My Favorite Tax

One sentence in Sunday's (4/24) Minneapolis Star Tribune editorial on the upcoming State Budget deserves further comment:

The unfairest tax of all, the property tax, has risen painfully in the past decade as state government has pushed its financial trouble onto local backs.

The least fair tax in my book is easily the estate tax, a bare knuckle second bite on income already taxed.  It's pure government greed even if it affects relatively few taxpayers and collects very little revenue.  But neither I nor most Americans face such prospects so it's not surprising that a new Gallup Poll finds that most Americans indeed like local property taxes least.

The DFL assertion dutifully repeated by the Star Tribune that decreased state money axiomatically must be replaced by local money is a non-sequitur, fiction in terms of law.   Trouble is, too many voters believe just that, even though property taxes seem to rise regardless of state aid.  But are property taxes truly unfair or simply unpopular?

If I had to name my favorite tax to pay, it would be the city portion of my property taxes.  Why?  Because I can see where the money goes, like for Police, Fire, Roads, Sewers, Water, Parks, and the Fourth of July fireworks. I in fact serve on my city's Financial Advisory Commission, so I am more than familiar with the city budget.  Yes, it goes up but it's also very focused on proper government functions like public safety and the budgeting process itself is straight-forward.  (Minneapolis and St. Paul residents: your results may vary!)

The County portion of our property taxes are less focused.  The Public School portion, usually the largest, is anything but transparent.  But does this explain why taxpayers are so frustrated and the DFL always so ready to offer relief?  No, I think it's the variability, the feeling of helplessness that really explains why property taxes are so unpopular.  You can't begin to calculate them even year to year like other taxes.  You can no longer buy a home and assume you'll be able to afford the property taxes into retirement.  And while there's an occasional decrease, when they go up, they go up big.

The big danger for the DFL is that voters might figure out that people like Minneapolis DFL Mayor R. T. Rybak and their Republican-free City Council's might actually be responsible for this mess.  Ditto the DFL / Education Minnesota run School Boards.  Ditto the DFL strongholds that run most County governments.

Another problem for the DFL is that we property owners actually write checks for property taxes.  Even if escrowed within a mortgage, you get multiple mailings a year from the assessor, the county, your mortgage holder, and you see it again when you file your income taxes.  Your mortgage paperwork shows what you paid when you bought the property, inviting more uncomfortable questions for the DFL.

I suppose I should wrap up with a recommendation or two, my first to get K-12 education and county welfare out of the property tax business.  Property taxes should address property-related services, which can include general government and the courts.  And all should then pay them, including non-profit, religious, educational, charitable and inter-government operations.  Third, I'd re-do billing and escrow such that you still write the checks every year, separate checks in fact to the city, county, and schools.

 

Comments

[Hiram]

"The least fair tax in my book is easily the estate tax, a bare knuckle second bite on income already taxed."

Not really. The primary intent of the estate tax is to tax appreciated capital gains which would otherwise go untaxed.

[The Big Stink]

If we had to write checks to city, county and state to pay our taxes, Speed, the process would be transparent. It's one thing to take people's money. It's quite another to have the process be done in the light of day. If there were an active 'thought police' you would be guilty of a felonious assault on the poor.

[Speed Gibson]

Hiram, untaxed gains are handled (taxed) as a separate process in probate, the net then becoming part of the estate, and then subject to another round of taxation. It's no different than had the deceased cashed out the day before dying.

[Hiram]

"untaxed gains are handled (taxed) as a separate process in probate, the net then becoming part of the estate, and then subject to another round of taxation. It's no different than had the deceased cashed out the day before dying."

I actually don't know how they do this now without an estate tax. Prior to the repeal, there was a thing called a stepped up basis. Property in the estate, for capital gains purposes, have the basis, the value, determined at the time of death. Say someone had accumulated fifty billion dollars worth of stock, for which that person paid nothing, founder's shares in Microsoft, for example. If that person sold those shares the day before his death he would realize 50 billion dollars in capital gains, his basis being zero. But if he died still owning his shares, the basis to the estate would have been 50 billion dollars, and there would have been no capital gains or indeed taxes of any kind, imposed on that vast appreciation of wealth.

Sweet.

[Laurie]

My favorite tax is the estate tax and not just because I will never have enough money to pay it. I think it is a very American tax. In this land of opportunity let people of each generation build their own fortunes, like a system of meritocracy.

One of the authors of "Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes" was an heir to $500,000 of the Oscar Mayer fortune, which he gave completely away at age 26. (the other author of the book is Bill Gates)

http://www.beacon.org/productdetails.cfm?PC=1428

[Give2Attain]

I think that concept would give my Father a heart attack and have my ancestors rolling in their graves... We have long been schooled that each family generation builds on the efforts and sacrifices of the previous. Thus, a family that works together is very comfortable.

To give the reward of their life long efforts and sacrifices to a mindless spending entity would lessen the incentive to work, save and sacrifice. An interesting concept though.

[Hiram]

"To give the reward of their life long efforts and sacrifices to a mindless spending entity would lessen the incentive to work, save and sacrifice."

Are you referring to Paris Hilton?

My mom and dad let me from an early age, that while they always wanted to give me a good start in life, after that it was their intention to spend everything they have and to die broke, or possibly in debt, and that I would be on my own. I always encouraged them in that, and fully intend to follow their inspiring example.

[Give2Attain]

I do much the same. I remind my Father and Mother that after a lifetime of working, saving and investing, now is the time to start enjoying it. And I remind them that if they don't, my sisters and I will !!! But it is really hard for people to change their life long habits, especially the kids of Depression era Parents.

By the way, though there are no mansions or exotic sports cars in their future... They love their time in Florida(Feb-Apr), time at the lake (May-Oct), time spent at the farm (varies) and time with the Grandkids. So what else should they really want to spend on...

By the way, to die with debt is kind of like welfare... You transfer your costs to someone else. As you can guess, I am against this. Though it seems to be a popular view in our modern "grab all you can" culture. (even if you have not worked for it)

[anonymous]

I have no issues with the estate tax (we came from nothing, will leave--god willing--a nice but modest legacy, and I have no problem with taxing it) but more importantly, I just want to say this may be my favorite blog post title ever.

--Annie

[J. Ewing]

My favorite tax, contrary to the Strib (naturally), is the local property tax, because people can choose to live here or not, in mansions or hovels as they choose, and have some influence over their local politicians. Would that it were more. People have considerable control over their property taxes.

And the property tax bears some reasonable relationship to the services rendered-- police and fire, and education, and parks and streets-- since the bigger houses have more to protect and, probably, more children to go to school.