Friday, January 06, 2012

Steerage lost

I said recently that it would soon be All Assessment All the Time for much of the 2012.  It was no joke.  Think I could get away with writing on something else today?  Guess not. i do say with admiration and sincerity that I have added to my personal bucket list playing poker with Rich F. In far more consequential circumstances we used to call this brinksmanship.

Some quick hits:

PG talks about possible contempt of court outcomes in the latest developments.  Truth is I am quite sure the county (the county itself, or its apparachiki in their official capacities) has most certanly been past the point of possible contempt citations many times in the past in all of this.  The problem is, as I am sure Judge has pondered, what exactly does that mean?  Does the Judge really want to be in the situation of holding a County Executive in contempt.  Then what?  Put his top functionaries in jail or fine them?  Seems pretty unfair to do it to the underlings, but just impractical to do much to the top dog.  Fine the county $ per day for noncompliance?  Well then, who is going to collect from the county if they prove to be continuingly uber belligerent?  Would county sheriff go around serving the county executive or otherwise enforce the judge's rulings.  All becomes painfully more complex than even it is now and I suspect Judge Wettick has considered all that in detail.  Likely would get other common pleas court judges involved in related rulings that could themselves be inconsistent in the end.  Not good.

Here is the biggest thing.  So if it is true that commerical values went up by 71% in the city of Pittsburgh, then to follow up on my post yesterday on the distribution of changes in assessment values, and the winners and losers that result, here some back of the envelope calculations.  Roughly I think 60% of city property tax revenue is from residential and 40% from commercial property.  If you don't believe commercial is that much of total revenues then remember this graphic which shows a huge, almost entirely commercial, Downtown impact all by itself.  So if residential values went up on average 46% and commercial went up by 71%, it means the overall average is more like 56%. The article says it is 57.89% (there are some significant digits for you).  Now go back to the distribution I put up there yesterday.  If millage is adjusted based on that calculation even roughly, then it is more lopsided and  OVER 2/3rds of all city residents would see their property taxes go down resulting from the new assessment, yet people are universally livid.    At the same time barely any public anger over the county's recent 20% property tax rate increase. I am missing something.

Further it means it is now far less than 5 percent who would expect to see taxes go up by 100 percent or more.  More like 3.5 percent now.   I really need to see if I can calculate a total estimated savings in $$ from all the homes that lose out if there really is going to be no assesment. Must be some dollar amount to all of that,

For school districts or other municipalities worried about a month delay in getting their property tax revenues through the door...  realize that short term municipal paper is yielding close to 1% or less (at an annual rate) interest these days. What does that work out to for a month or so?   So all I have to say is: Tax Anticipation Bond. Done all the time in lots of places quite routinely for precisely the same reason as may be needed here (without the soap opera of course).  What is routinely dealt with as a matter of routine elsewhere is some inconceivable trauma for us.  Can be said for more than assessments of course as well.

and yes.. there will always be assessment mysteries.  The Casino which supposedly had well over $400 million in construction costs, something like an $800 million total cost, is still appealing it's $199 million dollar assessment.. an assessment which I think was set before they got their approval for table games which would impact an income based assessment.

The old RET and older Alcoa building is upset over an assessment increase from 10 to 30 million.  This is for an entire skyscraper.  Scrap aluminum is pretty expensive these days.  Might be 3-4 million in aluminum value alone in there, let alone the value of the XPlorion.  That cost a million to install I bet at one point. Whether it counts in the cost of the building these days would not even be a rhetorical question.

On this notion that canceling (I am struggling with the correct verb to describe what actually happened yesterday) a new property assessment will help property values in the county..  what will be the impact of the years of uncertainty and confusion this is going to have on property values in the future?  High taxes are one thing, but not really knowing what taxes will be is another thing altogether.  Sometimes the devil you know...

