Thursday, August 02, 2007

Property Taxes: Justifications

Thanks to Jeremy for balancing out the property tax discussion. As he works for the County Assessors Office that is a good thing.

Jeremy links to this editorial by the Standard Examiner.

"In other words, if you don't want to pay higher taxes for the new jail, figure out a way to keep your kids and your neighbors from breaking the law and having to be locked up. And, while you're at it, tell the school district that it doesn't get any increased funding for new schools to educate the waves of children who arrive expecting to be educated every year. And just learn to make do with antiquated flood control as new subdivisions and shopping centers grow like weeds across all available open land.

And tell senior citizens they won't be getting any increases in funding for their programs and needs, even though their numbers are skyrocketing, too.

Somehow, we don't think those arguments are going to fly. It makes for great campaign sloganeering and anti-government bellowing to complain about higher taxes, but where would you make the cuts? The kids? The seniors? Public safety? Public health?"

Somehow I don't think that this editorials main argument flies. Mainly because they are asking the wrong questions. Here is what I would ask.

Is the government able to do the thing that it wants better than the private sector? Is the government able to pay for what it must provide, without raising taxes? By providing these services, will the government foster dependency upon the government that would not exist otherwise?

Y-intercept argues that "You should never have to raise taxes to pay for maintenance." I agree. The reasons we do raise taxes for such things are summarized on todays post.
"If you do, it generally means one of two things. Either the people who planned the infrastructure in the first place did a really bad job. The more likely scenario is that politicians diverted the budget set aside for maintenance to other less worthy projects."
The Standard argues that 'seniors needs are skyrocketing too'. Again, we have a lot of senior citizens in the county. They have to pay taxes too! Are we creating a class of people that must depend upon the government for survival?


Jesse Harris said...

re: Maintenance, some costs actually are increasing. Concrete and asphalt, for instance, have risen steeply in the last decade, squeezing transportation and construction budgets significantly. It's also possible that in an effort to keep taxes low, there wasn't enough being set aside for future construction projects thus resulting in an increase now instead of earlier. While I don't much care for tax increases as a whole, I thought it was worthwhile to offer some correction on the maintenance issue.

Marshall said...

Walter Reed was privatized and look how well that turned out.

Ever heard of inflation?

So let me get this straight - taxes should never go up and I also should be able to buy that car I always wanted for the same price as last year.

Jesse Harris said...

Marshall: If you always have taxes at a constant rate (i.e. 5%), the amount collected should rise with inflation. That's a key component of gas taxes losing buying power so quickly since they're a fixed amount instead of a fixed rate.

y-intercept said...

Jesse, the point I was trying to make is that our government has a really bad history of calculating in maintenance costs. Maintenance is too often an after thought. The maintenance expense should be recognized from the inception of any projedt and should be counted in as an ongoing expense.

The fact that prices change with inflation is known. Any accountant worth their salt has inflation calculated into the equations.

Percentage taxes, of course, take care of themselves as Jesse Harris noted. The need to adjusting fixed taxes for inflation should have been recognized upfront.

There is an argument that the variable costs of goods might change with time. This relative change in the cost of resources should be fairly balanced with some things going up and others down (otherwise it would be called inflation).

The free market handles these relative changes through derivatives and futures.

Other than that argument, my statement is surprisingly sound. When a politician says that we have to increase taxes for maintenance, there is almost always something other than maintenance causing the increase.

The question is if the routine maintenance is causing the increased expense or another factor.

For example, if there is excessive wear on infrastructure from overuse, the cost is the result of unexpected use, not maintenance. Lets say the fixed gas tax is no longer providing the funds for routine maintenance. We have to raise the tax because the tax was not indexed for inflation. The reason for adjusting the rate is inflation, it is not the maintenance itself.

Lets say cars suddenly started getting 50 MPG and the revenue from the gas tax plummetted. We would need to change the revenue model because of the change in fuel efficiency. The cause of this change is not the maintenance, but the change in fuel efficiency.

If our standards change, and we demand more maintenance, then the cause of the increased maintenance cost is our elevated demands and not the maintenance itself.

If lawsuits shoot the price of goods into the irrational, the increase is not due to maintenance but due to increased liability expenses.

If the builders of a project failed to include maintenance into their original estimates, then the cause is the lack of foresight on these builders and not the maintenance.