When is a tax increase a tax increase?

By Brian Kirwin | March 27, 2008
Filed Under Media |

Yesterday, Virginia’s sales tax was 5%. Today, it’s 5%. To frequent Bearing Drift commenter Reid Greenmun, that must be a tax increase

In today’s Virginian-Pilot, Kerry Dougherty quotes Mr. Greenmun about the real estate tax rate in Virginia Beach, which is proposed to stay the same.

“This will not be a tax rate freeze,” he said of the 89 cents rate that would stay 89 cents.

Also, Virginia’s income tax rate for people making over $17,000 was 5.75% last year. It is proposed to be exactly the same for the foreseeable future - 5.75%.

To Reid, that must be a tax increase!

And that sales tax better not stay the same, because that would be a tax increase too, I guess.

See, back in the real world, a tax increase was when politicians actually raised taxes. Remember Mark Warner? Raised the sales tax rate? That’s a tax increase.

But keeping the exact same real estate tax rate is like keeping the same sales tax rate and the same income tax rate. It’s not a tax increase.

Reid cites growing assessments as the trigger that makes a tax rate freeze into a tax increase. Well, that’s like saying government raised your income taxes because you got a promotion this year. Your income tax bill just went up.

Go buy a huge flat screen tv? You’ll pay sales tax on it. That must be a tax increase, unless you buy a huge flat screen tv every year.

Believe me - I have a strong kinship with fiscal conservatives. So much so that I hate when some dilute their messages, like the boy who cried wolf, to the point where they see a tax increase behind every corner, under every stone, and behind every door.

Save the tax increase rhetoric for the folks who actually increased taxes.

Comments

19 Responses to “When is a tax increase a tax increase?”

Reid Greenmun on March 27th, 2008 11:43 am

Brian, you know that state code automatically lowers the tax RATE to offset increased assessments. You also know that BY LAW - City Council must hold a special public hearing and then vote to INCREASE the lowered rate.

To prove my point - let’s ask Council to NOT vote to raise the tax rate to the same as last year. Then, please tell us what the tax rate will be.

State code section 58.1-3322 part B clearly requires local governments to publish a legal notice in the newspaper that must read:

“NOTICE OF PROPOSED REAL PROPERTY TAX INCREASE”.

Thus, it is the code of Virginia that you need to argue with - not me.
Brian Kirwin on March 27th, 2008 11:47 am

So, if the state code automatically raised the RATE, and politicians brought it back to where it was before, you’d be applauding and calling it a tax cut?
J.R. on March 27th, 2008 12:06 pm

I’m not really intelligent enough to engage in a debate on this because I don’t know the law as well as Reid and Brian seem to. Also, I kinda got confused by what they are trying to say…Not that it’s that difficult to confuse me.

However, if they’ll indulge me…

If the rate is the same as it was last year, how is that a tax increase? Perhaps prices went up due to inflation…so you pay more in terms of actual amount, but it still equates to the dollars real value of that previous year — no change.

If inflation is 5%, then you’ll be paying 5% more in taxes this year. But in terms of real dollars, it’s the same as last year. Right?
Wally on March 27th, 2008 3:52 pm

Unbelievable! Actually, the part A portion of the Code’s intent was to provide for determining the Commonweath’s real value for bonding purposes. Provisions for the automatic lower rate algorithm intentional grants property owners’ protection against a tax increases due a locality’s value increase of more than one percent.

However Brian would like to associate the sales tax on a box of Fruit Loops to that of real estate. Does that mean you would have to pay the sales tax daily until finishing the box of cereal?
Brian Kirwin on March 27th, 2008 4:39 pm

I’ll make it easy for ya. Which statement is true?

a) 89 = 89
b) 89 is greater than 89

I think A.
Reid Greenmun on March 27th, 2008 6:51 pm

Sigh.

Assessment times $0.89 = The taxes you pay on your house

Higher Assessment times $0.89 = a tax increase.

In the case of this year alone, the city budget would increases taxes to the tune of $37M!

More over, in FY 2000, our City budget was listed at just $1.069 billion. In 2007/08 our budget soared by a staggering $670 million to $1.723 billion.

Folks, it has been tax increase compounded on top of tax increase compounded on top of tax increase in Virginia Beach … and the ability for the citizens to see increases in their paychecks to even break even with these tax hikes has lagged far behind.

