Multi-tasking with the 1% … killing the schools AND making the poor pay for their funeral.

I showed here how we could raise $94 million for the School District from the property tax, as requested by the Mayor, and sequester it until the SRC abandons its privatization plan. But is the property tax the best place to get the money? If the City raised the $94 million from some other source, it could still sequester it until the SRC sees the light.

The 1% generally likes the property tax. It’s a regressive tax that falls most heavily on people who are property-rich, cash poor. How sweet it would be to make poor and working people not only pay more, but to make them pay more for destruction of one of their greatest assets, the public school system.

There has been dispute, however, whether a property tax increase as it’s been packaged this year would indeed hit poor people the hardest.

Some progressives think that a property tax increase this year would not be regressive because it would emerge out of the AVI initiative intended to correct the massive inequities in City property assessments. But even if assessments were accurate, and didn’t under-value richer neighborhoods, poor property owners would still get hit hardest from tax rate increases. It’s just the nature of the property tax. It taxes at a single rate that the rich can pay much easier than the poor.

AVI, if done right, is a good thing. Increasing rates, however, to generate more revenue from the tax, might still not be.

We do have a business tax that is extraordinarily low, doesn’t hit small businesses very hard, and also brings in lots of revenue from out-of-City merchants. It’s the Gross Receipts Tax. The best way to raise the $94 million would be to increase that tax from its pathetically low current rate of .0014 (that’s 14 CENTS on every hundred dollars) to a bit over .0300. The .0014 is a maximum rate, btw. Some businesses can opt for an alternative rate that’s cheaper, and whatever rate they choose, the tax is deductible from their federal taxes.

However, Council and the Mayor are allergic to mere mention of raising any business tax. So the best we can probably do this year is make the real estate tax as progressive as we can. There are a variety of ways to do that, and fortunately, several of them are now before Council.

One path toward progressivity is to create a “homestead exemption” that would exempt a portion of an owner’s assessment from the tax. The Mayor wants a tiny exemption, $15,000, and that amount is included in his AVI bill. That would be small comfort for working class owners in gentrifying areas, however, whose assessments may well be over $300,000. Council should provide a much higher number. However, one complication with this entire approach is that a homestead exemption of any kind requires statutory authorization. It’s unknown whether the City will receive it by the May 24 budget deadline.

There are three other bills before Council that could make a difference in how progressive the tax becomes. Here’s a summary of them and their possible impact.

1) Bill 120338 amends the current City Code sections relating to deferral of increases in real estate taxes in any given year of more than 15%. As under current law, deferrals would continue until the property is sold. However the interest rate charged on the deferred amounts would be reduced to the lower of 4% or the rate of one year treasury bonds. Deferral would remain discretionary with the City and a variety of vague factors, some of which relate to owners’ income, would apply.

2) Bill 120339 would give credits against the real estate tax for low income families. Persons eligible for credits would be based on their income class, as follows, but with exemption percentages currently unstated for each:

Unmarried Married (joint income) Credit %

$0 to $6,500 $0 to $13,000 ?

$6,501 to $7,500 $13,001 to $14,000 ?

$7,501 to $8,750 $14,001 to $15,250 ?

Each income bracket would increase by $9,500 for each additional dependent in the family. This could be an important vehicle for making the tax more progressive. But, of course, the percentage credit that Council actually adopts, if any, is critically important.

3) Bill 120340 would grant tax exemptions to longtime owner-occupants in gentrifying neighborhoods.

State law permits Council to authorize exemptions or deferrals of tax increases occurring in gentrifying neighborhoods for longtime owner-occupants.

This bill would offer the most liberal benefit – full tax exemption -- for whatever portion of a tax increase could be attributed to an eligible owner’s living in a gentrifying neighborhood.

Any long-term homeowner living anywhere in the City whose market value assessment increased by 10% or more in any year, (unless the increase is due to physical improvements in the property) would be presumed to be a victim of gentrification and entitled to an exemption of some portion of their tax increase.

