[freedomtowernight_edited.jpg] 26th Parallel: Tax Debate in Florida

Monday, May 07, 2007

Tax Debate in Florida

Quite the battle going on up in Tallahassee concerning the propery tax-reduction plans floating around.

The more I think of it, the more I like Marco Rubio's "get rid of all property tax" idea for homesteaders. I realize his plan would increase sales tax by 2.5 cents, but the impact of the extra tax is quite minimal, even for lower-income people. Essential items such as food are already tax exempt, so the taxes would only apply to things such as an extra cellphone or Ipod.

Better yet, lower-income folks would be that much closer to being able to afford buying a home, which is a huge upward step for anyone looking to move up the economic ladder.

Quite simply, the alternative proposals by the state Senate and Gov. Crist just don't go far enough. Yes, they cut property taxes a bit, but not enough. As I said before, if they don't take out the whole chunk, it's not enough. The Senate wants to roll back taxes all the way back to 2005/2006 levels. Are they kidding? Might as well leave it as is!

People are concerned about local government services being cut if property taxes are eliminated. I'd like to think that it's primarily government fat that will be cut off and placed on the barbeque instead. The concept of local governments operating under a budget, just like you and I, is a novel concept but one we should demand. One only has to look at our local governments which are floating in money from the soaring property taxes of the last 2 years. Has anyone really noticed a positive difference in government services? Me neither.

Demanding that government uses their (OUR) money wisely, that it be spent responsibly, only makes sense to me. Putting that extra money in OUR hands makes even more sense.

Rubio's plan is way too brave and bold to pass. Politicians don't have the spines to pass something as ballsy as Rubio's cut all property tax plan. Besides, Rubio's plan would hand it over to voters who would ultimately decide what happens to the property tax. Like I said, the more I think of it, the more I like it.

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Blogger Henry Gomez said...

My preference is that they do nothing rathe than adopt some measly half measure. At least if they do nothing then voters will be furious and take it into their own hands.

The idea of paying taxes year after year for property you only purchase once is repugnant to me. So is the idea of having no control of your tax bill. If you lose your job, you lose income and thus your (federal)taxes go down. But when it comes to the state, you are screwed. That bill is coming in November no matter what your personal situation and it's never going to be for less than it was last november.

The current property tax structure is a pyramid scheme where the people that "got in early" have it made and the ones that are on the bottom of the pyramid are paying through the nose. When I moved into my house, the smallest in the neighborhood I had the highest tax bill simply because I didn't buy it 15 years ago.

Something has got to give. Giving me a 15% reduction after my tax bill doubled when I moved from a bigger condo into a smaller house doesn't make me happy.

11:48 PM, May 07, 2007  
Blogger nonee moose said...

Agree with your analysis, Robert, and after thinking about it I'm leaning the same way. That said, though I agree that forcing local government to live within its means is a great idea, placing the funding burden for government services on a consumption-based mechanism like the sales tax scheme, exposes government services, even at whatever level we agree is appropriate, to the cyclical nature of economies. That is, recessions will come, and when consumers tighten their belts accordingly, the possible effect is a death spiral of government services altogether. Local governments are economic engines themselves, let's not forget. They gainfully employ thousands of people, creating a multiplier effect in tax revenues, whether ad valorem or otherwise. Everyone can agree that some level of government services are necessary. To make that level vulnerable to market forces entirely may turn out to be imprudent in the long run.

Henry, the fact of only buying property once making the notion of repeated taxation absurd doesn't wash. That structure, whether house or condo, and your use of it, creates burdens on both infrastructure that had to be created to acommodate is very existence, as well as other incremental non-infrastructure needs that are necessitated as well. No man is an island.

Are ad valorem taxes the best way to address those burdens? Clearly, the inequities of the ad valorem system have reached critical mass, and need to be addressed. I do hope we can find a better way. I am just not sure that the criteria for that better way is as simple as a dollar figure.

11:42 AM, May 08, 2007  
Blogger Henry Gomez said...

Nonee, How about fees for services for those infrastructural burdens? The fact that I may be the newest guy to the neighborhood doesn't mean I put the biggest burden on the infrastructure.

It is absurd to continue paying taxes on property you already own. Want to charge me for my sewer or my garbage pick up, etc. fine but it should be equal to my usage of same.

As for insuring against cyclical downturns, here's an idea: build a surplus. Why should the government have a safety net that we the citizens don't have.

Plus your assuming that in a downturn that the entire state will go down. That's not true, usually someone is doing well. But we can put your theory to the test, since we already have a state sales tax. In the past 25 years has there ever been a year in which less tax was collected than the year before?

Surely there have been economic downturns during that period. If the answer to the question above is no, then there's your answer.

Besides the same downturn, under the current system will lead to tax liens and foreclosures.

11:42 PM, May 09, 2007  
Blogger nonee moose said...

Henry, to answer your question, the last time the state took in less revenue than the year before was… this year. The revenue estimating conference came up $1B short. And so it could begin.

