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If not real property tax, then what?

June 29, 2010 - John Stack

A recent ‘My Opinion’ was printed in the Press-Republican. In it, James Coffey, a local attorney and an economics professor at SUNY Plattsburgh lamented that the real property tax was a terrible way to raise tax revenue. He throws in a bunch of red herrings and gives no valid alternative, or how any alternative would be better.

            He first claims that real property taxes create a disincentive to maintain their property. This is an ignorant position, and unfortunately one held by many taxpayers. The idea is that if you don’t keep your house up to par (periodic paining, lawn mowing, etc) your assessment (and value) will decrease. Or, in the opposite, keeping up your house will cause your assessment, and taxes to increase. This isn’t the case. Assessors won’t change your assessment because of new paint or mowing your lawn or planting flowers. These things don’t change the value of your house, therefore your assessment and taxes. If you do neglect your house completely for 20 years, yes, you will get your taxes reduced. You also may not want to actually live in a house with broken windows, a non-working furnace and a lawsuit-waiting-to-happen dilapidated porch. But, this is an easy one to lob at your local assessor.

            Next, he somehow spends time talking about income taxes. For some reason, he uses NYC as an example. NYC has a local income tax, and a local real property tax. As no surprise, the local property tax is lower than surrounding areas – because they have another tax they have to pay! They are still paying a tremendous amount of taxes, just that they pay out of both pockets rather than just one for local services. Obviously this difference in tax generation hasn’t slowed the growth of the public sector in NYC! He also claims the NYS legislature has made a conscious decision to rely far more heavily on the real property tax to pay for governmental services. I say for local services yes, but not for State governmental services. Its not that NY has decided to rely more heavily on the real property tax, its that they have created a whole lot of unfunded mandates they won’t pay for, or fund adequately, and the localities need to find a way to pay for it. This way, the state legislature can claim they didn’t raise taxes yet increased services. The localities, having no other means of paying for these services are forced to add it to the real property tax.

            His most egregious errors come when he claims that the real property tax is ‘by its very nature’ an inefficient tax. I claim the opposite. He says the property tax is unrelated to an individual’s ability to pay. This is one that is thrown at the real property tax the most, yet is probably the least correct. Up on Kiwassa, Upper Saranac and Lake Placid – how many minimum wage retail store cashiers own and live in these million dollar homes on these lakes? Probably the same percentage of high income lawyers and doctors who live in 1970 60X12 trailers. Having an Economics degree myself, with a lot of statistical background, I’m sure I could make a pretty good case that there is a tremendous relationship between income and homes. But, for those of us who are neither rich or  poor, our exact home value isn’t as related to our incomes. But, we also have a CHOICE. With my family income, when I bought my house 3 years ago, I could have bought a house much more expensive than the one I live in. But, I chose not to follow the rest of the country and buy way over what I really needed. I chose that I would rather have extra money for vacations, nicer vehicles, and better opportunities for my family than to have a trophy home to show off, and nothing else. A prominent tax opponent just south of here has continually whined that he has to pay so much in property tax as well as send his children to Ivy League schools. Not to mention he has 3 homes on his property, and a giant 4500 square foot main home – of course on the water. He made all of these choices – homes, location, etc KNOWING he had to pay property tax on the value. Plus, he also knew that owning such a compound would also compromise his ability to pay 50,000 or more per year for his children’s education. He made these choices, yet wants everyone to pick up his tab, even though he acquired these debts fully with the knowledge of the debt problem.

            He claims there is so much exempt property, that a ‘limited’ amount of taxpayers are stuck paying the taxes. He fails to explain that the vast majority of tax exempt properties are municipally owned – town halls, schools, fire departments. Is he claiming these entities should be taxable? So a school should pay taxes to itself? How exactly would that work? Or the school should be taxable for town/county taxes? So the same taxpayer would pay basically more in school tax to pay town taxes? Same amount of taxes collected, and from the same people?!

            Coffey claims the income tax is very efficient to collect comparatively. Maybe. But how do you determine who pays? In Harrietstown, the State pays millions based upon the value of the land they own. If not related to value of the land, will NY be exempt from paying? Will only people who live in Saranac Lake be subjected to the income tax? For Saranac Lake schools, well over half the revenues are from non-local entities. Switching straight up to an income tax would double, maybe triple our local taxes, while second home owners, New York State, and others would get a tremendous windfall. Is this the point?

            The real property tax is an extremely stable tax. A government entity decides on its budget, they get the taxable value of their jurisdiction, and voila! Tax rate. Now, with an income tax, how do you decide on the rate? How can you be sure the income will keep up with expenditures? Often NY and big cities find themselves in a bind when income taxes or sales taxes don’t meet expectations. That can’t happen with real property.

            Also, as an all-paying fair tax, if you own property, you pay tax. The less you own, the less you pay. According to government surveys, fully 47% of Americans pay a net ZERO in federal income tax. I’m sure there would also be some type of exemptions if a local income tax is implemented, therefore pushing the burden onto those that are paying even more.

            I am not saying the property tax is perfect. The way it is collected, how budgets are constructed, pensions paid, consolidation and such all need to be looked at. But, elimination of the property tax only shifts the costs around (redistribution of income!). It solves nothing. There will be new winners, and new losers. Living in an area that is very well off in terms of property, low school enrollment, high revenues (real property and other) from out of towners, our local governments would be decimated if we switched to an income based revenue source. 


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