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Property Tax Reax: Will Some Folks Wind Up Paying More To Pay Less?

TaxmanGetting back into the swing of political things, let's talk for a moment about the latest installment of the Indy Star/WTHR poll, which tells us today that most people wouldn't mind an increase in the sales tax if it meant a reduction in their property tax bills.

Two members of the mainstream media recently have written columns advising Hoosiers how to calculate their personal savings under the tax plans on the table.

Over the long haul, it sounds like quite a few people could end up paying more with a sales tax increase than they do now.

Which begs this question: Has the property tax crisis become such a statewide cause du jour that folks haven't stopped to crunch all the numbers, or are we living in a society that would rather pay an extra nickel or dime a thousand times instead of a big ol' bill at the end of the line?

Will any solution adequately address the widespread disparities in the current system?

Food for thought. And discussion, if you're so inclined.

Comments

Two thoughts:

With respect to property taxes: if sales taxes go up so that property taxes can go down, some will win and others will lose-- the nature of "the game". I wonder about the extent to which those who support/oppose a higher sales tax understand that they will win/lose under that plan. Does anyone know of any survey data that covers that detail?

(As an aside, to a Libertarian or fiscal conservative, all of this begs a larger question-- about the size of government, the level of spending, and thus, the need for tax revenue.)

More broadly: We already live in a society where larger but more subtle economic costs are routinely trumped by smaller but more obvious political benefits. This results in much injustice. But that's the nature of much of what a democratic government tends to do. (For example, by keeping the costs of farm programs subtle and relatively small-per-person, vast amounts of money can be pooled and then redistributed to a generally wealthy interest group.)

When Mitch took office, 'resizing' state government was one of his stated goals. Yet today, whenever I have state business, all of the garages surrounding the state buildings are employee only, and many of the agencies have moved 'off campus'.

I haven't looked, but the headcount for state employees has got to be at a record high. If it isn't, the number of state owned vehicles has multiplied 50% over the past 10 years for some other reason.

"Has the property tax crisis become such a statewide cause du jour that folks haven't stopped to crunch all the numbers, or are we living in a society that would rather pay an extra nickel or dime a thousand times instead of a big ol' bill at the end of the line?"

The fact is that the money is needed. All this will do is spread the pain around. Instead of a handful of folks in certain areas of the state paying for lower income schools and child welfare, everyone in all 92 counties will help pay.

"Has the property tax crisis become such a statewide cause du jour that folks haven't stopped to crunch all the numbers, or are we living in a society that would rather pay an extra nickel or dime a thousand times instead of a big ol' bill at the end of the line?"

Absolutely, that's the plan! It works for business. You can have HBO for just $2.99 a month. Or you can have unlimited text messaging for just $4.99 a month. Or how about those credit card protection plans for just $10/month. You get the idea. We're going to be nickeled and dimed to death.

Following up on that: as one example of thousands, you can have our country's sugar policy for about $2 per month-- making poor people pay more for groceries in order to redistribute money to wealthy sugar farmers.

Looking at the "fairness" of taxes, a sales tax is truly the most fair. This spreads the tax base out among every person purchasing in the state, rather than unfairly burdening property owners.

While I understand that property tax cannot be repealed (while keeping the state's spending at the same level), it is one of the most insidious forms of tax there is. You never truly own your own property. Even if you have paid off your home, the government can still take it away from you if you don't pay your property taxes. We don't truly own our homes, we simply rent them from the government. You can't get much more socialized than that.

JJ, I'm not a fan of property taxes either, but...

Fairness-- in taxes or anything else-- is, famously, in the eyes of the beholder.

A sales tax is generally considered fair since it is a flat tax rate, but unfair in that it is regressive in effect (unless one exempts food and chooses a higher tax rate).

Ironically, property taxes are among that the least insidious-- in that, at least for property owners, their impact is quite noticeable. In contrast, sales taxes are relatively invisible/insidious, since they're absorbed into a product's cost and they're often so nickel-and-dime.

Eric,

I understand what you're saying, but I disagree. sales taxes are not truly "absorbed" into the product's cost here in the US. Sales taxes are added on top of the cost of a product so you know what you'll pay in taxes with each purchase. Europe's Value-Added Tax (VAT) is much more insidious because it taxes are added at each level of production so you don't truly know how much of the price of the item is tax.

You can get around sales tax in some places by purchasing items online, but there's no way to avoid property taxes without the government confiscating your property. That is pretty insidious.

Also, I think it's great to have no sales tax on food and other "necessities", but I disagree that a sales tax is a regressive tax. In general, people who make more money spend more money. If I made 500,000 a year, I might be able to afford a yacht, but I'd pay the taxes on that. If I only make 20,000 a year, I'd have to make different choices about what I purchased and taxes would be a factor in those decisions, just as they are for someone buying a yacht.

JJ, thanks for the clarification and extension. In reply, two things:

Yes, a VAT is more hidden/insidious than a sales tax. A sales tax is not hidden in that the info is provided to consumers. But, in reality, few people pay attention to the sales tax as they're shopping. Moreover, the sales tax on everything except major purchases are relatively small-- and thus, not going to get people's attention as much as a large tax like property taxes. (As an aside, how many people could tell you whether they pay more in sales taxes or property taxes?)

A regressive tax is defined as paying a higher average tax rate as income decreases. A sales tax will be regressive if rich people spend proportionately less of their income (on taxable items) than poor people.

For example, if a poor person spends $20,000 with an income of $20,000, they would pay $1200 in sales tax-- 6% of their income. If a rich person spends $500,000 with an income of $1,000,000, they would pay $30,000 in sales taxes-- 3% of their income.

"For example, if a poor person spends $20,000 with an income of $20,000, they would pay $1200 in sales tax-- 6% of their income. If a rich person spends $500,000 with an income of $1,000,000, they would pay $30,000 in sales taxes-- 3% of their income."

Not a really good example. The poor person spends 100% of their income while the rich person only spends 50% of theirs. If the poor person just pends 50% of their income, their tax is equal to that of the rich person.

Yes, your numbers are correct.

In my example, I was assuming that rich people spend a lower percentage (and thus, save a higher percentage) of their money than poor people. I'm sure there are exceptions to that generalization, but is there a reason to doubt the generalization?

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