That said, I agree that a user fee scheme should be implemented in every instance where it is practical. The problem is there really aren’t many cases left where it would be. Take your example, waste removal. It sounds easy enough, right? Everybody that wants waste removal pays. Call it $50 a month.

But wait, should it only be those that want waste service? What if people don’t want it, do they have a choice? Can they go with a private hauler? Again, sounds like a good idea. Except that now you’ve got, theoretically, a competitive hauling market at the retail level, and though very libertarian and commendable, you’ve also got nineteen different hauling trucks in your neighborhood, with much less predictable schedules. Or you get predictable schedules, like Mondays and Thursdays, when the neighborhood is gridlocked because everybody picks up that day. And what if your neighbor decides not to pay his bill to the private hauler. The hauler dumps(!) the neighbor. Neighbor gets behind on his waste disposal. Then come the flies. Sure, the city could fine him for health hazard, but did you really need to go through the hassle of calling the city to crack down, and waiting for the city to take action, etc.? But I digress.

Say it’s only the City that provides the service, and that it is compulsory. What happens when somebody doesn’t pay their bill? The City can’t cut service, realistically, because they would be contributing to the creation of unsafe conditions for the rest of its citizens. So, can they lien against the property? Let’s say yes. Is it more cost-effective to incur the administrative expense over a $50 bill? Or a $5000 one? And since this fee scheme is supposed to keep the sanitation department solvent, theoretically having no other source of funding, now we could have a cash flow problem, closely followed by a credit problem for the department. Remember, investors want stable cash flows, and since we’ve made the departments of the city stand-alone entities, de facto, through the fee scheme, the credit is chopped up accordingly. No more can the City point to a single bottom line and be afforded better or worse bond ratings based on it. Now it’s a series of itty-bitty credit lines, each depending on the individual department’s ability to fund its own operation. It’s getting a little gamy in here. Must be the garbage dump next door.

Take police protection. What’s a good fee for use there? $200 per visit? $500? I can tell you that fee would be pretty high, because you cannot measure prevention, so you cannot price it. So the fee structure has to cover all that “idle time”. Cops and firemen don’t work on spec. What if you’ve got a delinquent account there, from the last time the hot tub party got out of hand? Or the last time the burglars came for the Dolphin memorabilia? Or the alarm just tripped accidentally? It’s about time the neighbors started pitching in. Hell they were in the hot tub too, the hairy SOBs, not to mention their husbands. Ah well, party on.

As to reserves, I say, Amen brother. I think the reserves, which are already required by the investment community, will be increased as a function of the greater uncertainty visited upon a local government’s ability to raise revenue, as a result of any tax relief. That is not a bad thing. The locals have been riding the real estate boom for years, and spending money like drunken sailors. It has to stop regardless.

A sales tax-only scheme involves sending money to Tallahassee, where in turn they sprinkle it on the whole state. The allocation formulae have not been developed in order to gauge how any particular city or county makes out comparatively. I say comparatively because South Florida has always been a net contributor to the state coffers. That is, we send more money up than we get back. I point you to the public education funding issue, where in 2004 alone MDCPS got a $13 million haircut. Who among our legislative delegation will turn that tide? Prediction: We get screwed on the allocation of sales-tax revenues. In times of economic downturns, which you agree will come, we only get screwed more. Take it to the bank.

Still, I agree that the current property tax structure is FUBAR. In the interest of doing things right, I am willing to give as much time as necessary, as long as they remain focused and come up with the best solution possible for all involved. The politics of it all will not allow that to happen. We should all be careful what we wish for.

9:13 AM, May 11, 2007  
Blogger Henry Gomez said...

$1 billion short of what they budgeted for, or $1 billion short of what they brought in last year?

In order to be 1 billion short of last year, there had to have been $16.7 Billion less in retail sales in the state. I'm going to call bullshit on that.

And as for the distribution of funds across counties, don't we have that problem now.

How is it that entire countries can be funded on a VAT and the state of Florida can't?

C'mon. Let's get real.

9:24 PM, May 11, 2007  
Blogger nonee moose said...

Yes, Henry. By all means, let's. Get real. You hadn't mentioned a VAT before. What's next? A turnover tax?

Which towering examples of economic strength will you push forward to support this VAT claim of yours? Denmark? New Zealand?

A VAT-based system would directlyincrease the enforcement bureaucracy by an order of magnitude. Are we Republicans here, or what?

My only point with the $1B shortfall is that based on budget proposals, the fact that special projects (what passes for earmarks at the state level, were severely restricted, and on top of that you still had a smaller budget than last year. Some would say that is a good thing, and I would agree. But the budget was smaller despite population growth which would have naturally pushed higher in real numbers. The $16.7B in consumption you pull out of your hat never really had to exist before next year. Think of it as not getting that big raise you were counting on, and meanwhile your cost of living has increased. That's how things got tight. And I will also add there was no meaningful tax-cut folded into the budget this year. Shmush it all together, and put it on a hoagie roll. Call it a bullshit sandwich.

At least you seem to have realized the hidden magic of the user-based fee structure by dropping the argument, Grasshopper. You will do well.

11:13 AM, May 12, 2007  

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