Some tax policy numbers

This is a follow-up (0.00 / 0)

to What Makes a Good Tax?

Income taxes drop when you lose your job; property taxes do not. Property taxes incent government to block affordable housing; income taxes incent government to attract high-paying jobs.

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by: elwood @ Tue Jan 16, 2007 at 20:40:00 PM CST

What, only eight comments? (0.00 / 0)

Seriously though, these numbers are certainly important to keep in mind when talking about tax issues.

However, are those property tax numbers just for those collected at the state level, or are local taxes included?

Its important to note that one could not possibly unilaterally eliminate property taxes all together without removing all local control in town and city governance.

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by: Nicholas Gunn @ Tue Jan 16, 2007 at 21:59:02 PM CST

Per the source (0.00 / 0)

About 2B in local property taxes, .5B in state taxes.

The question of whether a tax administered at the state level and spent locally is really workable is indeed serious.

At first glance the state can divvy up the funds and the City Council decides whether to use the allocation on a parking garage or a new gym at the high school. But the city can't raise the tax rate if it decides both are needed.

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by: elwood @ Tue Jan 16, 2007 at 22:28:41 PM CST

[ Parent ]

I don't like it (0.00 / 0)

Towns and cities should have to ask the State for all their funding?  No way.

I think local jurisdictions need to be able to determine how much money they spend, and how to raise it.  You can't just eliminate local control over spending decisions... its a big part of our political culture (town meetings, ect).

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by: Nicholas Gunn @ Tue Jan 16, 2007 at 23:51:03 PM CST

[ Parent ]

But the price of the current system (4.00 / 1)

The median house price in NH is now over $200,000. Depending on the property tax rate in your town or city, that translates to an annual property tax arond $5,000 to $7,500.

A household with the 2003 median NH income of $52,409 would pay $2,773 under an income tax to raise the same money -- much, much less.

Somewhere around 60% of the property tax goes for education -- which is supposed to be a state responsibility, according the Constitution.

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by: elwood @ Wed Jan 17, 2007 at 05:30:32 AM CST

[ Parent ]

Yes, but (4.00 / 1)

you forgot to factor in how unfair this is to all the oppressed people earning over $200,000 a year who live on a 1/3rd-of-a-ledgy-acre-situated McMansion.  You are compelling  these people to suffer under this plan.

Why do you hate America and "the NH way"?

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by: Dean Barker @ Wed Jan 17, 2007 at 05:38:03 AM CST

[ Parent ]

I'm hoping someone who really (0.00 / 0)

know this stuff will correct any big errors in my calculations.

For example, I believe the number for "personal income" includes taxable dividends but not untaxed gain (401-Ks, college savings accounts, etc.) If I'm wrong about that the numbers could change substantially.

That's really the big factor here: NH has $47.5 Billion in annual "income", compared to $34.9 Billion in annual "earnings."

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by: elwood @ Wed Jan 17, 2007 at 05:42:52 AM CST

[ Parent ]

I&D tax (0.00 / 0)

NH expects to collect $73 million in interest and dividends taxes in 2007. In the numbers above I counted that as new revenues under an income tax, so my estimates of revenues are off by about that much.

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by: elwood @ Wed Jan 17, 2007 at 05:58:48 AM CST

[ Parent ]

One tentative conclusion (0.00 / 0)

If you ever get in a discussion of "sales tax or income tax," the numbers show that the income tax provides much more revenue when set at a "reasonable" level -- i.e., a level similar to neighboring states.

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by: elwood @ Wed Jan 17, 2007 at 05:52:16 AM CST

Elwood, your insight about the property tax (4.00 / 1)

Taxing you on the portion of yer house the bank owns....I never even thought of it before. It's embarrassing. People who are nearly paid off and in possession of a considerable asset are taxed at the same rate as someone in that same house who pulled it together on a no money down high risk loan.

Forget the view tax -- how about the DEBT TAX. You're being taxed on money you technically owe...

