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Regressive and progressive
Bill Batt: Painless Taxation
The principle of equity is central to any discussion of tax design. Tax design requires concern with both what is fair and the extent to which it must sometimes be compromised to satisfy the other principal criteria. Fairness can be evaluated according to what is termed "horizontal equity" — the extent to which those in similar circumstances will pay similar tax burdens, and "vertical equity" — how well those in different classes bear different burdens in the tax structure. It is this latter perspective that leads to the use of terms like "proportional," "progressive," and "regressive" in referring to tax structures. A tax is progressive with respect to income if the ratio of tax revenue to income rises when moving up the income scale, proportional if the ratio is constant, and regressive if the ratio declines. There is an ancillary question of whether taxing to reach greater equity should employ measures of income or of wealth, difficult as this is to measure. Such questions of equity are a matter particularly central when discussing the property tax. This will be discussed further below. ...
The one criticism often levied against the conventional property tax is its regressivity. This is somewhat belied by the facts. Only two empirical studies have ever been done on the subject, but both concluded that the real property tax is mildly progressive. When the two elements of the property tax are taken separately, it becomes even clearer why this is so: the tax on the land component of real property, being inelastic, cannot be shifted to tenants, and is borne solely by the titleholder to the property. Only the improvement part of the real property tax is in any way now shifted to tenants, and its elimination means the most oppressive component is gone. When it comes to incidence of payment, the roughly 35 percent of all American households who rent and do not own (largely poor people) bear none of that tax burden whatsoever. Even among the homeowning element of the American population, studies have shown that a shift of the tax to land values typically lowers the burden on about two thirds of all households. This is because tax districts where homes are situated are typically not in highest land value neighborhoods, and it is business and commercial sites -- particularly the underused land parcels in those neighborhoods -- that typically bear a larger burden. So in fact a tax on land values is really a profound shift in the direction of progressivity. ... Read the whole article
Mason Gaffney: The Property Tax is a Progressive Tax
A common argument for sales and income taxes over property taxes is their "broad base," discouraging the poor from voting for public extravagance. "Broad-based" seems quite like "regressive." ...
The Property Tax is not Primarily Shifted Forward
With a base so concentrated, it requires some creative methods to find the property tax regressive. One is to assume general forward shifting. Then the property owner is exempt, except as a homeowner. Tenants do not escape. No one does. The property tax becomes a general consumption tax, and therefore regressive. I submit several reasons why the property tax is not shifted forward. ...
All cartels are characterized by excess capacity -- that is of the essence. When you consider that half the wells in Texas are surplus -- need I go on? In a cartelized society like ours the forward shifting thesis is not just shaky but ludicrous. Untaxing property, as by revenue sharing, would strengthen the hand of every cartel now locking up excess capacity. It is not the property tax but the lack of one that would be shifted forward in higher prices. ...
Most studies of property tax regressivity stumble squarely into the pratfall of regression fallacy. The problem in brief is this. Income and property are positively related but the scatter of points is loose, with great individual residuals from any fitted curve, and a high error of estimate. We want to know which rises faster as they rise together. The answer depends on which we arbitrarily select as the ranking variable. Let us say we rank by income on the abscissa and find the top 10% have 30% of the income and 25% of the property (a hypothetical number). It looks as though the property tax is regressive. But now rank them by property on the ordinate. The top 10% are now a different group -we have taken a stratum of points at right angles to the original column. Some of the humble have been exalted, and the mighty laid low. This top 10% has say 50% of the property and 25% of the income, and the property tax looks progressive (in terms of income).(31)
When the Census of Housing ranks families by income, rent payments do not keep up with income.(32) But ranking them by value of dwelling units, value quintuples while income only doubles.(33) That is the difference a technical detail or two can make.
So which top 10% do we mean? Most studies have uncritically chosen income as the proper ranking variable, by assumption, thus practically preordaining the conclusion - and largely invalidating it. ...
On Defining Income and Wealth
Dick Netzer, like others, uses AGI as the reference standard against which to match the property tax and find it regressive.(40) A certain citizen in 1970 reported no AGI, but heavy property taxes, which might make the property tax quite regressive were it not Ronald Reagan. Yet he is not alone, and it seems harsh to select a measure that makes the property tax regressive because it is the only tax many rich men pay. General Oppenheimer has written a fine set of manuals on how to reach Zero AGI by losing money farming,(41) and they work so well that taxable farm income is down to about $3 billions while the USDA estimates farm income at $14 billions.(42) I do not think that AGI will do.
It is not just farming. Property is the paramount tax shelter. How does it cover thee? Let me count the ways. There is
At the same time, property is a large source of income that is not counted in AGI. Unrealized accruals and imputed income are the most obvious, and each is a huge item.
Thus the ownership of property tends on a large scale to reduce AGI and increase real income. When we rank by AGI, property owners move into lower brackets than they belong; non-owners move into higher brackets. Property tax payments move into the lower brackets, pre-ordaining a finding of regressivity which is totally illusory.
