Saturday, May 10, 2008

Is it still called property tax if it is tied to income?

As we go through the month of May, we'll see several prominent bills discussed at the state capitol. One such bill is the effort to change the way property taxes are paid.

The bill, authored by Ann Lenczewski, a DFLer from Bloomington, would shift property tax relief to those earning under $200,000 and whose property taxes account for more than 2% of their income. Who pays for it? Those whose property taxes are less than 2% of their income, and those whose households earn more than $200,000.

I don't like this bill on two levels: First, property taxes, along with sales taxes, are one of the last taxes tied to a discretionary purchase. You buy a $500,000 house, you probably will pay a few thousand dollars a year in property taxes. Likewise, if you are frugal and buy a $150,000 condo, you will have a lower tax bill. Your choice.

This bill would create a disincentive to live below your means and save money. If you earn a healthy income but choose to live in a modest home, you would see your property taxes increase to help cover the taxes of the person who was not as frugal on the housing front. It essentially eliminates anyting resembling a property tax and adds to an already considerable income tax here in Minnesota.

The second reason I don't like this bill is because it includes a cap on the amount of increase for local taxes as a component of the property tax. Under the bill, local taxes could only increase by 3% or the rate of inflation. In fairness to Lenczewski, this was an addition suggested by Governor Pawlenty. As I've written before, I don't like the state telling the cities what to do. If Shorewood decides to build a state-of-the-art community center that will require property taxes to increase by 6% a year, they should be able to. (for the record, I would disagree with this type of spending, but I think the council should be the ones to veto the idea, not a state-set cap). I'm not a tax-and-spend liberal, but I also believe in local control of fiscal matters.

I don't like this bill. We already have a plenty progressive tax code in Minnesota, and the property taxes you pay are one of the last taxes determined by something other than how much you earn. I'd like to see property taxes continue to be tied to property values and local levies, not earnings.

1 comment:

  1. Has anyone serioulsy looked at getting away from our present tax system? I'm talking Fair Tax. I have read it and it sounds pretty good. I would like to hear from somone that is an authority on economics about this and if it would work. If everyone pays the same in taxes wouldn't that be much more fair? Get rid of my taxes off my pay check and move it to point of purchase or the retail end. Wouldn't that make things better and we would gain more? This would eliminate all of these different tax levels and such.
    What do you all think?
    Anything from our Candidates on this issue? Good or bad!