[Mpls] How taxes work. Why taxes are going up.

[Carol Becker]

 I apologize for not getting responses back to folks who posted questions or
issues from my website discussion on taxes.  I've been a little busy running
for office but wanted to get back to those questions.

Mark Anderson wrote about the tax discussion I put up on my website
www.carolbecker.net   I wanted to thank him for spending the time to do it.

>But there are some items on the web site that are deceptive:

I apologize if anything was deceptive.  The Minnesota Tax System is
amazingly complex and I had to glaze over quite a bit to keep things even
somewhat understandable to the lay person.  Nothing insidious intended.

>1) You state that homeowner taxes recently increased because the
>Legislature gave tax breaks to commercial and rental property.  Actually
>commercial and rental property still pay proportionately more tax than
>homeowners, so it is more accurate to say that homeowner tax breaks were
>decreased by the Legislature.

It is absolutely correct that commercial and rental properties have and
continue to pay more than homeowner properties.  And if you start with an
assumption that every property should pay the same, it would be correct to
state that another way of looking at the changes over the last several years
as reducing the tax breaks, if you assume that the system was "giving
breaks" to homeowners.

I would argue that the tax system was designed to tax businesses more and
homeowners less for several reasons.  One is to encourage homeownership, the
greatest way for the individual middle class person to build personal
wealth.  Another is to export a portion of taxes to outside of the state.
47% of the commercial property tax and 89% of the industrial
property tax is actually paid by non-residents.  Also businesses
are revenue-generating entities unlike homeowners.

I would also note that rental properties have always been viewed as somewhat
of a hybrid of business and homes and have been taxed somewhere between
commercial and residential.  This only applies to larger rental properties
(4+) units.

>2) In conjunction with #1, you omit the fact that business taxes are
>ultimately paid by individuals too, only they are hidden taxes, making it
>much easier to raise these taxes.

There is an argument in economics that businesses should not be taxed
because they technically do not exist.  Businesses are simply a construct
and wealth should be taxed by the ultimate owner of the wealth and not by
these constructs.  There is another argument that the only place that wealth
is actually created is businesses and that it is the act of creation of
wealth that should be taxed.  Our tax system taxes both.

>Also, of course, business taxes are much more regressive than almost any
>other kind of tax.  See following link from the Minnesota Department of
>Revenue.
>http://www.taxes.state.mn.us/taxes/legal_policy/research_reports/content/inc
>idence.shtml.  See in particular, the 2005 tax incidence study, Table 3-6,
>on page 46 of the report, page 58 on the downloaded Adobe Acrobat file.

First off, I have to say that I am ecstatic that another citizen read the
state's tax incidence report. It is very interesting reading if you are
interested in questions of tax equity.

Business taxes may be regressive but I think the question shouldn't be
limited to the business tax.  The question should be the regressiveness of
the whole state tax system.

If you are not into reading the whole Tax Incidence Report, what I can tell
you is that if you are in the lowest 10% of income earners (making about
$8400) you paid an effective tax rate of about 18% and if you are in the top
10% you pay an effective tax rate of 10.7%.  If you are in the top 1%,
making over $325,000, your effective tax rate is 9%, about half of the
poorest citizens.  The problem with regressively is the bottom line of the
whole system and could also be addressed by tweaking the income tax or sales
tax.

>3) You imply that if everyone's property valuation goes up, then everyone's
>taxes will also go up.  Actually, an individual's tax will only go up if
>one's valuation increases as a proportion of the total.  If everyone's
>valuation increases at the same rate, no one's taxes will change unless the
>budget also changes.  This is a mistake I see made quite often, even in
>explanations in the Strib.

I apologize if I left this impression and will have to go and rewrite if
that is what your understanding was. You are correct.  If everyone's
valuations go up equally and the same amount is levied and no changes are
made to the distribution of the tax, then no one's taxes should go up,
regardless of how high everyone's valuations go up.   I will try to clean
this language up.

Thanks again Mark for the great questions.

Carol Becker
Longfellow
Candidate for the Board of Estimate and Taxation
Go Geeks!