Crystal ball.   Barring some quick resolution. If no reassessment I suspect there will be strong patterns in the new ('old new'?, or 'new, now old'?) assessment numbers that correlate with race in some way which will prompt  some sort of filing in Federal court on this and I suspect the Federal bench in town are collectively Wettick supporters.  Just a guess.

and just from the archives. October 19, 2009: "We're here because of the Supreme Court's mandate to me," Indeed  ..........Ditto

20 Comments:

Anonymous MH said...

I'm wondering if the commercial property increase isn't the main reason for the resistance from county officials. Confusing the elderly to support tax policies that help much wealthier people is a national obsession these days.

If someone from the county does go to jail, I hope they don’t require any prescription medication or, if they do, that the officials who run the jail aren’t as slow to fix problems as the officials who run the county.

Friday, January 06, 2012 9:09:00 AM  
Anonymous BrianTH said...

The County has definitely flirted with contempt, but after all the foot-dragging and such, up to now it has still ultimately taken all the steps mandated by Wettick.

Personally, I don't think lower-level County bureaucrats are really going to be in the mood to completely defy court orders, but we shall see.

Friday, January 06, 2012 9:30:00 AM  
Blogger Conservative Mountaineer said...

All this and no alternatives being discussed.. as if, "Well. It's always been this way [RE taxes], so it will always be this way."

The use of property taxes is grossly unfair and entirely subjective, while at the same time putting people at risk of losing their home (sometimes, fully paid for).

At least I'll throw out some ideas..
1. Residential properties - No property tax. 100% personal income-based system with same base as State income.. collected by the State in addition to State tax.

2. Commercial/Industrial properties - Property values and assessments consistent with generally accepted valuation techniques.. most likely just as it is today.

3. Rental properties - Ah, here's (IMHO) the problem area that I really haven't come up with a suggestion that protects renters from being dinged twice and ensures some collection of taxes on the 'property'.

Should rental properties be excluded? If so, how would one ensure rental owners reduce rents accordingly? (I'm laughing right now.. like THAT will ever happen.)

I'm leaning towards income-based, same as Residential. Requiring landlords to issue, say, 1099s for rent paid would at least be requirement. How that is used and how to structure a taxing system is problematic. One could argue that the markets will eventually even out. If a landlord does not reduce rents, then renters may move elsewhere, say, to where a landlord has reduced rents.

The problems?
I assume the above suggestions are for naught due to the uniformity clause of the Commonwealth. But, it would be nice to see prominent elected officials at least PROPOSE and SPONSOR a change. Maybe, the Commonwealth Constitution needs changed.

Naah, elected officials such as Fitzgerald would rather pontificate, grandstand for the media, and pander to the is 'what will we eat while we watch American Idol' crowd. Oh, and keep their power base and friends in government jobs.

Your thoughts?

Friday, January 06, 2012 11:35:00 AM  
Anonymous BrianTH said...

There is always talk at the state level (where this would need to happen) of providing property tax relief. I very much support such efforts, but the problem is that you would need to raise some other revenues in their place, and that always leads into a buzzsaw of opposition.

So there has been some relief from the lottery, casinos, and so forth. But proposals for sweeping changes have not gone far--yet.

Friday, January 06, 2012 11:41:00 AM  
Anonymous MH said...

It's always been this way [RE taxes], so it will always be this way.

CM is speaking nonsense, though why not as he is making more sense than Fitzgerald and indeed more sense than usual.

Some type of tax on land/real property is pretty close to ubiquitous in the English-speaking word. Certainly, it would be far easier to do a reasonable reassessment than to convince people to pay all of what is raised by property taxes in the form of income taxes. To get the same money from me, they’d have to better than double* my current state income taxes. And, given the large number of retired people in town who would pay nothing without a property tax, I’m certain that I’d have to pay my own current tax and most of somebody else’s.

*Much more than double. Right now in Pittsburgh, you’d pay about $3,000 in property taxes for a $100,000 house. Given that the current state income taxes are 3%, someone with $100,000 in taxable income would also pay $3,000 in state income taxes. Everyone with a house assessed at more than their annual taxable income (i.e. nearly everyone) would have their state income tax more than double to pay what they are paying before.