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by: Mike Caulfield @ Thu Jan 18, 2007 at 18:35:21 PM CST

[ Parent ]

What? (0.00 / 0)

Dude, this is silly; someone can refinance over and over to pull out equity and not pay property taxes under your theory.  The person who works hard and pays off his or her mortgage would be penalized for acting in a responsible manner.

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by: Frodo @ Thu Jan 18, 2007 at 21:37:34 PM CST

[ Parent ]

Huh?? (0.00 / 0)

You're making two unfounded of assumptions in calling someone else silly:

• That a replacement tax structure would tax property at all
  
• That a less sweeping change would tax net worth of property, but would leave the proceeds from asset drawdowns/ equity loans untaxed
  

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by: elwood @ Thu Jan 18, 2007 at 21:44:28 PM CST

[ Parent ]

I THink (0.00 / 0)

Frodo is simply going off the comment alone w/o context.

Mike said that people being taxed on property they don't technically own is immoral... Frodo assumed he was advocating eliminating the taxation of the mortgaged portion of a property, and replied with the problems of JUST eliminating property taxes on mortgaged property (ie people would constantly refinance).

Frodo: Mike was using an argument to advocate for an alternative tax, not just to eliminate that portion of a property tax.

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by: Nicholas Gunn @ Thu Jan 18, 2007 at 23:47:08 PM CST

[ Parent ]

A couple problems here... (0.00 / 0)

First, to address the home ownership taxation:

Legally, the homeowner DOES own the entire value of the property in question.  That homeowner is free to make improvements to the property or let it go to seed and they bear the risk of cyclical devaluation or appreciation and all the problems/benefits that go along with it. 

A mortgage is simply a loan that places a lien on the home...its a loan that uses the home to secure it because not a lot of us have other property or assets that would come close to making a bank lend us that kind of cabbage.  Unfortunately, lenders can't be blamed for that reality, since they are locked in at the moment of signing the contract.  They gotta look out for number one.  (predatory lenders and dangerous and variable interest rate schemes are a completely different story).

Second, on the income tax:

We ought to be saying GRADUATED frequently.  A flat tax is a flat tax is a flat tax.  New Hampshire has the third highest median household income in the US (U.S. Census).  I am convinced these numbers are being skewed widely by wealthy out-of-staters using NH residency as a tax shelter.  We sure as hell don't look like we're doing that well.  Graduated taxes would take full advantage of their abuse and, as we all know, reduce the disproportionately heavy tax burden on the engine of our economy, the working and middle classes.

Third,  property taxes are municipal.  They won't go away if the state institutes an income tax, will they?  Cities and towns will probably drop the rates considerably, once they start to receive state funds for things like education, but I strongly doubt they disappear entirely.

Last:  NO SALES TAX

It incredibly regressive and would kill business in the southern tier, as Mass residents stop shopping at malls in Nashua and Salem and at the NH autodealers.

In case you're not into the whole brevity thing...

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by: El Davarino @ Fri Jan 19, 2007 at 11:35:56 AM CST

In response (0.00 / 0)

1. I didn't say that the homeowner "doesn't own" the house -- that's a straw man. I said that the homeowner is not being taxed on 'net worth.' For example, the estate tax would treat my example as a $20,000 bequest, not a $200,000 bequest. We're used to the idea of a property tax, but it is incredibly regressive.

2. The New Hampshire Constitution allows only taxes that are "reasonable and proportional." The state Supreme Court has ruled that this prohibits a graduated tax.

3. Property taxes are NOT municipal. They have four components: the town tax, the school district tax, the county tax, and the statewide school tax. The Constitution says that the state is responsible for providing an adequate education throughout New Hampshire; heavy reliance on the widely varying school district tax (which is 64% of all property tax receipts) is unConstitutional.

4. I agree about the sales tax, and as the numbers cited show it doesn't even bring in enough revenue.
   

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by: elwood @ Fri Jan 19, 2007 at 11:55:13 AM CST

[ Parent ]

Good points (0.00 / 0)

1.  Conceded, but it functions effectively the same for the purposes of determining tax liability in this case.  The difference with the estate tax is that there's a transfer  of liability.  To tax the recipient on the full value of the house when their effective receipt of funds were they to cash out immeadiately is grossly unfair.