Of course the problem has been too much spending. The other problem has been too much borrowing.

City Debt servicing has reached a staggering 20 to 25 cents of the 89 cents we now pay for the tax rate.
Brian Kirwin on March 27th, 2008 7:03 pm

Sigh. Maybe your home value will fall, and you can applaud the politicians’ giving you a tax cut.

Hey Reid, Assessment times 89 cents = the same tax burden as last year plus inflation.
Brian Kirwin on March 27th, 2008 7:11 pm

See, THIS is a tax increase

Gloucester - “The proposed budget calls for a 10-cent increase in real estate taxes…The supervisors will consider raising personal property taxes by as much as 50 cents per $100 of assessed value to $2.70 per $100 of assessed value.”

http://www.dailypress.com/news/local/middlepeninsula/dp-local_globrf_0328mar28,0,7196656.story
eileen on March 27th, 2008 8:16 pm

The state doesn’t set tax rates. Whatcha’ talkin’ ’bout, Reid? That is within localities’ exclusive right. The state does however require that assessments reflect fair market value as best possible. And here, aren’t we facing declining market values on homes? I’ll argue conversely that continuing with 89 cents is a tax cut.
J.M. Ripley on March 27th, 2008 8:30 pm

I am a little confused. I happen to work for the city and the memo that is being put out is that the budget was only going to increase by 2.1% this year. They are freezing merit raises for the next two years, not hiring positions, cutting other services, etc. This is based on the prediction of real estate assessments going down, not up, getting less money from the state, etc.

Also, I have not received my assessment yet, but my friend in Chesapeake has, and his assessment fell by almost 20 percent from last year. So, if my assessment is less than last year’s and the rate stays exactly the same (which is being proposed), then I will pay less real estate taxes on my home this next fiscal year compared to last year.

I understand what Reid is saying about the assessments going up even though the tax rate is the same and viewing that as a tax increase.

For example, my assessment went up almost 20 percent last year and even though city council cut the tax rate from .99 to .89, I still incurred a $375 increase in my real estate taxes.

However, I don’t think that will be the case this year. Assessments are tied to the housing market and that market is struggling right now. Taxing property is rooted in an agregrian society/economy and is not practical in a service/technological society/economy. We need political/government leaders who are willing to think outside of the box. For example…

I was a policy advisor to a House of Delegates campaign in Norfolk back in 2005 and proposed to the candidate that if Norfolk implemented a 2 percent flat income tax and did away with its real estate tax on homes (which would require amending the VA constitution), the city would take in $40 million more in income tax revenue compared to real estate taxes. That’s $40 million that can spent on education, public saftey, infrastructure improvements and best of all, that is $40 million dollars that Norfolk wouldn’t have to beg for from Richmond (the campaign manager was sold on it (he was from CA, I am from MN, but the candidate who was from Norfolk wouldn’t pull the trigger).

Developers would lose some influence though (which is not bad in my opinion), the economic engine then is primarily focused on job creation rather than real estate, transportation issues would be lessened since the city wouldn’t be building homes on every vacant lot in the quest to expand the tax base, thus causing overcrowding in schools, increased congestion on roads, etc.

For some this would be a tax increase (renters), but they might be able to itemize on their FIT which might save them some money. Of course homeowners would be big winners. If we did this in Virginia Beach I would save almost $1300 per year in taxes by having my combined household income taxed rather than my home. Anyone can do the math for this. Take your combined household income multiply by 2 percent. Then compare it to your assessment multiplied by your localities tax rate. I am very confident that a majority of people would end up saving money.

The biggest winners would be Senior Citizens who own homes. Since they don’t work, they won’t pay taxes and now their homes are not taxed either. I realize that this plan has holes in it (would have to be implemented at least regionally), so that if you lived in one city, and worked in another you wouldn’t pay income tax in Norfolk and still pay real estate taxes in Virginia Beach. But the premise is sound and is backed up by research.
LittleDavid on March 27th, 2008 10:42 pm

My assessment for a property in Norfolk went up. I might have been willing to stomache it remained the same, but an increase? I do not own especially wonderful property in Norfolk or anything. Norfolk citizens are getting shafted in the face of decreasing property values. Tax revenue must go up!

Somebody in Norfolk needs a slap in the face if not an outright trouser lowered spanking.
Norman on March 28th, 2008 8:14 am

Brian, when you say that the rate remains the same, thus there is no tax increase, might be true. But if someone’s assessment rises, even under a rate that’s the same as last year’s the tax paid rises.