Friday, January 06, 2012 12:06:00 PM  
Anonymous n'at said...

We paid for your hat, we paid for your haaa-at;
what a waste of council tax, we paid for your hat.

Friday, January 06, 2012 12:13:00 PM  
Anonymous MH said...

Speaking of things that keep the sun off your face, to avoid feeling like Jonah under the ivy waiting for Nineveh to get squished, I just created my first google news alert for "Fitzgerald Jail".

Friday, January 06, 2012 12:19:00 PM  
Anonymous BrianTH said...

If the PA Constitution was not an obstacle, I'd suggest the following:

(1) Restrict property taxes to funding related local functions like police, fire, and public works. Don't use them at all, or at least only very little, for public education;

(2) Make property taxes solely or mostly a land-value tax;

(3) Fund public education solely or mostly through a statewide progressive consumption tax.

Note only the progressivity of the consumption tax is likely state-unconstitutional, but that aspect is quite important.

Friday, January 06, 2012 1:50:00 PM  
Anonymous MH said...

I have no idea if making a consumption tax progressive on a state level is constitutional or not, but it is impossible politically.

Friday, January 06, 2012 1:56:00 PM  
Anonymous BrianTH said...

Why is it impossible politically?

Note a progressive consumption tax can just take the form of a progressive income tax where the only allowed deduction is savings (although you can incorporate a "standard deduction" as part of its progressivity).

Since progressive income taxes have proven viable, why not a progressive consumption tax?

Friday, January 06, 2012 2:36:00 PM  
Anonymous MH said...

That wouldn't be a consumption tax as it in no way accounts for assets already held. It would be an income tax with few deductions. In an area where retirees and students are disproportionately large sectors of the populace, income and consumption are especially different.

Friday, January 06, 2012 2:59:00 PM  
Anonymous BrianTH said...

That's actually definitional (consumption = income - savings). In other words, we don't know exactly what you consumed, but if you had that income and didn't save it, you must have consumed it in one way or another.

Of course there are some general reporting issues, but we already have to do all that on the income side anyway, and then people would have an incentive to report their savings for the purpose of reducing their consumption calculation.

I'm not sure what you mean about accounting for assets already held. If those assets generate income, then again you either have to consume that income or save it. If they don't generate income, then they can't be used for consumption.

I also don't understand the comment about retirees. They have to get income of some kind in order to consume, even if just Social Security.

I imagine with students you are referencing the possibility that they are being given money which isn't reported as their income. That, of course, is how we treat gifts in general (it isn't reported as income by the recipient). If the gift-giver was in the jurisdiction, what would happen is that money would be taxed as their consumption (and at their marginal rate). If they were out of the jurisdiction, that consumption would probably go untouched by this particular tax. However, there are worse things than encouraging people outside the jurisdiction to give money to people to spend inside the jurisdiction.

Friday, January 06, 2012 3:43:00 PM  
Anonymous MH said...

(consumption = income - savings)

If you are going to infer consumption from income minus savings, you need to either ignore capital gains (i.e. provide a huge loophole for the very richest few within a still progressive structure, somehow) or measure the value of property during a transition to a consumption tax (i.e. what the county can’t do now). Also, savings can be negative (e.g. spending previously saved assets or borrowing money unsecured by an asset*). Retired people with IRAs, reverse mortgages, bank accounts, stock portfolios, and the like mostly live by spending these previously acquired assets. Those assets draw income, (or did before 2007) but only the richest few can avoid spending principal. Students spend college funds to live or borrow money without security. That is, both groups consume at levels much higher than their income.

So, I’ve been assuming that a consumption tax would be levied at the point of consumption (like 99.99% of existing consumption taxes) and that progressivism would have to come through refunds, as in the EITC, and that this would be attacked from one side as a give-away to the poor and from the other side as making the poor wait a year to get their money.

*I would think that borrowing secured by an asset would be easier to work with for the (consumption = income – savings) thing as you have not, for example, consumed the house you mortgage.

