MA Question 1

[dougo]

The Massachusetts State Income Tax Repeal Initiative, aka Question 1, will end the MA state income tax if passed (in 2010, after becoming 2.65% in 2009; it's currently 5.3%). At first glance, this seems like an obvious liberal/conservative split: conservatives want to cut taxes, and liberals don't. But I saw an ad for voting no that made me consider voting yes: it pointed out that if passed, it would cause property taxes to rise (as opposed to increasing the sales tax, or cutting spending, which is what the Libertarians who sponsored this question really want). Is that such a bad thing? Which is better, an income tax or a property tax? I feel like a property tax is more progressive, because homeowners are probably more wealthy than those whose income is greater than their exemption + deduction. Also, I think it would be better to reward labor over ownership. In the short term, higher property taxes will hurt people who are already suffering from the mortgage crisis (and also further depress the housing market), but I don't think that's a strong argument against it. In the longer term, it would hurt retirees whose homes are fully paid off and who don't earn income, and I'm not sure what I think about that. What are some other arguments for and against?

Comments

[wrog]

wealth of homeowners is really dependent on how leveraged they are. If you owe $450,000 on a $500,000 house, you're not actually very wealthy at all.

property tax is also a problem in that you owe the tax regardless of whether the land is producing income or not. I think if you really want it to be progressive, you pretty much have to have differential rates for residential and commercial property. And you'll find a lot of these same libertarians are adamantly opposed to that.

One of the big problems with Prop 13 in California is that it explicitly forbids such a distinction and so while it was passed on the basis of reducing poor-retired-granny's taxes on her $n00K house that she bought in 1950, it was actually a monster windfall for Sears, JC Penney et al for their shopping center properties that they owned since the 1920s.

The main advantage of property tax is that it's easy to administer. You just keep track of who owns all of the land and send out bills. You don't even have to care a whole lot exactly how the bills are getting paid. It's a dream in terms of getting a predictable income stream; every square foot of dirt generates so many $. And it's pretty much impossible to evade.

The downside is that it's quite inflexible -- whatever adjustments you make have to be based on characteristics of the land, not the people who happen to be living there, their overall wealth or lack thereof -- or if you do try to take that into account, then you've got something that isn't really a property tax anymore, but more of a half-assed income tax differentially applied only to people who own real-estate.

[shannon_a]

The problem with a property tax is that it's unavoidable. If I hit hard times, I can't choose not to pay it. And, in a prop-13-less state, it would get worse and worse over time. Conversely, I can choose to cut my discretionary spending to avoid sales tax.

That's also the strongest argument against sales tax being entirely regressive, since it's not supposed to cover essentials, and at the least doesn't usually cover food.

Much like prop KK in Berkeley (which seeks to disallow the city government from changing the lanes in streets without voter approval), MA Question 1 really points out the vast failure of the direct democracy system, and how badly they undercut our elected representatives who are actually _able_ to manage our government (or rather could if we didn't tie their hands more and more as props pass).

[mshonle.livejournal.com]

The two situations aren't entirely different, though: If you can choose to cut your discretionary spending, you can also choose to sell and move to a smaller place.

[brickhousewench.livejournal.com]

Seriously?!?

You seem to think that owning a home means that you're overextended on your mortgage. I own a rather modest condo. Moving to a "smaller place" would be hard to do, as my condo isn't exactly huge and my mortgage is actually less than rent for the same square footage.

Would you really want to have to sell your house in a down market, lose money on that investment, and go through the hassle of moving to save on taxes? Personally, I think it would be much simpler and less disruptive to spend less on luxury items, put off that car purchase for another year, not buy liquor, etc.

[mshonle.livejournal.com]

Half seriously. I'm just pointing out the logical connection.

But, to continue playing devil's advocate, I'll quote a libertarian who had something to say about housing: "Let them have roommates!" He then went on to detail how, if college kids can live in roommate situations, so should adults. Let them eat cake, indeed.