To play devil's advocate here, the original homeowners, however, purchased the home themselves and therefore made an investment on credit.  While I'd love for a net worth taxation system to fly, there's no way it ever would because so many people have mortgages, that property tax revenues would fall through the floor.  Not to mention the lending lobby would drop a brick.  Any practical workaround?

2.  True.  Of course, considering the level of effort that would be needed for an income tax, why not push through a constitutional amendment while we're at it...(kidding)

3.  I spoke carelessly and you were right to correct me.  With the notable exception of the statewide school tax, all the property taxes are local or regional.  I do not see the towns and school districts pulling their taxes absolutely just because of an influx of revenue from the state income tax.  People don't give stuff away.

In case you're not into the whole brevity thing...

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by: El Davarino @ Fri Jan 19, 2007 at 12:28:21 PM CST

[ Parent ]

Where I think this analysis is going (4.00 / 1)

A proposal for legislation that:

• Establishes a personal income tax to pay all the costs of K-12 public schools in the state
  
• Distributes that revenue to local school boards based on a formula involving number of students and number of special-needs students
  
• Eliminates the school district tax and the statewide property tax, cutting propoert taxes by about 2/3rds (town and county budgets)
  
• Allows school districts to impose a new property tax only with a super-majority: e.g., 60% of voters support it
  

It appears that the vast majority of taxpayers would save money in such a system.

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by: elwood @ Fri Jan 19, 2007 at 12:38:07 PM CST

[ Parent ]

Oh, and school boards (0.00 / 0)

would presumably issue bonds to build schools when needed, with the bonds being paid back from future yearly allocations from the state.

There would still be plenty of local control.

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by: elwood @ Fri Jan 19, 2007 at 14:53:59 PM CST

[ Parent ]

school boards (4.00 / 1)

don't issue bonds- the voters approve bonds.  The board or citizens can come up with warrant articles and vote on them in the election.

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by: Kathleen O'Donnell @ Fri Jan 19, 2007 at 14:59:25 PM CST

[ Parent ]

Clarification? (0.00 / 0)

I am convinced these numbers are being skewed widely by wealthy out-of-staters using NH residency as a tax shelter.

This doesn't make sense. How can one use NH residency a a tax shelter? You have to shop in NH to benefit from the lack of a sales tax, you have to live and work in NH to benefit from the lack of a state income tax, and if you're an out-of-stater with a cottage on Lake Winnipesaukee you're still hit by the property tax.

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by: Alex Gallichon @ Sun Jan 21, 2007 at 16:14:17 PM CST

[ Parent ]

A really good discussion, so far. (4.00 / 1)

I'd just like to make two points:

One of the main reasons for objecting to a sales tax, other than the inconvenience it causes merchants, is the time and nuissance associated with calculating it on each purchase.
So, any review of tax structure should take into account the amount of time on the part of how many people is involved.  This consideration should also come into play in regards to adjusting tax rates.  Whenever a new rate is set, it sets off a cascade of recalculations whose implementation is never compensated.
If an income tax, piggy-backed on federal income tax calculations, could eliminate both the restaurant meals tax and the interest and dividends, we might have a winner.  Much opposition to "new" taxes seems to be based on the (accurate) perception that old ones never go away.
The second point I would make is that there are specific social costs associated with property. Fire suppression, police patrols, waste management, transportation management, etc are all costs associated with the property in a community and would seem to be appropriately paid for with property taxes, especially since the benefit of an actual service is often greater for the community than the actual recipient.  Education, on the other hand, while it does address a negative (ignorance), is actually more closely related to future income and, it could therefor be argued, should be paid for with an income tax.

Who actually benefits is always a good question to ask.

