Tuesday, June 13, 2006

New York Tax Cuts

The news came out yesterday from both gubernatorial camps about all these property tax cut proposals.

Firstly, I want to say that I agree with the folks at Upstate Blogs except they also seem to be endorsing the Faso plan as well, which has more problems for the State then Spitzers. What Faso is proposing is New York prop 13. The reason why taxes go up on “property” is because the costs of running government become greater each year. As urban sprawl continues unabated the cost for the community to support one person increases. Taxes need to go up! A few days ago I heard a similar proposal on public radio and when asked where they (the local governments) would get the money, the politician replied “the state”. You know, I remember when I was a kid and I wanted a video game. I asked my Mom for it but we didn’t have a lot of money so I said “write a check!”

Spitzer’s seem a bit shy on the details. Faso’s will cap the increase by either the rate of inflation or (I think, his press release doesn’t give details) 4% per year, which ever is lower. I wonder how he came up with that number? Probably Astrology.

The property tax is a misunderstood bastard tax. The property tax is a collection of both the land and the improvements on the land. The majority of the property tax always falls on the building and other improvements. For those who rent, as property taxes go up, the portion which falls on the capital can be passed on to the renter. This tax also gives an incentive for buildings to deteriorate and it gives an incentive for speculators to hold land out of production and it also prevents a neighborhood from improving, imposing a cost on everyone.

Ever see a single wide trailer in a neighborhood where it clearly doesn’t belong? Or a parking lot on a popular street corner and wonder why no one has ever built something there? Remember The US Supreme court Decision of Kelo in CT?

If only land and not the buildings are taxed, the land will always be used for its most efficient use. Further, if someone is not using the land efficiently and imposing costs on everyone else in society because of that they will pay for that privilege. Neighborhoods will always want to be kept up. People will want to build better improvements. Things will not always become “bigger” but they will become better and improved.

If we remove the tax from buildings and tax only land parking lots where they don’t belong, like on a popular street corner, will go away. They will be replaced by buildings with shops and apartments. Parking will go underground or in garages.

If we were to shift to a LVT tax and a tax on other rents, Kelo would have never happened. There would have never been a case. Why? Because if the property is truly that valuable and those people wanted to stay, they would have been paying for that privilege in their land taxes.

Real property tax reform will be shifting the tax burden off of the capital and on to the land.