As for me? I'm one of those elitist redistributionist who doesn't get sad with the idea of plumbers who make a quarter million dollars a year paying their fair share. Anyone who makes that much money has benefited from employees educated through public funding, and also has more wealth for the police and armed services to protect.

[shannon_a]

Which doesn't actually help if you're somewhere with a prop-13 like law. Until the recent market downturn, our house had appreciated about 100% since we'd moved in, which means that we would have had to move into half as good a house just to stay even on property tax. To actually decrease our property tax we would have either had to move into a single room or else out of the Bay Area.

[nosrednayduj]

We're not "prop-13-less". We have prop 2 1/2. Which requires the town to vote for an override to increase taxes beyond the 2.5% built-in rate. Which voters very often deny. So, unless question 1 has a provision for overturning prop 2.5, it's NOT going to allow towns to make up the lost state-aid income. (I assume that the state is going to flush all local aid as their first cut at implementation.) Also, of course, the local aid currently gets distributed not on an according-to-property-value means, which will mean that places like Brockton are going to just plain DIE, while places like Weston won't even notice. Weston probably won't even have to increase its property tax by the full 2.5% to cover lost state aid.

[mshonle.livejournal.com]

Economically, property taxes are (one of) the most efficient forms of taxation.

However, I would not claim that the property tax is more progressive. For starters, an increase in property taxes would affect renters too. And it's the same reason you wouldn't call a flat tax progressive: Higher earners pay more in absolute terms under a flat tax, but they still pay the same rate.

As for old people, in California there is a cap on property taxes for people who have lived in the same house for years: No old people get thrown out that way, but it creates strange incentives for people to stay in one place when they would rather move. (When you move, you then pay the new property taxes at probably a much higher rate.)

The libertarians in MA have tried to pass things like this before. Even if it does "pass," the legislature can change it. (Unless this is some change to the commonwealth's constitution?)

One final point: There are "liberal" ways to introduce consumption taxes, and "conservative" ways too. It must be seen in a greater context before the label could be applied. And I would argue that liberals *do* want to cut taxes, but only for the people who actually could use it. Read Falling Behind by Robert H. Frank for a top economist's suggestion.

[juliansinger.livejournal.com]

My primary problem with how the bill is worded is that it goes into 2.9% territory this fiscal year, as in, 3 months from now. That's just way too soon for that kind of implementation, and it's going to cause a pretty dramatic shock if it passes.


I'd be a fan of the property tax aspect of it if it were implemented simultaneously or something along those lines, but... it's not. They're just reducing then cancelling and providing no good alternatives.

[jdarnold.livejournal.com]

What kind of house you own doesn't necessarily reflect how much you earn, which is why the income tax is the right way to tax people. And not everyone owns a house, so they don't pay the tax directly.

My biggest problem with Question 1 is that it is a perfect example of why I don't believe in legislation by ballot questions. Like this one, they boil down complex questions into a simple yes or no, with no consideration or explanation of any side effects. While in general most people would be in favor of paying less, most people also don't want less service. So this question takes out one entire side of the problem, with no clear repercussions.

[gemini6ice.livejournal.com]

iawtc

[dougo.livejournal.com]

What kind of house you own doesn't necessarily reflect how much you earn, which is why the income tax is the right way to tax people.

But this begs the question. What I'm wondering is whether it's better to tax what people earn or what they own, and you're taking it as given that the former is better. Maybe it is, I dunno.

[nosrednayduj]

Well, you're more likely to be able to pay income tax. After all, you just got INCOME!

What we have now is a mix of income and ownership taxes, and that seems reasonable to me. The fact that all ownership taxes go to the town and all income taxes go to the state may be less clever. Like I said in an earlier comment above, property taxes don't go to the people who need the money because of this, thus the existance of the local-aid pool from the state, funded by income taxes.