Friday, January 06, 2012 4:28:00 PM  
Anonymous BrianTH said...

Capital gains would be included with income whenever realized. Dividends or other income produced by assets not sold would also be included. You don't need to calculate any basis for the purpose of this tax.

Debt principal payments would ordinarily be savings. New borrowing would ordinarily be negative savings. You might need a special owner-occupant mortgage rule--the usual suggestion is an imputed rental value rule.

Speaking of which, I didn't invent this idea . . . so if you are interested you can poke around the Internet (Robert Frank is a big proponent).

Friday, January 06, 2012 5:37:00 PM  
Anonymous MH said...

If you don't somehow grandfather the basis for capital gains then everybody with assets will be taxed on what they accumulated with post-tax dollars. That seems politically difficult for various obvious reasons.

Friday, January 06, 2012 6:13:00 PM  
Anonymous BrianTH said...

That's true of any consumption tax--a sales tax, VAT, or so on are typically going to be on "post-tax dollars" as well.

Friday, January 06, 2012 10:04:00 PM  
Anonymous MH said...

Those taxes you mention here are actually taxing consumption by measuring consumption*. They will be more or less advantageous to various people for a variety of reasons. I'm talking about a the specific group of people for whom consumption is not measured by (income - savings) because they are consuming income from previous years (or future years borrowed) in the first case and in the more recent comments people who have income "earned" in previous year (i.e. unrealized capital gains) that are about to become tax disadvantaged by a change in the new law. Frank didn't mention the problem in the first few links I looked at. I assume that you could solve most of the problem by excluding, as is done now, profits from the sale of your residence after age whatever. People with financial assets won't have trouble setting the new basis. But, those kind of things start to multiply and I assume anybody selling a "simple" tax system is leaving out the provisions that would actually make it work.

*I looked at Frank. He has clearly got a simplified income tax plan that he's trying to sell as a consumption tax. Presumably because saying "I'm removing the mortgage deduction, the charitable contributions deduction, and the deduction for unreimbursed medical expenses" sounds really hard to sell to people who have to win elections. Why he thinks this is better than a progressive income tax rate, I don't understand. I understanding wanting to increase the savings rate, but real returns on most investments used by the middle classes are below zero. It isn't a huge mystery why so few people bother.

Friday, January 06, 2012 10:49:00 PM  
Anonymous BrianTH said...

I honestly don't get the problem. Because it isn't supposed to be an earned income tax, or for that matter a capital gains tax, it doesn't matter that the capital gains was "earned" in some prior year (assuming you agree with that interpretation of unrealized capital gains). What matters is when you actually cash in on those gains AND don't convert them to some other form of savings, because that is when you must have consumed those gains.

Speaking of which, it might be worth making something explicit. If you, say, sell your house for a big gain, the question given this tax is what you do next. If you put that money in the bank, or a stock fund, or so on, it will be treated as savings, and so won't generate any taxable consumption. It is only if you don't save that money in some reportable way that it becomes taxable consumption.

I do understand there is a sort of "too good to be true" aspect to all this--consumption taxes are SUPPOSED to be an administrative nightmare, and this sounds way too simple. But the thing is, most of the hard administrative work is already being done on the income side, and as long as you are neutral about what sort of consumption you are taxing (a big if, but plausible if you have a big enough standard deduction), then there really aren't that many additional complications to deal with.

But if you really want to insist that is a simplified progressive income tax and not a progressive consumption tax--well, a rose by any other name and such. In any event, in this context I was only suggesting using it to replace most or all of the portion of property taxes used to fund public education, and not as a replacement for all other earned income taxes and the like.

Friday, January 06, 2012 11:48:00 PM  
Anonymous MH said...

Replacing only school taxes with it really makes C=I-S wrong. The other earned income taxes are about 20% to 30% of most peoples' income.

Sunday, January 08, 2012 12:01:00 AM  
Anonymous BrianTH said...

Yep, you would use post-tax income.

Sunday, January 08, 2012 12:18:00 AM  

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