Tax Round Table

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Bret Callentine
Posts: 571
Joined: Tue Oct 17, 2006 3:18 pm
Location: Lakewood

Tax Round Table

Postby Bret Callentine » Mon Apr 04, 2011 8:10 am

okay, so no takers on a discussion of where and how to get credible reviews of local political actions...

how about this: Besides schools, probably the biggest factor affecting where people choose to live is taxes.

So here's my question...

Could Lakewood figure out a way to run the city without income taxes? And if so, would it be beneficial?

here's my proposal...

the 2011 budget for Lakewood estimates income tax revenues at just shy of 18 million and property tax revenues at just shy of 14 million. I'd like to figure out a method whereby all 32 million could be drawn from property taxes alone. (all other revenues to remain unchanged)

and the possible plan...

take the total amount of needed revenue from those two sources (around 32 million) and divide it equally by the amount of privately owned acreage. This would give you a set taxable amount for each acre. Then to try to account for the general shift in actual land valuation I would try to assess the rate on a sliding scale depending on a the following grid:

NORTH / SOUTH BOUNDERIES : Clifton Road, Detroit Road, Madison Ave
EAST / WEST BOUNDERIES : Bunts Road, Warren Road, Larchmont/McKinley

with the property owners living closer to the lake and river being assessed at slightly more than the average rate and those owning property further east and south paying at a slight discount.

Rates should be set differently for the different zoning clasifications (retail, residential, etc) but I would like to see if it could be done to negate any difference in assesment dependent on the value of development on the property. In my opinion, assessing higher taxes just because someone built a nicer house on the land only penalizes, and therefor dissuades development.

I've been kicking the idea around in my head for a while now, and I know it's got several obvious downsides (among them a lack of flexibility and obvious difficulty in structuring a workable transition) but I think there may be some definite advantages as well.

A basic evaluation with rough figures shows me that most property owners would be looking at about twice the property tax bill in exchange for no income taxes. Renters would obviously see an increase in rates, but the income for the city would fluxuate less with the overal economic picture and tax collection would be considerably streamlined.

essentially, we'd be turning Lakewood into a gated community where everything was done with 'home owner association fees'.

So what do you think (constructive criticism please)?

"I met with Bret one on one and found him impossible to deal with." - S.K.
Will Brown
Posts: 496
Joined: Sat Nov 10, 2007 10:56 am
Location: Lakewood

Re: Tax Round Table

Postby Will Brown » Mon Apr 04, 2011 3:33 pm

Taxes and schools are probably not the most important factor in where you choose to live. Where you work is. If you lived in Perry, you probably wouldn't be looking for. housing in Lakewood. Taxes (costs in general) and schools are important, but no more important than what type of housing is available. If you want to live in an old house with a leaky basement, limited parking, and a lot so small you can tell when your neighbor is cooking cabbage, Lakewood might suit you. But if you want a newer house with no basement and no attic, but a large lot and plenty of parking, Lakewood probably isn't your top choice. I'm not advocating for either, because different people want different things. I knew people who lived in Old Town in Chicago with no parking and no yard, but they liked it.

As to a heavy reliance on property tax, it'll never fly. Right now your property tax is based (supposed to be based) on the value of your property and how old you are. I think creating arbitrary zones to assign rates just complicates it, as you would have different taxes for nearly identical properties, depending on which side of the street you lived on.

But I think what dooms your idea is the effect it would have on seniors. Generally, the city income tax hits only earned income, so when you retire, your income tax burden disappears. So if you are offering seniors relief from a tax they don't pay in return for a massive property tax increase they will have to pay, you are not going to make the sale.

Society in every state is a blessing, but the Government even in its best state is but a necessary evil...
Bret Callentine
Posts: 571
Joined: Tue Oct 17, 2006 3:18 pm
Location: Lakewood

Re: Tax Round Table

Postby Bret Callentine » Tue Apr 05, 2011 1:02 pm

Will Brown wrote:I think creating arbitrary zones to assign rates just complicates it,

actually, I'm proposing getting away from complicating the issue with individualized assesments for property valuation. The tax would only be on the size of your lot, not, what you've built on it. After that, the only difference would be to compensate for some of the natural differences in valuation due to relative location. But to that end, my system only has less than a half dozen different rates.

As for the difficulty with considering the elderly, I have to admit, my proposal is more focused on 'could it work' and 'should it be considered', not whether or not it would be a politically popular option.

As cold hearted as I know this will sound, people who choose to live here expect a certain level of services from the city, and I don't think it's realistic to give property owners a free ride just because they've reached a certain age. Compensating for those on a fixed income may be reason enough to stagger the implementation period or even create a system for "grandfathering" in a certain demographic, but I don't know that it would rule out the overall viability of the proposal.

The two areas of potential benefit that I'm focusing on are:

1) collecting property taxes is easier than collecting income taxes (most mortgage companies handle the transaction automatically as a part of their monthly billing)

2) basing your financing on property tax instead of income would be more stable in the long term. Although giving up the potential windfalls in a booming economy, it would also offer some protection in times of recession.

based on what I've read, I would also expect the new structure to stimulate building renovation and re-investment, bringing up the overall value of properties and increasing both residential and retail occupancy rates.