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by: hannah @ Fri Jan 19, 2007 at 14:10:31 PM CST

The Room and Meals Tax (4.00 / 1)

will stay with us because

• It hits the tourists disproportionately
  
• All the infrastructure to support it has been in place for about forty years
  
• People generally don't cross state lines to avoid a meals tax (but they do to buy furniture or electronics)
  
• It's viewed as a sort of "luxury tax"
  

 

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by: elwood @ Fri Jan 19, 2007 at 14:40:22 PM CST

[ Parent ]

None of which reasons are rational (0.00 / 0)

or equitable.
Presumably, if there's an income tax, then the income earned from tourism will be taxed already. 
Levying taxes because we can get away with it is morally suspect.  There should be a practical relationship between taxes and what the money is used to pay for.

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by: hannah @ Fri Jan 19, 2007 at 18:23:24 PM CST

[ Parent ]

I discussed general principles (0.00 / 0)

of taxation in an earlier diary.

I don't really see why "there should be a practical relationship between taxes and what the money is used to pay for." That sounds like saying money I win from a lottery ticket should only go to gambling and not to paying for my car to drive to work.

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by: elwood @ Sat Jan 20, 2007 at 06:17:30 AM CST

[ Parent ]

I think we should (0.00 / 0)

have a higher standard for how other people's money is used that for how we use our own money. 

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by: hannah @ Sat Jan 20, 2007 at 07:11:17 AM CST

[ Parent ]

But I don't follow you (0.00 / 0)

at all.

I don't see any question of principle here.

The notion that a government should try to align particular available revenue sources with particular needs that are somehow related, as opposed to prioritizing needs and using available revenue to meet them regardless of source, makes no sense to me.

It's very destructive, in my opinion. We have a provision written into ourconstitution that says the gas tax can only be used for road building and maintenance. So, paving and construction companies have a steady source of income, while our schools go underfunded.

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by: elwood @ Sat Jan 20, 2007 at 08:34:08 AM CST

[ Parent ]

More... (4.00 / 1)

Levying taxes because we can get away with it is morally suspect.

Conversely, compromising state services (education, child welfare, etc.) because of a reflexive dismissal of alternative taxation is also morally suspect.

There should be a practical relationship between taxes and what the money is used to pay for.

I don't think we need a unique tax for each line item in the budget. It should be sufficient to say the state has the following responsibilities and therefore we must raise this much through taxes. Why should wildlife and the environment rely so heavily on hunting/fishing licenses? Why should education rely so heavily on lottery receipts? Just as one's investments should be diversified, so to the funding for each of the states responsibilities be diversified, in the name of stability if nothing else.

I've always found our reliance on gambling, tobacco and liquor to be an odd way to fund education and health services. It's odd that the state relies on the failure of its smoking cessation program in order to fund its smoking cessation program. But, again, I'm getting of track...

Not as smart as I think I am, but not as dumb as I look.

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by: epm @ Sat Jan 20, 2007 at 09:54:21 AM CST

[ Parent ]

Taxes (4.00 / 1)

Given there are certain services a developed state should provide for its citizens, we are left with only two questions: How much money must be collected, and through what mechanisms with it be collected.

Too often we get hung up in the minutia of one of the two points and we can't seem to move forward no matter how crippling it is not to. In New Hampshire we seem to quickly get lost in the discussion of the mechanics of collection, where the mantra of "no broad-based tax" has become like a fundamentalist battle cry beyond which all discussion is stifled like a doubter at at revival meeting.

Tax free New Hampshire already has the following taxes:

  o Interest & Dividends Tax
  o Inheritance and Estate Tax
  o Business Profits Tax
  o Business Enterprise Tax
  o Communications Services Tax
  o Electricity Consumption Tax
  o Meals and Rentals Tax
  o Tobacco Tax
  o Real Estate Transfer Tax
  o Timber Tax
  o Gravel Tax
  o State Education Property Tax
  o Utility Property Tax
  o Local Property Tax

And this doesn't include fees for doing things, like  hunt, fish, drive, register a vehicle, park your vehicle, have a drink, or camp, hike, swim or in any way utilizing a state park.

So it appears, upon closer inspection, New Hampshire doesn't have an aversion to taxes, per se, just an aversion to a simple, easily understood broad based tax.

