Saturday, January 30, 2010

Rent & Taxes

One of Debra Medina's goals as governor is to eliminate property taxes. It seems that the conventional thinkers have a knee jerk, negative reaction to the idea but it's probably because they haven't thought it through. I haven't read much about the idea, pro or con, so I decided to do my own thinking and work through the concept just from what my personal impact might be. 

One argument I heard was that abolishing property taxes would adversely impact the working class. Let's look at that for a moment. First of all, everyone pays property taxes, working poor or not. Whether their income is from a welfare check, an unemployment check or a pay check, if a person shops at a merchant, any merchant, whether it's Wal-Mart or the local thrift store, they're paying property tax on the building and contents of that property. Every business has to pass along it's operating costs to its customers in order to survive. Usually, there will be a profit figured on top of the cost. In other words, a business makes money on property taxes and that money comes out of consumer's pockets. 

Here's another example: We own an inexpensive rent house, the sort that a $30,000 a year or so family might rent. $150 per month of our rent is what it takes to cover property taxes, without even figuring a profit or handling fee. That's $1,800 per year, or 6% of their income on property taxes. That's over 3 weeks pay just to cover the taxes on a property that they don't own. 

Government, even limited government, needs revenue so without property taxes, we would need to recapture some revenue. The number I hear is something like 14% or so. Currently, the state sales tax is around 6.25%  so we would be seeing an additional 7.75% on taxable purchases. I don't know if the current list of tax exempt purchases would be modified but I'm going to estimate that a $30,000 family might spend about 1/2 their income on taxable purchases. That's less than $1,200 so they've saved over $600 just on my property taxes (not to mention benefiting from lower prices at retailers who no longer have to pay tax on dirt). Not only that, if they're paying rent, the tax cost is the same regardless of how they manage their expenses. 

We would have to structure our government budgets so that it can retract with the economy since tough times would reduce sales tax revenues? Is that a bad thing? Wouldn't that be better than having a fixed property tax rate which causes property owners to lose their capital just because the economy is struggling?

This is as far as I'm going to go on this interesting installment. So far, sales tax is a win for the working class. 

Other ideas I want to explore:

Sans property taxes, would it be easier for businesses as well as private individuals to amass capital which would ultimately help moderate the economy's ups and downs?

Cities use property tax abatements in order to attract jobs creating businesses. Does this give us a clue about fostering a job creation environment?

When Texas capped property tax rates, taxing authorities began a rush to re-evaluate property values (just before the real estate bubble burst). Didn't they just create tax revenue out of thin air?

What if sales taxes were apportioned more to the cities generating them? Would that turn cities into consumers, rather than beggars?

What if there were sales taxes on property sales as well as tax increases on automobile sales and other capital investments?

Should we stop exempting churches and other philanthropic organizations from sales taxes?

I hope to explore these ideas and welcome your comments. 

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