"I met with Bret one on one and found him impossible to deal with." - S.K.
Charlie Page
Posts: 672
Joined: Wed Oct 01, 2008 3:31 pm
Location: Lakewood

Re: Tax Round Table

Postby Charlie Page » Wed Apr 13, 2011 1:18 pm

An income based method generally provides for built-in increases in revenues as wages generally increase over time. Property values typically increase, so there is a natural increase built-in when properties are re-assessed. Having a mix of both is like diversifying your investment portfolio.

How does your system provide for increasing revenues? If based purely on lot size, then will the tax rate have to increase every so often to raise additional revenues to cover increased costs of operating the City? Who decides on these tax rate increases?

Why should the owner of a two story apartment building pay the same amount of tax as a ten story apartment building on the same size lot? How does your system take this into account?

Your system would ultimately raise the rent for the thousands of rentals here (the increased property tax would be passed on to tenants in the form of higher rent). That would be a turn-off for people and have them leaving the City in droves. Never mind there wouldn’t be an income tax. It would take a lot to educate people that while the rent is higher there is no income tax and many would not get it and leave. I think when people have to write checks for things every month versus withholding from your paycheck, they pay a lot more attention to the amounts going out. BTW, I think if everyone had to write checks every week to pay taxes versus automatic withholding of taxes, people would be more critical of government spending, but that’s another topic.

What is the goal of your system (outside of raising revenue)? Provide a more consistent stream of revenue? Is it to be more fair? What’s considered fair?

Why does the current system need to be changed?

Why not keep our current system and make a few tweaks?

Some cities make residents pay for picking up their trash. Should Lakewood? There are about 18,000 houses in Lakewood. If every house (or address not including apartments or businesses) paid $15 per month (added to their water bill for convenience of collecting) it would generate over $3.2 million per year. Who would miss $15 a month?

Minimum property values would ensure that slum lords, bank owned properties and owners that don’t give a hoot don’t pay less because they let the property go to hell or banks fight to lower the assessed value. I have no idea what the minimum should be but a bank owned property shouldn’t be valued at 50k when other properties in the immediate vicinity are valued at 130k.

Or vote to raise the income tax rate to 2% and at the same time increase the credit for working in another city to a full 1%. The net effect on Lakewood residents working in other cities is zero (current rate of 1.5% with 50% credit of 1% credit limit). The tax rate would increase by a half percent for those working in Lakewood. I think this would incent people that work in Lakewood to live here as well, or find another job but who can do that in this market?

Maybe a vacant building/house tax? I don’t think it would ever fly but it would incent owners to fill vacancies somehow. There’s a house down the street from me that has been vacant for over 12 years. They pay the property tax but there’s no one living there so no income tax is paid. The City has an income tax database with addresses of every structure in Lakewood. If no income/net profit tax is paid for an address during the year, then the City can assess an unproductive tax. Rather than calling it an ‘unproductive tax’ maybe a better term would be ‘opportunity tax’ as in lost opportunity. Maybe $500/year per address. 1,500 vacant addresses equates to $750,000 in revenue.

FWIW, I don’t think the cost for police or fire department visits should ever be charged to owners or residents, even if deemed excessive. There’s a lady who lives across the street in a rental who called police because her ex boyfriend was causing problems. A few days later, we called the police because of more disturbances over there. A couple weeks later someone else called the police. The land lord (I call him Slum Lord Russ) threatened to kick her out if there are any more police visits (he was apparently contacted by the City to warn of the $250 fine). Consequently, there were no police visits thereafter but I would hate for someone to be afraid to call the police if in dire need.

I guess, for me, it comes back to what is the goal of your system? To raise more revenue? Provide a more consistent stream of revenue? To be more fair? Change for the sake of change? Or something else?

In the future, I think the revenues cities generate will come from a variety of fees levied similar to what cell phone companies, airlines and banks do...nickle and diming the customer.

I don’t think raising income taxes on residents working outside of Lakewood is a good thing as you just give government a huge pile of fresh money to spend and for unions to ‘bargain’ for. Having less money to spend leads to a better decision making process on where to spend that money, in theory. No more $50,000 studies to figure out how big the cracks are in our roads.

I was going to sue her for defamation of character but then I realized I had no character – Charles Barkley
Bret Callentine
Posts: 571
Joined: Tue Oct 17, 2006 3:18 pm
Location: Lakewood

Re: Tax Round Table

Postby Bret Callentine » Mon Apr 18, 2011 8:33 am

Charlie, I'm just thinking out loud here.

I don't think my proposal would raise revenue, but my thought process was the following...

I believe the tax system should be as stable and as simple as possible, with as few loopholes as possible.

In general, I believe that property taxes are much more stable than income taxes. Since most people with a mortgage have their tax bills paid as a part of their mortgage, the city collects with very little effort. Since the tax would be based only on the actual size of the lot and a small adjustment for location, there is little to no chance of fraud or abuse.

I agree that there would be an initial shock to the system as rental rates and property values found their new natural balance, but I'm not sure whether or not that the long term result would be positive or negative. That's why I posed the question.

Would the fact that property owners would no longer pay higher tax rates due to development lead to stronger demand for property which would then bring up the real estate value? While increasing the property taxes for parcels used for rentals would then increase the rental rates, wouldn't it also force the owners to increase the overall value of their property to assure higher occupancy rates to cover their costs?

"I met with Bret one on one and found him impossible to deal with." - S.K.

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