The exact percentage of increase that would be exempted is left blank in the bill. That’s obviously a key provision.

There seem to be no time limits on how long the exemptions would remain in place.

This bill might be overinclusive, protecting people perfectly capable of paying higher taxes due to AVI. But state law doesn’t allow income criteria from being used in affording gentrification relief. And trying to carve out the particular neighborhoods in which the relief should be granted as a surrogate for income targeting, is devilishly difficult.

My personal bottom line is that I think a GRT increase would be best. I would also prefer that AVI not go into effect without the new assessments first being published so that there can be some review of their validity. However, if a homestead exclusion is high enough, and if Bills 120339 and Bill 120340 are passed with exemption amounts that are generous, a property tax increase might not be so onerous as to outweigh the need to hold out some conditional aid to the School District.

Hearings on all these bills will be held on Monday, May 14 at 1 PM in City Council Chambers.

AVI is progressive reform

Property taxes, if applied fairly, can be among the most progressive forms of taxation. If assessments are done fairly, a property tax is a proportional tax on the value of the property owns. Thus from the point of view of property value it is not in any way, shape, or form a regressive tax.

Because income and the value of the property one owns tends to be highly correlated in the United States, people with higher incomes tend to pay a higher property tax. Thus from the point of view the taxation of income, a fair property tax is likely to be progressive with regard to income.

A property tax can become regressive under two circumstances.

Skewed Assessments

First, if property assessments are skewed to protect people in higher income neighborhoods or those who are politically connected or the commercial property of businesses. Progressives have long suspected that this is the case in Philadelphia and series of articles in the Philadelphia Inquirer supported this view.

So, if AVI leads to reassessments that are more accurate, the property tax will become more progressive and lower income Philadelphians will very much benefit.

I gave some examples of how AVI is likely to affect property taxes at different levels of property value in a recent blog post http://marcstier.com/blog2/?p=6474. Using the best guess that people have put forward of the tax rate under AVI--1.25% of one's property value--I estimate that a has a market value of 65,000 would see its property taxes go down from $889 to $812 or, of the Mayor's proposed 15,000 homestead exemption is put into place, $625. This is a substantial cut.

I don't know the average market value of a home in Philadelphia today. But the average sales price in the city in the last few years has been about $110,000. Since there are a lot of sales in the half million and up range, I suspect that the median is a good deal lower. So I would guess that about half of Philadelphians will see their property taxes decline under AVI and a quarter will see their taxes decline substantially.

As my research shows, property taxes in higher income neighborhoods will increase do to AVI.

Indeed, I suspect that AVI combined with the 15,000 homestead exemption will be the most progressive tax reform this city has seen in a long time, possibly ever. This will have a far more positive impact on working people and the poor in this city than the Cohen Wage Tax Rebate (which I continue to support.)

Gentrification

The second circumstance in which a property tax can be regressive is if large numbers of relatively low income people living in gentrifying neighborhoods. This is a serious concern in some parts of South and West Philadelphia. But keep in mind two things.

First, the vast majority of poor Philadelphians do not live in gentrifying neighborhoods. The live in poor heavily over-taxed neighborhoods.

Second, there are ways, some of which Stan mentioned and others which I'll elaborate on another time, to ease the burden on low income residents in gentrifying neighborhoods.

These complications require further discussion. But we won't get anywhere in understanding the impact of AVI in the city unless we first understand that a property tax can be progressive and that AVI is a big step forward in making the property tax more progressive.

Isn't it possible that AVI

Isn't it possible that AVI can be deemed regressive if it's used to meet an arbitrary (or arbitrarily specific) tax revenue goal?