Back in the bad old 1970s, this was called bracket creep. The tax rate didn’t change but, thanks to inflation (Jim’s point), the tax actually paid increased.

For years, conservatives bemoaned this stealth tax increase and called for indexing — thus insulating people from the effects of inflation.

The idea caught on, too. It even became an election issue for some guy named Reagan.
J.R. on March 28th, 2008 8:57 am

J.M. Ripley-
Great idea. Brian and I have discussed this, and while it pains me to say it, by focusing on an income tax vice a property tax, the whole focus of what a government does for its citizens changes.

My point is that local government then tries to do things to keep its citizens in the community — like parks, recreation, sidewalks, bike trails, schools, shopping, etc.

Brian made a even stronger argument on top of that — the city tries even harder to attract jobs.

In the end, it becomes less about development for the sake of revenue and more about taking care of your community.

I never thought I would be FOR an income tax…but locally, that may just be the best alternative.

With development requiring land, and the only land available continuing to be outlying, and cities depending on that revenue to provide even the most basic of services…this system will only continue to foster our transportation problems too.
Brian Kirwin on March 28th, 2008 9:01 am

Great points, Jim.

I’m a huge Reagan fan, but let’s be honest. He’s also the guy who raised payroll taxes and gas taxes in his first term?

Norman, if we’re going to dilute the term “tax increase” to mean the same percentage but more in terms of real dollars, everything is a tax increase.

Should the state index the sales tax? Are people for the Fair Tax planning on indexing it?
Norman on March 28th, 2008 9:55 am

Brian, your gymnastics are sometimes truly astounding.

Dilute an argument? Hardly. I’m merely pointing out a very real consequence of tax policy and inflation — one that, at one time at least, fiscal conservatives understood to be a real drain on personal income.

Not surprisingly, those who scoffed at the idea of bracket creep were those who benefited most from its existence.

As for the matter of indexing…I would enjoy seeing taxes of all sorts indexed to inflation. It’s an idea like that which gets my old, big “L”, Libertarian blood flowing.

As I am not a fair tax supporter, I can’t speak for them.
Brian Kirwin on March 28th, 2008 9:59 am

That’s fair…you’re consistent.

But I think it does dilute the argument. You can only cry “tax increase” so many times a week before, like crying wolf, people tune out and it lacks the impact it otherwise would have had.
Brian Kirwin on March 28th, 2008 10:47 am

By the way, we Republicans have long proudly proclaimed that lower tax rates generate higher revenues, and we still call it a tax cut.

Let’s talk capital gains.

By the logic of Reid et al, if the government makes more revenue after lowering the capital gains tax rate, then that tax cut is a tax increase?

But if raising the tax rate results in less revenue, then it’s actually a tax cut?
Reid Greenmun on March 28th, 2008 2:12 pm

Brian,

By taxing phantom money (guestimated “equity” in homes) what has been happening with RE taxes is that the skyrocketing hikes in assessed value have far outpaced the taxpayer’s corresponding growth in income to be able to sustain the tax increases.

The other examples you keep attempting to change the subject by interjecting are examples whereby the taxpayer is actually paying taxes on money they actual have.

I have also been a supporter of local governments dumping the RE tax and replacing it with a income tax. The reason is that the taxpayer will be able to pay their taxes - and when they have less income, they cannot pay high taxes.

Of course, under an income tax method, when the economy colapses and a city suffers significant unemployment, the city will be broke along with it’s citizens; thus, adding more people to the ranks of the unemployed.

The situation now is that local governments seek to insulate their workforce from the impact of the non-government workforce by counting on unemployed property owners selling their homes to new people moving into the city - people with jobs or sufficient incomes to buy a home in Va Beach (for example).

What we have now are city governments that keep approving higher and higher budgets based on a estimate of what the value of proerty is - without regard to the ability of their citizens to be able to pay.
Reid Greenmun on March 28th, 2008 2:17 pm

Eileen, local governments are political subdivisions of the Commonwealth. The ‘ole Dillion Rule bugaboo.

State code 58.1-3322 part A actually sets the property tax rate fro each locality, each new assessment (required at least once every 2 years).

Local governments (under past B) can then raise the lowered tax rate (if there is more than a 101% increase in total assessed value of all city property), if they vote to do so.