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March 12, 2008
Every Tax an Income Tax
The problems with it are manifold (some enunciated in the comments section), but Tom Sgouros's analysis of property taxes brings to light an interesting conceptual matter:
However, consider the question, "how much property tax do the richest 11,900 people in Rhode Island pay?" With the data I have, I can't say for sure, but I can put a maximum figure on it. The maximum would be where the top 2.5% of income earners paid the top 2.5% of property tax bills. And here's what I find: the top 2.5% of residential property tax bills is a hair under 9.9% of all the residential property taxes collected in the state. This is about $150 million.Again, the top 2.5% of households earn 31% of all the income, and pay 40% of the income taxes. But when you add property taxes in (those are the two biggest sources for supporting state and local government) you'll see that with 31% of the income, they pay a bit more than 20% of the taxes -- at a maximum. Like the property tax, the other taxes we levy are also regressive, so if someone feels like adding in the effect of sales and excise taxes, this 20% number will go down.
What Sgouros makes eminently clear, here, is that, to the progressive, every tax should be a form of income tax. The top 2.5% of households pay 29% more as their share of income taxes than their percentage of income. The top 2.5% of property-tax payers fork over 296% their per capita share of that tax base. In other words, to Sgouros, a "fair" property tax wouldn't be based on the property, but on the person who owns it and his or her income.
Seen from the perspective of a go-getting Rhode Islander, this approach would require that they pay more for the very same house as they strive to improve their situations. Consider: What would you do if advances in your career bumped up your property taxes? What if the growth of your company resulted in a compounding of the tax on your place of business?
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This is well tested on the roads of Scandinavia. According to the WSJ, a 27 year old internet entrepreneur was issued a ticket for 43 in a 25 zone. The income adjusted fine was $71400. For the full article google highest traffic fine Finland. Per the BBC, not exactly a right wing outfit, in 2002 the head of Nokia was fined 116000 euros or around $175000 (today) for 47 in a 30 zone. On appeal it was reduced to about $8000 at today's exchange rate.
many years ago, under Sweden's progressive tax tate, Ingemar Bergman owed more in taxes than he made. Rich Europeans have been tax refugees for some time. In Rhode Island, we are more egalitarian and I'm sure we'll convince a greater proportion of the people to become refugees from RI. On a related note, the weather at my new second home in southwest FL was just delightful the last two weeks.....
Posted by: chuckR at March 12, 2008 6:18 PMI just wish the Democratic leadership on Smith Hill would have the courage of Tom Sgouros' convictions. Why not just drop the property tax and sales tax (regressive burdens that they are), and replace them with an aggressively progressive income and estate tax system?
If Sgouros' implicit assumption is right -- that even in the face of radically higher income taxes than are imposed in other states, the rich would stay in RI (or some might even move here, to enjoy the "warm glow" benefits of living in the most progressive state in the nation)-- then everyone would win.
And if he is wrong? Well, by then the Democrats would be overwhelmingly returned to office this November and they could just reimpose the property tax and a "higher and wider" sales tax the next year, while moderating their radical income and estate tax experiments.
Seems like a reasonable bet. So why wouldn't the Democratic leadership go for it?
Posted by: John at March 12, 2008 8:06 PMYou know I too have to give Sgouros "credit" in that his ideas, while absolutely insane, are sincere.
Posted by: Mike at March 12, 2008 8:23 PMWhat angers me is the "leadership" who say a $600 million deficit can be solves by "restructuring"-no significant tax increases and no signifant whacks to the union/welfare/illegal crowd.
As laughabaly destructive as Sgouros's ideas are, at least he is intellectually more honest.