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Monday, November 12, 2007
Case not yet made for shifting property tax for services
The Atlanta Journal-Constitution
Congressional efforts to drive Big Tobacco out of business is one reason to be wary of a shift of taxes to services — a key feature of House Speaker Glenn Richardson’s tax-swap proposal.
Having watched the apparatus of government employed against “predatory” lenders — a category demonized, but only anecdotally defined — and watching now as Congress proposes to loot Big Tobacco to create a new health care entitlement, alarm bells ring at the prospect of expanding the reach of government into the service sector.
It’s easy to imagine a populist governor and a tax-the-rich General Assembly deciding that lenders making high-interest loans, for example, are “predators” and that various of their services should be taxed more aggressively to compensate their “victims.” Or that various forms of medical services should be taxed higher to bail out Grady Hospital or to create a trauma network statewide.
The point is, simply, that giving legislators a wide array of new taxing possibilities should raise red flags among those concerned about the growth and spread of government. Look, for example, at what’s happened to the city of Atlanta’s tax on airport car rentals. When approved more than a decade ago, the 3 percent levy was to be used to finance $58 million in improvements related to a new basketball arena for the Atlanta Hawks. Now, it’s used by Atlanta to finance programs for the homeless. Who knew?
First off, the 3 percent tax on a service — car rentals — was levied because it was easy. People renting cars at some future date are a class not yet formed and, therefore, unable to raise objections. Secondly, shifts occur unnoticed. Once levied, taxes don’t go away.
Fiscal conservatives should welcome a straightforward tax on consumption that is part of comprehensive reform. At the federal level, according to the Tax Foundation, 41 percent of the U.S. population is completely outside the income tax system, and since 2000, the number of filers with zero income tax liability has increased from 29 million to 43 million, a 50 percent increase. It’s worth noting, too, that the top 1 percent pay a greater burden than the bottom 90 percent combined. A nation that believes the other guy is picking up the tab is one with an insatiable appetite for new and expanded entitlements.
The speaker’s proposal is to swap the property tax for the rich and poor alike for an expanded tax on consumption. That’s one option. But it’s not altogether clear to this fiscal conservative why vast wealth in the form of property should be spared with no distinction except whether the owner resides in Georgia or elsewhere.
To be sure, the property tax is hated and, as used to finance public education, is archaic. When imposed, it was the most universal form of wealth and, furthermore, the tax man could see it, touch it and assign value to it. It was generally collected as a single payment in the fall after the crops came in, something that coincidentally provided a useful check on government growth. Property owners could easily compare this year’s cost of government to the last — and raise Cain when its expenses started getting out of hand.
Some relief may very well be in order. There are any number of ways to do it.
Floridans are voting Jan. 29 on a proposal to double the $25,000 homestead exemption, which is estimated to save homeowners an average of $240 per year. Other property owners would see increases capped at 10 percent per year. There are other provisions, too, but the point here to there are options to address specific problems. One option, suggested by a contributor to the Thinking Right blog, is to give a $1,000 voucher to be used to pay property taxes.
Or, as proposed by state Rep. Mark Burkhalter (R-Alpharetta), eliminate the property tax on vehicles — the birthday tax, he calls it, because it falls due on your birthday. State Rep. Ed Lindsey (R-Atlanta) has a proposal to cap property tax increases to 3 percent, something Florida did in 1992, or at the consumer price index.
Because the property tax is hated is a good reason for politicians to oppose it. But not for the rest of us, until we are certain that the alternative is warranted, manageable and its flaws are not worse.
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Don’t subsidize high-risk development
The Atlanta Journal-Constitution
Should taxpayers or insurance policy-holders outside high-risk areas — coastal areas in hurricane-prone regions, for example — subsidize homeowners who choose to buy or build there?
Florida, faced with a retreat by private-sector insurance companies from high-risk coastal areas, created its own Citizens Insurance Corp. To spread its risk, Florida allowed the pool to sell complete homeowners’ coverage throughout Florida. Taxpayers now have $8 billion in the pool to pay claims that could total $433 billion in the event of a catastrophe.
In Congress, meanwhile, the House on Thursday passed a sweeping proposal to create a risk pool that states can choose to join. The intent is to lower premiums in states where natural disasters, including earthquakes, hurricanes, flooding or other perils have forced insurers to jack up rates. Florida lawmakers certainly wanted the pool and have pushed for it since Hurricane Andrew rolled over South Florida in 1992.
The House bill would establish a quasi-governmental entity that would issue long-term catastrophe bonds. Those proceeds would be used to fund state pools. When those go broke, the federal government would issue long-term, low-interest loans directly to the state. States could also buy reinsurance from the feds for the state pool. Again, think of Florida: $8 billion in assets; $433 billion in policy coverage.
White House officials say President Bush will veto the bill if it passes the Senate, which is not expected to take it up until early next year. The legislation, the administration correctly notes, squeezes out private insurers and “clearly result in a subsidy for insurers, state insurance programs and their policyholders.” It suggests, too, that the taxpayer subsidies encourage “overdevelopment in hurricane- and earthquake-prone areas, putting more people in harm’s way.”
The question here: Should states permit development, or redevelopment, in such areas? Should property owners pay the full cost of insurance? (The correct answers, incidentally, are no and yes.) Bonus question: Is this a bill President Bush should veto if it passes? (Correct answer: Yes, even if it passes just ahead of next year’s General Election.)
