prime example of this. In his latest column he argues that the property tax must be abolished:
What should we avoid? Another quick fix that quiets those taxpayers who complain the loudest or represent the most votes but leaves the state’s antiquated property tax system intact. Short-term solutions such as the elimination of the inventory tax simply redirect the burden of property taxes for political purposes. They exacerbate rather than address the larger problems that are inherent in our property tax system.

The solution is obvious: Call your elected officials and tell them it is time for Indiana to get rid of property taxes.

It's quite rich to hear Villwock say we should avoid a quick fix when he's advocating that we abolish the tax altogether. And then he has the gall to rail against "those taxpayers who complain the loudest" - what exactly does he consider his organization? Of course Villwock only leaves the reader with generalities when confronted with the idea of what might actually replace the property tax revenue stream:
What should replace property taxes? A tax that is based on economic activity, such as an income tax or a sales tax, would, by its very nature, reflect the taxpayer’s ability to pay.

Ok, let's be honest about what would happen to the income tax. The Allen County property tax collections for 2007 will be approximately $451 Million. A 1% increase in the county income tax would generate roughly $71 Million in revenue. So we would have to raise the county income tax by 6.3% to make up the difference. Does Villwock know that this would put the break even salary point at around $24,000? In other words anyone making over that amount would likely pay an increase in overall taxes.

And how exactly does a sales tax represent one's ability to pay? That statement alone shows Villwock has a fundamental misunderstanding of taxes in general as a sales tax is about the most regressive tax imaginable.

So who would be affected the most? The middle class of course. Do we really want to continue to break the backs of working class people so the wealthiest among us don't have to pay their fair share? Make no mistake - something needs to be done. But while Villwock and others' ideas may sound populist they are no friend to the working people of this state and thus should not be taken seriously...

12 comments:

Karen Goldner said...

Nicely said, Jeff.

Greg McClain said...

At one time I would have endorsed such a move but if one is to look at it the elimination of property tax and an increase of income tax or the county option income tax is not the long term fix.
What is?
It is a problem that developed over a long term and will not and should not be rushed into to solve quickly.
We need to make sure that while we all want property tax relief we also need to understand we have services that need to be provided.
We ALL need to be open for a long serious study on how to solve this problem rather than a solve serving quick fix.

Rachel said...

Jeff, the public needs to hear more of these explanations about why abolishing property taxes is a horrible idea for the majority of tax payers. Keep up the good work!

Andrew Kaduk said...

Property tax is simply a measure that has been taken to make the prices of actual city services appear lower to individual consumers. If property taxes were abolished, the government could immediately raise people's monthly bills for city services to reflect the actual cost of the services instead of the currently "property tax subsidized" versions thereof. This might make some people's rent go up, and it would make everyone's monthly bills get pricier, but it would not require a hike in sales tax or income tax.

Think about it: The electric company charges you for that which you use, as does the gas station, ditto Verizon et al. Why should the city be any different? The bills you pay to all of those folks reflect their overhead and some profit margin. Why shouldn't the government operate the same way, less the profit margin? Any distortion of this type of arrangement would be fallacious, because then, the government is collecting money that it doesn't actually NEED to perform the tasks with which it is charged.

For example, much fuss is being made about the need for upgrades to the city's sewer system. If the city can't afford it, they aren't charging enough for their sewer service every month. Verizon came into town and installed fiber optic lines all over the place without jacking up rates on everybody...so they must have had the proper methods in play in the first place. I think the local government could take some lessons, regroup and come up with some better policies.

Kevin said...

Andrew,

I can answer part of your question regarding sewers. I was on the Sewer Task Force created by Mayor Paul Helmke.

The problem isn't that the city does not charge enough- it is that the problem was overlooked for decades because citizens DID NOT WANT TO PAY FOR IT.

Now, however, the EPA is requiring it to be fixed. And, much like the FWCS situation, it is too much at one time.

Verizon is a business, City Utilities is a service. If I think Verizon is charging too much, I switch to Comcast. If I think the City is charging too much, I revolt!

Rachel said...

Andrew,

How do you charge for city services like police protection and street paving? Do you suggest we have tollways throughout town? Will I have to pay when I call 911 to report an accident? Charging for basic services that serve everyone is flat out wrong. Some things, like trash removal and water service, make complete sense.

But creating a system of user fees to fund government operations doesn't work. And since Indiana constitution guarantees a free public education to our K-12 students and the bulk of my property taxes goes to fund schools, how does your plan account for that? We obviously can't charge tuition for public school students.

Andrew Kaduk said...

Rachel,

First off, don't be such a defeatist. Optimism is much more helpful when it comes to un-screwing that which the government screws.

Property taxes are user fees...they are just billed less often. Plus, the monies generated from taxing property are typically spread about in a fashion that cloaks some the expenditures such that the average Joe homeowner can't just look at his property tax bill to see what the detailed charges may be. This lack of transparency creates a government that operates above the control of the citizens it supposedly serves. I personally believe that if people had their taxes broken out into easily digestible bits, such as an Emergency Services tax etc., this discussion would not be as much one of desperation, but rather part of a regular, ongoing discourse that keeps close scrutiny on government spending. For example, Ohio has a yearly School District Tax that is payable with your income taxes every year. This school-related spending is not just lumped into property taxes paid only by home and business owners, everyone pays it...and everyone knows exactly what that money is being used for. Hence, nobody complains about it, because any spike in that particular tax bill would call attention to the school board. This level of specific scrutiny keeps the elected officials honest, because they are held directly accountable for their budgets and spending. Conversely, in good old Indiana, there is now a bureaucratic hand-washing party going on to try to mitigate the blame for the property tax fiasco to anyone who ever had anything to do with it. If each governmental body that spends general tax dollars was accountable directly to each taxpayer, stuff would get better. Stuff would get better really fast.

Kevin,

That has to be the most market-friendly thing I've ever heard you say. I'm impressed.

Rachel said...

Are you saying an itemized bill from the AC treasurer's office is the solution to the property tax mess?

Andrew Kaduk said...

I'm saying that dragging the city's spending into the daylight would be a good start, and if itemizing certain services on a monthly statement makes that happen, sweet.

However, if that's all you managed to draw from what I wrote, It occurs to me that you are intentionally only reading skin-deep trying to over simplify what is a very complicated problem.

If that's the case, I'll make it easy for you: There are only two immediately available solutions to Fort Wayne's problem.

1) Spend less damn money

OR

2) Find a way to collect the money from a broader segment of the population than just property and business owners.

Eventually, it would be nice to see a more robust economic base as a foundation for the tax structure, but for the time being, the two options I listed are the only ones that will work in the limited amount of time necessary.

Calling attention to waste by way of itemized billing to households would be one way to get the public looking long and hard at what "services" they may be able to live without, whereby trimming the budget overall.

Kevin said...

I think Andrew has a point about highlighting spending. There is a reason your federal income taxes are taken out of your paycheck- if you had to write the check at the end of the year you would (I love this word) revolt!

I remember under the Helmke administration the city moved garbage collection from property taxes to a user fee on your city utilities bill.

The problem?

Your taxes did not lower- it was a "tax increase" without the fanfare- the city pocketed an additional $5 per household.

Jeff Pruitt said...

Andrew,

While I'm not against informing everyone where their tax dollars are being spent, I think the real key to "spend(ing) less damn money" is to legislatively restrict the amount of money that can be spent in the first place.

More on this later...

Andrew Kaduk said...

REVOLT!