There's a difference between AVI and the prop tax

AVI may be a progressive reform, for the most part, of the City's existing real estate tax if done right. But that doesn't make the property tax itself is progressive; it's not because it's flat. So it's no more progressive than a flat income tax. To make it progressive, it must be shaped in a way that allow poor and working class people to pay at a lower rate. So if AVI is accomplished, and even if it improves the existing deeply flawed system, that doesn't mean it should be the first place to go to in order to raise additional revenue.

the property tax is more or less progressive

in that property value and income are fairly highly correlated. So people with higher incomes have more expensive properties and pay higher property taxes. Exactly how progressive it is hard to calculate if we don't know (a) how close the correlation between income and property value is in the city and (b) the slope of the relationship between income and real property ownership. I've been looking for a study of this and haven't found one yet. But my guess is that the slope is more than 1 with property value rising proportionately faster than income which would make the property tax somewhat progressive with regard to income.

On the other hand, the gross receipts tax is a functionally equivalent to sales tax, much of which is passed on to consumers. Thus, like the sales tax it is a regressive tax.

The GRT is a little bit better than our sales tax in one way, that it has a broader base because the sales tax in PA has so many exclusions which is why it raises a lot of money at a fairly low rate. (Although the GRT does exclude banking, insurance and, I think, financial services.)

The GRT is worse than our sales tax because it taxes intermediate goods not just final goods. The result is what tax experts call pyramiding. Thus a final good that has a number of intermediate steps is taxes more than once. (For example, a diner pays on the sale of a hamburger to a customer.. The butcher pays on the sale of the meat to the diner. The farmer pays on the sale of the side of beef to the butcher. etc.)

The result is that the actual tax rate for consumers is 2 to 3x the nominal rate.

Progressive tax specialists have typically criticized proposals to expand or institute a gross receipts tax. For example, why Illinois considered a new GRT a few years ago both Citizen for Tax Justice http://www.ctj.org/blog/2007/04/illinois-more-trouble-for-blagojevich.ht... and the Center for Budget and Policy http://www.cbpp.org/cms/?fa=view&id=330&fb_source=message criticized it.

Again, the real estate tax is not progressive; it's flat

Yes, it's true that people with higher assessments will pay a higher tax, just like people with greater incomes pay a higher income tax. But if an income tax is set at the same rate for rich and poor alike, it obviously hits the poor hardest. A poor person cannot afford to pay 25% of their income in taxes, but a rich person can. That's why it's regressive. The same principle is at work with property taxes, like the current Philly model, that operate on the principle that one rate suits all. If the property tax is modified to effectively create graduated rates, it can become more progressive, but that is not easy to do, politically or structurally.

The GRT, like all business taxes, may or may not be passed on to consumers, in whole or part. But the point is that in Philly, as I've pointed out, it's a tiny tax, 14 cents on every dollar of sales. Comparatively, the sales tax is 8 dollars on every 100 dollars of sales. Even if pyramided a few times it's small, so small that it's not clear it would be worth the accounting effort to boost prices by that amount in the particular market in which the tax applies. In fact, as I've also pointed out, the tax is considerably smaller for many firms that are eligible to use an alternative tax rate, and also because it's deductible from federal taxes. So the functional rate for many firms may be less than 10 cents per 100 dollars of sales. Furthermore, pyramiding exemptions can be written into the legislation just as homestead exemptions can be written into property tax legislation. But even if every nickel of the tax is passed on, and due to pyramiding the actual tax rate to the consumer were considered double the nominal rate, the cost to a consumer spending $30,000 on taxable services entirely in the Philadelphia market would be $84 per year, compared to $2400 that they already pay for the sales tax. It's just not a big deal.

However, for next year's budget, this debate is almost definitely moot. No one in Council has introduced a GRT bill, and it's unlikely any of them will. The challenge is to make the property tax as progressive as it can be, with or without implementing AVI this year, and to find a way to sequester any increase for the schools until the SRC agrees to step back from its despicable plan to privatize the system.

Stan - correction?

I've pointed out, it's a tiny tax, 14 cents on every dollar of sales. Comparatively, the sales tax is 8 dollars on every 100 dollars of sales.

Seems to me that the numbers there don't match the argument? Did you mean 14 cents on every 100 dollars?

Thanks, DE for the correction

I meant to say 14 cents on every 100 dollars of sales. That is the actual rate, .001415, to be precise.

