Friday, December 23, 2011

Lotterman, Soucheray Talk Taxes

Everyone knows I love the writing of economist Ed Lotterman, so it's no surprise I found his recent column Property Taxes Prove to Be a Reasonable Burden persuasive. In it, he described his own taxes as a resident of St. Paul and what he got for them (kids educated, streets he can drive on, etc.).

Because he also owns a farm outside of the cities, he has a pretty good idea what it costs to fix paved surfaces and deal with water and sewage (he's spent $40,000 over the past few years). Comparatively, the $3,251.76 he pays to the city seems reasonable to him.

Lotterman wrote the column as a response to another Pioneer Press columnist, Joe Soucheray, who is one of our home-grown, anti-government cranks. Soucheray had written recently that proposed property tax increases in St. Paul indicated bloated government and that they would drive people out of the city and turn it into (in Lotterman's words) "another Detroit."

Soucheray answered Lotterman in print a few days ago, and I (believe it or not) found one argument in Soucheray's column persuasive:

...Lotterman lives in an old house in St. Paul and enjoys moderate property taxes that he does not find burdensome. He spends his a farm, $40,000 in the past three years. I venture to say that if Lotterman had spent the $40,000 improving his Como Avenue property, he would be singing a different tune.

You can choose to spend your money any way you want. But if you live in St. Paul and improve your property, your taxes will skyrocket. But your neighbor can take the same amount of improvement money and fly to California four times a year, play Pebble Beach on each occasion and leave behind on each trip his money in California. Meanwhile, back home, his property taxes remain static or even decline because that property is flying under the radar of the assessors.

You don't have to play Pebble Beach. You can play farm.

You're both getting the same fire protection, police force, education and plowing, but the preference of one is to spend money at Pebble Beach, and the preference of the other is to improve his property in St. Paul.

And those who improve their properties in St. Paul pick up the tab for people who use their money to play Pebble Beach or buy a farm.
It does seem a bit odd that the city, in effect, penalizes people for improving or maintaining their property, while simultaneously supporting the local economy. The same money spent on other items locally would bring in sales tax, which mostly goes to the state, rather than the city; or if spent outside the area, brings in no revenue to the city at all, as Soucheray points out. That is a definite disincentive to maintain the property base of the city.

However, if Soucheray, in his earlier column, hadn't been so quick to discard the important point about state-level funding of Local Government Aid to the city, perhaps we wouldn't be having this discussion. Decades ago, the Minnesota legislature made the decision to decrease property taxes overall, transferring the burden to the income tax -- precisely because the income tax is less regressive. But during the Pawlenty years, and especially since the Republicans got control of both legislative houses in 2010, LGA has been gutted, transferring the tax burden off the income tax and back onto property taxes.

I'm hoping Lotterman has a response to Soucheray soon.

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