Day: 2014/11/10

Yes Texas, Take the Scam-Tax Bait. I Dare You.

Or at least, Forbes dares you, but it’s ingested enough of its own product that it actually believes the hype. See “Texas Can Lead the Nation on Property Tax Reform.”

Its arguments for a single tax on sales boil down to:

  • Americans hate property taxes.

So? Americans also love greasy food. That doesn’t make it good. Let’s hear what the experts think.

  • Property taxes “distort the housing market by placing a wedge between buyers and sellers. They force housing prices up, pushing many low- and fixed-income residents out of the market. They create barriers to entry for large capital-intensive industries, reducing the number of high-paying jobs those companies employ.”

As opposed to sales, income, and other deadweight taxes that place wedges between buyers and sellers, push many low- and fixed-income residents out of markets, create barriers to entry for large capital-intensive industries, and reduce high-paying jobs?

As for pushing housing prices up, that’s a laugh. The supply of housing is fairly inelastic. Certainly the location component, but the physical, capital component is as well. Saying that taxing property is regressive is like saying that poor people pass their income taxes on to the rich, which is why corporate America struggles with low profits. Or, as Mason Gaffney wrote decades ago, “To own property is to be rich, in the measure that one owns, and to tax the quality of richness should not be presumed to burden the poor more than the rich.” (“The Property Tax Is a Progressive Tax” (pdf))

  • “Perhaps worst of all, the imposition of property taxes means that people will never truly own their home or business even after it’s paid in full. Property-tax payers live under a system that mandates regular “rent” payments to the government in perpetuity.”

Because confiscating people’s hard-earned incomes is far more just. Won’t someone please think of all those large landowning corporations?

More prosaically, without property taxes, the authors are arguing for feudalism or “royal libertarianism”—the political theory that monopoly power is morally just. In effect, they envision a state in which people receive more in government services thanks to unearned land rent than they pay in taxes.

  • Texans have seen their tax bills soar over the past two decades. According to the Texas Comptroller, property tax revenue exploded by 188 percent from 1992 to 2010, partially as a result of the proliferation of special purpose districts, increasing by 57 percent more than population growth and inflation over this period.

Distribution data please? I’d like to see a Lorenz curve on which percentile households are bearing the bulk of these property taxes. Given that rich people and corporations, which are owned by rich people, own the best real estate, I’m not too concerned that migrant workers are being robbed here. That’s not to say that there probably aren’t flaws in Texas’ property tax system, but this statement stinks of the kind of bait-and-switch rhetoric that regressive taxation advocates depend on.

  • Enter the property tax-sales tax swap. … [based on a study] by President Ronald Reagan’s chief economic advisor Dr. Arthur Laffer and his associates, that offers a sensible path forward.

It takes a brave wonk to use Laffer’s name for the truth of the matter asserted. Supposedly he said that only land taxes aren’t subject to his eponymous curve. In fact, he was last seen shilling Kansas’ failed (and foolishly reelected) experiment in expansionary tax cuts.

  • To achieve revenue neutrality, the study estimates that that the current 8.25 percent total sales tax rate, which includes the sum of state (6.25 percent) and local (max 2 percent) portions, could be modestly adjusted upwards to 11 percent and the base broadened to include property and all goods and services taxed in at least one other state.

Border-town tax evasion, ho!

But let’s also not forget the tried-and-true revenue mechanism for sales-tax paradises: building shopping malls. Dedicating land for housing just means hungry mouths that don’t spend money.

  • The Foundation’s research suggests that, if the tax swap were implemented in full, total personal income could increase by some $23 billion over a five-year period. In addition, the increased economic activity could lead to the creation of at least 200,000 jobs above what the status quo promises.

Notwithstanding that this is Arthur Laffer, who gets the $23 billion over five years?

  • Of course, critics will contend that a tax swap of this nature might disproportionately hurt those on the lower end of the socioeconomic spectrum because sales taxes are regressive.


  • But this claim is little more than a red herring. As noted by the Texas Comptroller’s 2013 report Tax Exemptions and Tax Incidence, all taxes in Texas are regressive.

Well that settles it.

  • Since property taxes are based on subjective property valuations determined by a county tax appraiser, there may be an incentive for the appraiser to raise the value to increase local revenues. Too often, these valuations are out of step with the true market value forcing people to lose their homes, struggle to pay bills, or keep people from purchasing their first house.

People are much, much, much more likely to lose their homes, struggle to pay their bills, or not purchase homes due to losses of jobs than property taxes.

Also, which is more transparent, the county tax assessor on a property’s value or the county burgher on his own income?

  • To be fair, a sales tax is not perfect. It distorts your decision to purchase goods and services.

Sales taxes also favor real estate speculators, but they’re job creators, right?

  • But it distorts the economy the least of any tax and, to a large extent, is a voluntary tax. You only pay a sales tax when you decide to purchase goods and services.

Bullshit. Land taxes, congestion taxes, and other taxes on things that are inelastic in supply are all less distortionary than sales taxes.

Sales taxes are only “voluntary” to the extent that one’s income isn’t dedicated to consumption for basic needs. If only those poor people were like the ant and not the grasshopper!

  • No American ought to suffer the slings and arrows of a punishing property tax system to pay for our government.

So on Fortune’s cap Arthur Laffer is not the very button? Nor the soles of her shoe?

To be clear, taxes on buildings are imperfect, assessments could be done more fairly, and endless layers of special assessment districts aren’t a hallmark of good governance, but to say that the solution is to give Texas’ wealthy landowners a break to gamble on land values makes this one of the dumbest ideas I’ve heard in a while. So go ahead, Texas, I dare you to adopt the scam-tax system. I’m sure Arthur Laffer will rescue you when you lose your shirt.


On a positive note, congratulations to Aundré Bumgardner‘s election to the Connecticut House of Representatives. Bumgardner advocates property tax reform by shifting the burden onto land, not improvements—and certainly not sales.