How the property tax is progressive (and how to make it more so)

Let me first clear up some terminology. The terms "progressive" "regressive" and "flat" are have clear meanings. Progressive means that at higher levels, tax rates are higher. Regressive means that at lower levels, tax rates are higher. Flat means that tax rates are the same at all levels. I specifically have not said "levels of x" because X can vary. We can tax income or wealth with in a progressive, regressive or flat tax although political progressives are typically most concerned with progressivity relative to income.

So Stan is correct that given our uniformity clause, the property tax is Philadelphia basically a flat tax on property value. But as I pointed out before, depending upon the relationship between income and the value of property owned by people, and the level of the homestead exemption, a property tax can be quite progressive with regard to income.

This is evidently harder to grasp that I realized so let me give some examples that make first the second and then the first point.

Start with four families, with incomes of 30,000, 60,000, 100,000 and 250,000. Let’s assume to begin with that each family owns property equal to 2.5 times their income. So respectively they own homes valued at 75,000, 120,000, 250,000, and 625,000. If the property tax rate is a flat 1.25 percent of property value, they pay taxes of $938, $1875, $3,125, and $7,813. And each family pays 3.13% of its income in property tax. A flat tax on property gives us a flat (not regressive) tax on income.

Add a $15,000 homestead exemption—which excludes the first 15,000 of market value from being taxed—and then taxes on the four homes are respectvely $750, $1,688, $2,938, and $7,625. That translates into 2.5, 2.81, 2.94 and 3.05 percent of the income of each family. The flat property tax is now a progressive tax relative to income.

Increase the homestead exemption to 50,000 and the taxes are now $313, $1250, $2500, and $7,128. That translates into 1.4, 2.08, 2.05 and 2.88 pecent of family income. The property tax I now even more progressive.

The property tax is even more progressive if we drop the assumption that the relationship between family income and property value is that same at each income level?

There are good reasons to think this is not the case. One is that people with higher incomes are likely to be seen as better credit risks. Aside from their higher income, they are more likely to be more highly educated and to have more stable work. Thus have more access to credit, their borrowing costs will be lower and they can afford to pay for a more expensive house relative to their income. Another is that property values in the city have most likely been going up faster wealthier areas than in poorer ones. A third is that for federal tax reasons higher income people have a strong incentive and the means to invest in their homes.

So let’s redo the number with the assumption that the four families live in homes with the values of 60,000, 125,000, 260,000, and 675,000. This is a pretty minor change, one that I suspect understates the differences in housing values at different income levels.

Now, if we look at taxes without any homestead exemption, they come to $750, $1563, $3250, and $8,438 for our four families. That is 2.5, 2.6, 3.25 and 3.38% of family income. Add in a 15,000 homestead exemption and the tax becomes $563, $1375, $3063, and $8250 or 1.88, 2.29, 3.06, and 3.3% of family income.

The property tax is now a much more progressive tax. Make the homestead exemption even higher, and it becomes more progressive still. And the progressivity doesn't stop because people at even higher incomes tend to have even more expensive homes.

Given the uniformity clause, I can't think of anything we could do in the city that would make taxes more progressive than instituting a fair property with a large homestead exemption.

Again, as I pointed out in my earlier post, inequities will remain especially for lower income families living in gentrifying neighborhoods precisely because their property values are high relative to their income. But there are ways to protect such people while also allowing them the benefit from their rising tax values. And keep in mind that most poor and working people in this city DO NOT live in gentrifying neighborhoods. Indeed, one of the criticisms of public policy in the city that I and other progressives have made is that we are not doing enough to make it possible for poor people to stay as neighborhoods gentrify.

And let me add something else I left out: the property tax falls on businesses as well. Indeed one of the ways Philadelphia property assessments were most unfair is that businesses especially very large businesses in Center City were not being assessed at anything close to their market rate. AVI will correct that. And the higher we make the homestead exemption, the more the tax burden will fall on businesses that own large amounts of property rather than low income residents.