If one is concerned about fairness, I think an income tax would be the fairest. It would be proportionate to ones ability to pay, and it would be shared by all. And as pointed out earlier, it would take advantage of those out-of-staters who are using their lake house address as their "permanent" address as a tax dodge.

Speaking of tax dodges, I'd also like to see a luxury tax levied on non-primary home properties in NH. It doesn't have to be onerous, but I'd use it to help fund road repairs, or even better a real investment in passenger rail. But I digress....

Not as smart as I think I am, but not as dumb as I look.

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by: epm @ Fri Jan 19, 2007 at 19:50:11 PM CST

And the gas tax n/t (0.00 / 0)

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by: elwood @ Sat Jan 20, 2007 at 06:13:25 AM CST

[ Parent ]

Inheritance tax (0.00 / 0)

I've been informed that it was repealed two years ago.

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by: hannah @ Sun Jan 21, 2007 at 12:53:36 PM CST

[ Parent ]

Complicated Estate Tax. (4.00 / 1)

Estate taxes are waived only when an estate passes to a family member of direct lineage --  grandparent, parent, child, grandchild -- even if it skips generations. However, inheritance by lateral family members -- aunt, uncle, cousin, sibling(?) -- is still taxed, as is inheritance by non-family members.

I may have missed some details, but these are the broad strokes.

Not as smart as I think I am, but not as dumb as I look.

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by: epm @ Sun Jan 21, 2007 at 15:37:49 PM CST

[ Parent ]

Another aspect of the property tax (0.00 / 0)

Out-of-staters with vacation homes in NH would pay nothing in a statewide income tax, but do pay substantially with a tax system reliant on property taxes.

I'm not a proponent of the "fund the state on the tourists," but it plays a factor in state politics.

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by: elwood @ Sat Jan 20, 2007 at 09:52:41 AM CST

Tourists: profit centers or parasites? (0.00 / 0)

And out-of-staters using their vacation address as a tax dodge would be hit with the income tax.

If we did have a state income tax, we'd have to see some hand-in-glove correlation with a decrease in personal property taxes, as you allude to. However, I don't see why vacation property couldn't be assessed on a different basis than full-time housing in a similar (but reverse) manner that we deal with current use and conservation property.

I'm not trying to screw tourists, but really, vacation property, unlike your home, is truly a mark of prosperity, not shelter. This wouldn't affect the bulk of the tourist trade. It may, however, slow the development of our hillsides and shorelines, which I see as a plus as well.

What is becoming clear is that NH can't just glom on another tax to the crazy quilt it currently has. It must construct a new revenue system from the ground up to succeed. Give that our state legislature bears a strong resemblance to a box of feral cats, coupled with a weak-willed governor, I don't see this happening. Sad.

Not as smart as I think I am, but not as dumb as I look.

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by: epm @ Sat Jan 20, 2007 at 10:14:05 AM CST

[ Parent ]

couple of thoughts (0.00 / 0)

You would want the income tax to have some exemptions, no? Like the first X thousand of income? If you are moved by the stories of seniors complaining about the property taxes on their houses, imagine what the outcry would be if the income tax was imposed on the first dollar of income. If you agree, then the rate of the tax must be higher.

Someone pointed out that a virtue of the income tax is that when you have no income, say you lose your job, you are not taxed. That's true. But remember, when the economy goes south, as it regularly does, then income tax revenue goes south, too. The property tax is a more stable tax than the income tax.

Personally, I don't care one way or the other if we have an income tax. I don't mind paying taxes. I believe I am lucky to live in the USA and NH and I don't mind helping to pay for public services. But there's no need to demonize the property tax. It's a decent tax that should be part of any state's revenue mix.

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by: Huey @ Wed Jan 24, 2007 at 18:23:02 PM CST

Why? (0.00 / 0)

But there's no need to demonize the property tax. It's a decent tax that should be part of any state's revenue mix.

Why?
Why?
Is that too much to ask of you?

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by: elwood @ Wed Jan 24, 2007 at 20:27:22 PM CST

[ Parent ]