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Republicans' Misguided Tax Proposals Several Republican leaders in Virginia recently issued a press release about four concepts which are supposed to provide relief for overtaxed Virginia homeowners. The third and fourth proposals in the press release are reasonable and may be worth enacting, but would be unnecessary if the politicians took steps to really limit taxes and spending. The third proposal is for more transparency in the process of assessing property and imposing taxes. The fourth proposal is to shift the burden of proof to a locality when assessments increase by more than a certain percentage. The second proposal is to require setting a tax rate before approving a budget. This proposal would be intended to require the locality to justify a tax increase and deal with that first and then to determine how the money is to be spent. However, given the budget and assessment cycles, this proposal is a meaningless rearranging of process. The budget cycle for localities begins in the Fall of a year with the intention to be to adopt a budget in the Spring for implementation at the beginning of the following fiscal year on July 1. Tax rates are not set, and cannot reasonably be expected to be set, until when assessments and the impact upon collections with no change in rate are known. Assessments are not completed and forwarded until several months after the budget cycle has begun. Thus, localities will know the potential or anticipated budget well before the tax rate can be set. Requiring the approval of the new tax rate before the approval of the budget thus becomes a meaningless rearrangement of the process. The main proposal has already been approved on a first reading by the General Assembly and involves amending the Virginia constitution. This proposal is to allow localities to have a 20% lower tax rate for homeowners than for other property owners. There is no requirement for less spending, which means that governments will seek taxes in other ways, probably by raising rates on other property owners. This proposal is insidious because its two main impacts will be merely to change the method of collection of taxes and to hurt the most needy. Taxes are always paid by individuals. They are not paid by corporations and other business entities. Such entities merely become tax collectors. When a business entity has to pay higher taxes, its costs increase. These costs will be born either by owners through lower profits, by employees through lower pay, by suppliers by fewer purchases or by customers through higher prices. Each of these four groups ultimately are individuals like you and me. Thus, homeowners may see a lower tax bill on their residence, but they will still pay the taxes either through lower profits, lower earnings or higher prices. The proposal, then, becomes a mere sham that gives politicians cover. People will blame the businesses rather than the government when the real culprit is the government. The proposal also will have a significant negative impact upon renters. Landlords who rent property will bear some of the higher tax burden. In all likelihood, this burden will be passed on to tenants. Residential apartment renters are often individuals who cannot afford to buy a house. Thus, one of the costs of homeownership will be passed on to those who are poorer and cannot afford to buy a home. Politicians may respond to this in either of two ways. They may attempt to require landlords to eat the increased taxes, which, if successful, will ultimately lead to fewer rental units being available and dry up housing options for the most needy. Another alternative will be to provide more rent subsidies which will drive up the costs of government which will lead to higher taxes. These proposals are nothing more than politics as usual, and they are dishonest. The principal proposal for a 20% differential in the real estate tax rate is one embraced by both Democrats and Republicans. The proposal should be repudiated by the taxpayers as a disservice to us. If the politicians really wanted to help, they would pass what has been called by some a TABOR amendment or law. Such a law requires a super majority vote of the legislature to collect total taxes which exceed the product of the prior year's tax collections multiplied by one plus the average of the rate of increase in population and the rate of increase in inflation. This limitation upon collections has its own positive effect upon limiting government spending and waste. The General Assembly also needs to take a complete look at the State's tax code, but that is for another time. |
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