So I conclude (1) the property tax can be progressive and given the likely relationship between income and the value of property ownership is progressive in Philadelphia; (2) the property tax can become even more progressive if we implement it in the right way, that is with a substantial homestead exemption.

And thus my political take on what we should be doing this year is the same as Stan's, without any of his disappointment: Instead of pursuing a higher gross receipts tax, which is a tax on business in name only and which as far as I can see has no real support in Council right now, progressives should be critically supportive of the Nutter administration’s goal of moving to AVI this year. That is, we should encourage Council members to move to AVI in the most progressive way possible.

Agreed, the property tax CAN be progressive, but . . .

it's not now, which Marc acknowledges. Indeed, it's only nominally flat right now; in reality it's quite regressive because it's deductible at different rates from federal taxes. The deduction is very much more valuable to high income filers than low. Indeed, many low and moderate income families take the standard deduction and therefore don't get any tax benefit from homeownership at all. But at an income level of $179,000 one gets to deduct 33% of his or her property taxes, and at all income levels above $388,000, one gets to deduct 35% of his or her property taxes. To put it another way, when a well-off person gets a real estate tax increase, he or she pays 65% of it; a poor person pays 100% of it. And, of course, if you live in a tax abated property, you pay no part of it at all for up to 10 years.

I certainly agree that a homestead exemption would move the needle in the right direction, and the higher the exemption the better. But as you'll see, Council seems to be interested in blowing the needle every which way and where it will finally wind up this year is impossible to say.

A $15,000 homestead exemption is part of the Mayor's AVI bill. Unfortunately it's not clear that the General Assembly will validate that part of the bill, as required, in time for it to be effective this (or any other) year. Another bill before Council, Bill 120339, would also increase the progressivity of the tax. That bill would waive some portion of a homeowner's tax bill strictly based on their low income status. But Council seems interested in helping people in better off income brackets as well, not just low and moderate income people. Bill 120340, would exempt almost any assessment increase greater than 10% for long-term homeowners (owner-occupants living in their homes at least 10 years, and, in some cases 5 years). The bill presumes that almost all such increases will have resulted from gentrification -- a clearly invalid presumption -- and one that might extend existing 10 year tax abatements indefinitely. It would help homeowners in Chestnut Hill as much as in North Philadelphia. Proportionally, it will undoubtedly help them more, maybe much more.

Another concern is that most tenants are left out of the equation entirely, at least on the surface of all of these proposals. Beneath the surface is the fact that commercial properties will get the major hit from any bill that provides exemptions of any kind for homeowners. But commercial owners include landlords. If they get hit, they'll pass that hit onto their tenants. Further complicating the matter is that the "gentrification relief" bill would apply to owner-occupied properties that include up to three apartment units. So some number of rental units would get the benefit of some tax preference, but we don't know how many, nor what the income range of the protected tenants are.

Adding still greater uncertainty to the impact of these bills, the percentage exemptions they would enact are left blank. They will presumably be filled in during the Council hearing process (that begins Monday at 1 PM, and can only go until May 24 if Council is going to pass its budget on time.) Thus it's impossible to know now what if any real significance they will have, if and when either of them pass.

I guess bottom line, as we speak, there is no way to know whether the real estate tax product that comes out of City Council this year will be progressive or not. On top of the uncertainties already discussed is the uncertainty of whether AVI is being done correctly or not. Marc assumes that it is; we all hope so. But getting to fair market values is obviously not a simple process because if it were it would not have already taken three years to make it happen. Should we go all out to implement AVI with all the known unknowns that I've listed here? Count me as undecided.

One thing I am convinced of, any increased revenue for the school district should be siphoned off and sequestered until the SRC agrees NOT to privatize the system, whether the new money comes from an increased in the GRT -- my preference -- or from a property tax that is based on AVI or not. See my post here to learn how the City can do that.

It seems to me you are looking at this backwards, Stan

You make two arguments about the deductibility of property taxes from federal taxes, Stan. Both seem to me to get things backwards.

The first argument is that the property tax is regressive because lower income Philadelphians don’t itemize and thus don’t get the benefit of deducting their real estate taxes from their federal taxes. This would be a good argument if the people who don’t itemize were somehow losing out as a result. But nothing stops low income Philadelphians from deducting real estate taxes and mortgage interest payments from federal taxes except that the standard deduction is of more value to them. Indeed, given that we have a higher rate of home ownership than many other cities, I would imagine that lower income people here are much more likely to itemize than elsewhere. If they don’t the reason is that their taxes and interests payments are so low that it is not in their interest because the standard deduction is saves them more money. So that isn’t an argument against the property tax.

You second argument is that the itemized deduction is of more value to higher income taxpayers than low incomes taxpayers. That’s true—although you should the alternative minimum tax now hits so many taxpayers that this is less true in the past. But while that is a reason to think the federal tax system is less progressive than it might be, it’s not a reason to think the property tax is less fair than other taxes that the city might utilize. Some of those taxes, like the property tax—the wage tax, the sales tax under certain conditions—can be deducted from gross income as well. So there is no difference from the point of view of the city. Some of those taxes can’t be deducted from gross income—such as the gross receipts portion of the business privilege tax. Do you think the a flat tax like GRT is a better tax than the property because it is non-deductible? Of course not. It’s better for the city if our taxes can be deducted because they have fewer untoward economic effects and leave more money in the city rather than sending it to Washington.

If you had to choose between a progressive city tax that was deductible and a progressive city tax that was not—and I don’t know that we in Philadelphia have that option—would you choose the non-deductible tax? Again, of course not, for that would handing money to the feds for no good reason. It’s what my mother called biting your nose to spite your face. The sensible response is to choose a deductible tax and make it more progressive. In the case of the property tax, that high income residents of the city get a bigger break on their federal tax than low income residents is a very good reason for making our property tax more progressive, by raising the homestead exemption further. It’s not a good reason to use a non-deductible alternative to the property tax, especially if it is a flat tax.

So what you say about federal taxes is accurate. But I don’t see how it leads to the conclusion that the property tax is less progressive than alternatives the city might adopt. It looks to me like you are just changing the subject

So we agree, the property tax, given it's tax treatment . . .

is not progressive, but can and should be made progressive. The devil is in the details, and they are being worked on today at Council. We'll see what happens.

I don't deny, btw, that the federal deduction is good for the City. But that fact doesn't change the relative burden of the tax on people of different incomes. It still costs higher income folks less on a percentage basis than poor folks, unless some of the protections we've talked about get implemented. I think you agree on that too, although you seem at times in your post to conflate City benefit and income-class cost as part of the same issue. They're clearly separate, though perhaps with some small overlap.

As to the GRT, whether it would be better or worse to have it be the vehicle for a tax INCREASE than the property tax requires a more complicated conversation than one limited to its progressivity, which itself is something not that easy to determine. But I've already, it looks like that's off the table this year, so time would be better spent dealing with all the prop tax issues we've discussed, and how to sequester any tax increase so that the School District doesn't get the money unless it heels.

I'm not sure we agree

The property tax with fair assessments is progressive. I think I've explained why that is true more than once now.

By and large I don't think we should worry about federal tax law. Federal deductibility of state and local taxes reduces progressivity in the tax system of the country as a whole. It doesn't make one local tax more or less progressive because it applies to all of them. It doesn't particularly apply to the property tax any more than the wage tax.

Have you concluded that the Cohen wage tax rebate is not progressive because of the impact of federal tax law? If not, then you have no grounds for saying that the property tax is not progressive because of the impact of federal tax law.

The way federal tax law and city taxes intersect is this: given that federal tax law is counter progressive, we have justification for making city taxes more progressive.

I think we agree about that.

Can't ignore tax consequences because it's inconvenient

The simple fact is, a simple increase in real estate tax rates requires lower income people to pay a higher percentage of their income than richer people. That's real money out of real checkbooks. What's true about real estate taxes is true about wage taxes, but not at all about the Cohen wage tax credit. The wage tax credit reduces the tax of poor and working class people to zero, thus shifting the burden to those (better off people) who don't get it. One can argue about where the Cohen tax credit income limits should be, but not whether it's progressive.

We don't have the power right now to structure local taxes to be perfectly progressive. The only point of my original post here was to discuss whether the most progressive way -- given the alternatives -- to get more money for the School District out of the existing local structure would be to raise the existing or AVI-revised property tax. I said and still say that's a complicated question. A variety of people testified at Council today to say the same thing, namely that it depends on the details, homestead exemptions, circuit breakers, whether or not landlords are fully or partially exempted, the terms of possible deferrals, etc., etc. Today another contention was raised shedding doubt on one point that you've raised in this debate, namely, that commercial property -owners will pay more under AVI. Councilman Green asked the Finance Director whether residential or commercial property owners would get the bigger assessment hikes under AVI. The Finance Director stated he really didn't know, but he didn't deny Green's suggestion that residential properties would go up -- on average two to three times as much as residential property owners. I am in no position to know the truth.

Green offered another alternative as a way to get more revenue, an increase in the School District U & O tax. That's a tax on commercial rentals and is clearly progressive if you believe that business taxes can ever be anything but a disguised sales tax. I will leave that discussion for later, but for me, given what little we really know right now about who will pay how much more under AVI with an embedded tax increase, a (sequestered) U & O would be my clear preference for getting money to the School District.

Read my post again

The first sentence of your post is most likely not true. If you take into account the homestead exemption and the fact that people with higher incomes spend relatively more on real estate, your claim is false.

And AVI will do more than the Cohen wage tax to make our taxes more progressive because assessments are grossly unfair now.

The PLAIN VANILLA r.e. tax is not progressive

I know that it can be made progressive with homestead exemptions, et al. We don't know yet what, if any such additions to the tax will make the final cut.

Actually it most likely is

Because higher income people have relatively more expensive homes. See the example I posted above (or maybe below).

That's speculative and ignores the impact of wealth

Even if it's true that higher income people have homes that are higher multiples of their income than lower income people, those homes equal wealth and spending power. It's probably more appropriate to compare the relative burden of property taxes as a percentage of wealth, rather than income. Obviously the asset itself can, and often is, turned into a stream of income as equity is built. That can be done in a variety of ways. So even if one did evaluate the tax as one on income, one would have to impute the income that accrues to an owner of a wealthy home over the long run to their annual income. That makes the income computation far more complicated. But as a tax on wealth, the tax is clearly flat, or, again, after tax consequences, regressive. (Again, that's before consideration of whatever protections for low income people that may or may not be added.)

Did Green give any evidence

that commercial assessments will go down?

That's not what a reading of the Inky series of property assessments suggests.

Anyone can find one example that "proves" any general point. Did Green pull out one example? Or did he give some reason to think there is a general problem.

The temptation to demagogue on this issue seems to be pretty much overpowering for some Council members, especially those considering a run for Mayor.

Green did give an example of

Green did give an example of a property he had in mind, although he may only have been speaking hypothetically. But what was more shocking and, perhaps, revealing, was Finance Director Dubow's utter failure to deny Green's suggestion. I've heard from at least one other City Hall insider that AVI's impact is likely to be greater on residential than commercial properties because commercial reassessments have taken place more regularly and recently. And Patrick Kerkstra said this in a March 30 article, discussing likely public reaction to AVI:

The other big reassessment winners are likely to be commercial property owners. Somehow, I doubt the prospect of a lower tax bill for the Wal-Marts and PNCs will ease the anger of the homeowners who get socked.

It's true that the Inky has also run articles suggesting that, surprise, surprise, the commercial assessment process has been corrupted by insider influence. That was in 2009. Whether it's been corrected by now is anyone's guess. Much about current and revised property values are anyone's guess. So rushing headlong into AVI, much less baking a tax increase into it, seems to me to be less and less of a great idea.

How does the U and O tax work?

I'll have to look into the tax incidence literature to see how likely it is to be passed on to consumers. It may not be. But a tax on receipts is, almost by definition a sale tax since sales=receipts.

Without getting down into the weeds . . .

The tax is basically on the assessed value of that portion of any particular property that is used for business purposes. It's not a tax that has any relation to business receipts or business income. Since it's basically a business real estate tax, increasing it would be a definite way of assuring that commercial property would pick up the burden of new school taxes, as opposed to all the speculation we've been doing about who bears the cost of AVI.

What we should be fighting for

is making the property tax as progressive as possible.

Some of the legislation under consideration--such as giving anyone who has a 10% tax increase a break, could make the system less progressive. There is some fairness to it if it is short term break. Jim Kenney has plausibly argued that it's important to give people time to adjust to the reality of a fair tax system because they have built their financial lives around the current one. That's true, but only up to a point.

I've suggested that a five year phase in rather than a three year phase in of AVI might be justified to attain this goal. A circuit breaker that limits tax increases to X% a year might also be justified, although I wonder if that meets the uniformity clause.

But if we want a fair tax system, we can't protect people who have been benefitting from our unjust assessments forever. At some point, people who own higher valued properties simply have to pay their fair share.

Helen

how you set the tax doesn't really affect whether it is more or less progressive.

One of the myths about this whole debate is that the Nutter administration is doing something really weird or unusual in first deciding on how much money they want to raise and putting that into a formula that sets the tax rate. That's basically what happen every year, only it happens before Council acts.

This year we can't do it because we don't know exactly what the total value of taxable property will be until the assessments are done and thus we don't know exactly what rate will generate the revenue goal.

Now you could argue that there is something problematic with Council making a decision before we know exactly what our tax bill will be. But the fact is we often don't know because (a) reassessment take place all the time and (b) no one pays attention to the amount we will pay until we get our tax bill at the end of the year. That's when we will get it this year, too.

scintillating

This has been very information, folks, sorry I'm joining so late. I think we all agree that the best we can do without violating the uniformity clause - which we should all be working together to repeal, btw, esp now that some long-term Republican districts are seeing the effects of Corbett-ization on their property tax bills, too - is to fight for the highest possible homestead exemption.

Helen - it's not a myth. Yes, there are some reassessments periodically, but as we know the methodology has been suspect and the formula for calculating tax bills arcane. Every other county in PA uses AVI and every other county puts its tax rate before its revenue calculations. The mayor's proposal acknowledges its own legal tenuousness in the language of the bill, saying essentially this: "if the courts deem our approach to be illegit, we'll set the tax rate at 2.5%." Believe me, we are all paying attention this year, and there will be tens of thousands of challenges if this approach goes through.

As for the progressivity argument: We can't know what that exemption ought to be for the same reason that we can't know our tax rate just yet - because the administration has yet to finish the data collection and analysis. That's a shame. But it's reality. I've heard that median home price is closer to $200,000 than $110,000; let's hope so, so that the exemption can be set as high as possible.

So let's do some math. My home was recently reassessed for mortgage refi purposes at $350,000 and my most recent tax bill was $2200 (an increase from $1300, where it was in 2005). At 2.5%, my taxes would go up to $8750. I will submit that I am undertaxed, but a 298% increase!?

Marc, you have suggested, as have others, that the 2.5% is a "poison pill" and that no judge would impose such a huge tax increase on the City. I don't know why you are so sure, but do you really want to take the chance?

Right now we have two proposals on the floor - Squilla's, which will stop AVI implementation for a year, and Green's, which will raise the $94 million via a tax increase on commercial property. At least they are honest and probably don't get us into legal trouble.

I will repeat for the millionth time: Let's do AVI right, not recklessly. Let's protect vulnerable homeowners with maximum exemptions. Let's shift the burden, insofar as we can, to commercial property. And let's find alternative sources of revenue, like delinquent tax collection, gross receipts, etc. The time is now to get comprehensive tax reform done right.

Again, it's unfortunate that the admin couldn't get the job done in time to roll this out right. Doing it wrong has major consequences.

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