[temvald.livejournal.com]

I feel like a property tax is more progressive, because homeowners are probably more wealthy than those whose income is greater than their exemption + deduction.

I'd disagree here. As mshonle points out, property taxes hit both homeowners and renters (as the property tax would just get passed straight through), which means that it hits everyone but the homeless.

Second, though, if you look at property taxes as a form of wealth tax, then it's going to hit middle class families a lot harder than affluent families. A middle class family is likely to have a larger percentage of its wealth tied up in its house than a wealthy family. It's not that uncommon to have a family that owns, say, a $250,000 house and maybe $50,000 in 401k, plus a couple of $5,000 cars. So their total assets would be like $310,000, of which $250,000 is in their house--so about 80% of their net worth. Meanwhile, I seriously doubt that you're going to find many people who own $5 million houses whose net worth is only $6.2 million (or even have ~80% of their assets tied up in real estate, if you want to look at it that way).

And that's just looking at straight assets. If you calculate in mortgage debt, then the numbers become even worse.

So property taxes, while good in that they discourage the unproductive use of a limited resource, are not particularly progressive.

[rhysara.livejournal.com]

Either way the immediate ramification of it passing is huge financial loses to the towns and the places you will see it will be police, fire and education. Indeed, if it passes, I can pretty much count on being unemployed at the end of the year.

[inthatoneway.livejournal.com]

This is another example of why I really hate ballot initiatives. There's no real debate, no ability to compromise, no qualifications for who gets to decide. In the end the flashiest ad campaign is as like as not going to win. This is a very important issue, and should be decided by those who have at least a basic understanding of the issues involved. To be blunt, 90% of the voting public don't have sufficient command of the facts to make an intelligent decision here. You wouldn't poll your neighbors to decide if you should get that triple bypass, so why do we let them decide complicated legal issues? We vote for politicians to do a job. Let them do it, and if you don't like how they do it vote them out.

[amphibolous.livejournal.com]

So, you prefer that we let the people we elect to decide these matters? I'm pretty sure that they are also elected by a population, 90% of whom don't have sufficient command of the facts to make an intelligent decision. Further, rather than voting for a specific issue, electing a politician is an endorsement of an entire platform Sadly, in this state, it's unlikely that they even face significant opposition by another party (I will happily blame the other parties for this inexcuseable failure of democracy), so there is no debate on the issues should the citizens even care to hear it.

I'd much rather be given the option of voting my opinion on an issue by issue basis rather than hoping that my choice of one of a very small slate of candidates (most often decided in the primary and not the general election) will agree with me on all the vital issues I care about.

That said, the idea is poorly planned and will cause a ton of strife if it does indeed pass and Beacon Hill doesn't find a way out of it and they are unable to ignore it (and citizen anger at the pols unconcerned inactivity after a rousing referendum demand to repeal the Dukakis tax hike is fuelling much of this debate). Strife which, if seized on, might actually give the other parties the swift kick in the petitions they need to organize actual resistance to the one-party rule.

But otherwise, I fear the vast majority of our voting population will vote yes on any feel-good aid to the community while voting in a feel-good slashing of their own taxes.

[amphibolous.livejournal.com]

On the ad -- I've seen it and heard its counterparts at least ten times daily (to be fair, I also hear Carla Howell, the sponsor of the Question interviewed about six times daily). Here it is in its most egregious form:

http://www.youtube.com/watch?v=kmzhlMhIV6w

It simply boils down to "Voting YES on 1 will raise your taxes." It's the worst kind of doublespeak, and it permeates the entire Vote No campaign. If nothing else, Yes on 1 has done a far better job of advertising than the No side, despite a siginificant disparity in funds. As for dealing with direct facts, www.votenoquestion1.com, the page of the advertisers, can't even be bothered to put a copy of the referendum on their site.

[dkuznick.livejournal.com]

It's pretty silly to think the only effect will be an increase in property taxes. It will DESTROY the state's economy, which is already screwed.