At least two studies have sought to correct for the Reagan Effect. Both corrected only partially, and with spectacular results. Read the whole article
Mason Gaffney: Property Tax: Biases and Reforms
Priority #1. Safeguarding the property tax
Priority #2: Enforce Good Laws
Priority #3. De-Balkanize Tax Enclaves
Priority #4. What Tax to Fight First?
Priority #5: Make Landowners Pay Their Taxes
A. Rich and Poor
There are rich jurisdictions and poor. Professor Tideman's paper in this conference alludes to this matter in passing. Let us support his point with some numbers.
In California, you might think that farm counties like Tulare have a lot more taxable value per capita than cities, but au contraire. Tulare County reports assessed values per capita of $38,100; the whole State averages $60,000 per capita. Suburban Marin County weighs in with $95,400; urban Los Angeles County has $59,000; Orange County has $74,000.
You might also think that Tulare, being rural, has a lot higher fraction of land value in its mix, but again, not so. The Land Share of Real Estate Value (LSREV) in Tulare County is 28 percent, compared to a statewide mean of 40 percent, and 47 percent in Orange County. (This datum, and others of like kind, refute the conventional belief that farm counties are heavy on land in the mix. On this last point, I must respectfully take issue with my good old friend Gene Wunderlich, whose paper at this conference suggests that farm counties have higher land fractions. I wonder if he has perhaps conflated building values with pure land values? My data, from California State Board of Equalization, show lower land fractions in real estate in the purely rural counties of the San Joaquin Valley.) Grazing and mining counties like Inyo have high values of LSREV, but they are a small share of the farm economy. (lnyo County, lightly peopled but heavily cattled, has $136,000 per capita, with very few human capita (and its cattle are exempt from the California property tax). Major farm counties with intensive farms, like those of San Joaquin Valley, have low values of LSREV.
Within counties, disparities among cities and school districts are much greater. In Tulare County, one pathetic little povertyville, the City of Parlier, has just $10,000 of assessed value per capita. Here are some assessed values per capita from different California cities in the County of Los Angeles: Lynwood, $21,500; Beverly Hills, $294,000 (14 times Lynwood); City of Industry, $5,533,000 (257 times Lynwood).
This is why some critics call the property tax "regressive." It has given some plausibility to the otherwise bizarre claim that switching to a sales tax is less regressive than sticking with the property tax. Within each city a property tax is progressive, but when your data meld cities like poor little Parlier and Lynwood with Beverly Hills, you sometimes find poor people paying more of their income in property taxes than rich people, and getting less for it. Switching just the local property tax to land ex buildings will do little or nothing to correct such disparities, and therefore make little progress toward overall social justice, and the wide support that will evoke. There is, in fact, a natural cap on local property tax rates imposed by local particularism: the City Council of Beverly Hills will not raise taxes in Beverly Hills for the benefit of voters in Parlier.
To avoid such regressivity we must work out some formula for power equalization. The most straightforward formula is simply a statewide land tax. On this I must again applaud Dick Noyes in NH - not for what he says, but what he does. What he says is that the genius of NH is its local control of revenues; what he does is initiate bills for a statewide land tax.
There are many other tax enclaves and exemptions by which much property stays off the tax rolls. I have a long list, with about 35 items. Here I'll just focus on two: timber and oil. Read the whole article
Alanna Hartzok: Who Would Jesus Tax? The Saga of Susan Pace Hamill's Alabama Tax Crusade
A University of Alabama School of Law Professor has asked God's forgiveness for the years she lived in the sin of ignorance about tax injustice. Susan Pace Hamill, a tax expert, business consultant, and dedicated United Methodist church goer, thought there was a misprint when she first read that personal incomes as low as $4,600 for a family of four were being taxed by the state, while timber owners holding 71% of the land of Alabama were paying less than $1 per acre in property taxes. Two hours later she found out there had been no mistake and that Alabama has the most regressive tax code in the country. Her righteous rage spawned a tax crusade that has reverberated onto the national scene.
"As somebody who knows a lot about taxes, I could not have imagined a design of a tax structure this bad," she said in a Tuscaloosa News story last February. "The state's tax code is really horribly unjust and has no moral, ethical leg to stand on. Period."
Alabamians with incomes under $13,000 pay 10.9 percent of their incomes in state and local taxes while those who make over $229,000 pay just 4.1 percent. Commercial property owners pay more than 50 percent of property taxes, with homes approaching one-third. Alabama's sales taxes are among the highest in the nation, up to 10 percent in some areas, and do not exempt even the most basic necessities such as food. The state's 1901 constitution was written primarily by large landholders to secure their economic interests, consequently property taxes are extremely light on their holdings. ... read the whole article
Mason Gaffney: A Cannan Gets the Range
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper