Wednesday, June 26, 2013

The pain and gain of taxation

Between the news story from Cindy Barks, Tom Cantlon's column and the letter from Tom Britzman, local taxation is the theme of today's Courier.

The immediate issue is the City of Prescott raising our primary property tax coincident with a larger reduction in a secondary tax with the payoff of Willow and Watson lakes. I say "coincident" because the raise in the primary is not set out as a specific offset, rather it appears that Council sees a rare opportunity to bump up revenue in a way that won't likely attract a lot of opposition.

In his letter Britzman complains cynically that a tax, once instituted, never goes away, and overstates the situation — in fact, property taxes will go down, just not by as much as they would have without the primary hike — but he has a point in that Council is doing this hike opportunistically and without the public vote that many Arizonans have come to expect on new taxes.

In his column Tom points out some of the inconvenient complexities of taxation that prevent us from doing the sort of simple-minded "simplification" that many non-economists advocate. In going for the big picture, one complication he doesn't get to is why Prescott sees the need to boost property taxes: with the bursting construction bubble, we were badly burned by overreliance on sales taxes.

Social and economic scientists broadly agree that sales taxes more heavily burden low-income people, yes, but they also carry a land mine for governments that rely on them, in that when you need them most in an economic downturn, they disproportionately dry up.

At its core, the mission of government is to organize and deliver needed public services. Public reliance on those services increases in hard economic times, so depending on revenue streams that rise and fall with the economy exacerbates those problems.

The wise budgeter says, "So we should be saving up during good times so we have the funds available when things go sideways," and that makes all sorts of sense. Unfortunately the anti-tax powers-that-be in Arizona have amended our constitution to prevent that sort of forward planning.

Shifting from sales to property taxes will help make our public revenues more reliable over the long term. To do this most responsibly Council should be linking the property-tax hike with a reduction in the municipal sales-tax rate, which will be a marginal boost for both low-income residents and local retail businesses.

And since we're talking taxes, I have to add my usual rant that if we aspire to good and useful government, we have to change the conversation about taxes. It shouldn't be about how much money we pay individually, rather about how much value we receive for it. There is way too much focus on the dollar, and nothing like enough education about what it buys for us.

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