Friday, October 31, 2008

Nickled and dimed?--No thanks! Vote "Yes" on Prop. 100.

I don't have much more to say about Proposition 100, the "Protect Our Homes Act", that I didn't already say in my Associated Content article, so I'll instead approach the topic from a different angle.

Local governments and taxpayers are often at odds. Government officials want money to do what they think is good; taxpayers want to keep it to pay for their own interests or save for the future. Reasonable people can agree that we need taxes--at least until someone figures out a better way around the free-rider problem--but that they shouldn't be as high as the officials want. Supporters of government and taxpayer interests push in opposite directions and the result is reasonable even if nobody sees it as ideal.

Governments, however, often try to make a run around this balancing process by passing many small taxes, usually ones that most taxpayers don't pay in a given year. It is much more difficult for taxpayer advocates to fight many small taxes than a few large ones. For example, the City of Chicago has its infamous "driveway tax" that businesses must pay for each cut in the curb, in addition to ordinary street maintenance levies. Since ordinary residents don't have to pay, there's never a push for repeal. Similarly, many states and municipalities levy a real estate transfer tax, over and above a paperwork processing fee, whenever property is transferred from one party to another.

Aside from having to process paperwork, the act of transferring property imposes no cost on the State, so we can't view this tax as a gas tax-like "user fee". Moreover, the costs associated with developed property: police and fire protection, roads and sidewalks, etc. are paid for by property taxes.

We can frame real estate transfer taxes as eroding home equity (as Prop. 100's backers, the Arizona Association of Realtors, do) or we can frame it as driving up the cost of housing. Both are probably true depending on market conditions. It doesn't matter which is correct. What does matter is that a real estate transfer tax is a small tax, designed to nickel-and-dime taxpayers a few at a time, thus avoiding the processes which keep more general taxes like property, sales, and income taxes in check.

Several counties and municipalities inflated their budgets during the housing boom and are now facing shortfalls. Bills (note the sponsor, Phil Lopes) that would authorize real estate transfer taxes, previously unheard of in this state, are making their way to the legislature. If they're going to increase our taxes, make them increase them the right way: transparently, and equitably. Vote "Yes" on Proposition 100.

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