Wednesday, March 08, 2006

Failing to Grasp the Concept

From the CSM:
South Carolina last week passed a law that caps the increase in property assessments at 3 percent per year.  Many Georgia lawmakers are backing a measure to put a similar cap in the state constitution. The bill's sponsor, first-term state Rep. Edward Lindsey (R) from Atlanta, argues that it's unfair to hit homeowners with a big tax boost years before they sell their home and profit from its increased value.

"Not even the IRS is so bold as to tax people on unrealized gain," says Mr. Lindsey. "These are essentially backdoor tax increases that give government no incentive to be efficient or responsive."

Unrealized gain??  It looks like Representative Lindsey fails to understand the idea that not all taxes are based on income.  Income is a decent basis for taxing people, as it is fairly accurate in determining how much somebody can pay; though wealthy people with little need for new income will escape the tax.  But there are many other ways to determine someone’s ability to pay taxes.  Sales tax, for instance, is based on your ability to pay for items.  User taxes are based on making people pay for services they use.  And property tax is based upon the value of your home.  It’s not an income tax based on what you may someday earn on the house; and so an increase in property value is not the equivalent of them taxing you on money that you haven’t earned.  It’s simply a taxation system which uses home value to determine how much you can pay.  And in the case of a wealthy person who has relatively little income, it taxes them in ways that income tax misses.

Something else that Lindsey fails to grasp is how stupid it is to attack taxation.  Sure, it’s good for political reasons, if you want to attract voters who also fail to grasp the tax-spending cycle; but it makes no policy sense at all.  Before you can address taxes, you have to address spending.  And that’s something that Republicans are naturally reluctant to do, as they are fully aware that voters support most government activities; and thus, they support high spending.  And so the whole taxation thing is just a shellgame.  Because the money’s going to come from somewhere, and people will complain no matter where you get it from.  Here in Texas, we don’t have an income tax; but that just means that we have to pay the taxes in some other way.  And I personally like that, as I don’t like to do state income tax returns (though it would mean I could charge more for my tax services).  But the money’s coming from somewhere.  And if Lindsey doesn’t think it’s fair to base that on the value of property; he’s going to have to come up with some other basis of taxation.  But I suspect that he just wants to lower this tax, and doesn’t have any substitute in mind at all.

I know that conservatives live under the delusion that if they cut enough taxes, people will learn to live on the tighter budget; but it’s just not going to happen.  What will happen is that governments will continue to run deficits until taxes are increased enough to give people the services they demand and to cover the debt they incurred.  The only variable in this is whether we can fix the GOP’s disastrous taxcuts before the accumulated debt becomes so much that it sucks-up too much of our tax revenues.  And the longer we allow the Republicans to cut taxes without cutting spending; the higher the tax rates for future generations will be.  Because they’re going to want the same government services as what we have, but will also have to pay down our debt.  So the end result of all the GOP’s foolish taxcuting is that they’re dooming our nation to much higher tax rates in the future.  But unfortunately, I’m afraid that Representative Lindsey’s “Backdoor Tax Increases” argument is much easier to explain on the campaign trail.  And we can have little doubt who future Republicans will blame for the tax increases and excessive debt.


Mumphrey said...

I have to take some exception here.
My wife and I live in Alexandria, Virginia, where the housing costs are going up, up, up. Since we bought our place 3 and a half years ago, it's worth more than twice what we bought it for.
And so, as you might guess, our property taxes are going up, up, up, as well.
The thing is, though, that our place isn't really worth twice what we paid for it until or unless we sell it.
I don't have any problem paying taxes. Like my fellow un-American Oliver Wendell Holmes, I like paying taxes because it makes me feel like "I'm buying civilization." But our income isn't going up here with the value of the house.
I'm all for everybody paying a fair share, but the problm here is that I don't think this is fair.

Doctor Biobrain said...

Mumph - My point wasn't necessarily that Property Value is always a good method for determining ability to pay (though it certainly has some advantages, in that it can tax the ultra-rich and it's harder to avoid than income tax). My point is that it's not an income tax, as Representative Lindsey suggested; but rather a completely different method of taxation, so his concept of it taxing "unrealized gain" is bogus. And my other point was that we can't cut taxes without cutting spending or raising taxes somewhere else; which I'm assuming you agree with.