Saturday, May 23, 2015

Lets Cut Taxes!

The Texas legislature is in session and a tax cut is on the agenda with two competing proposals. One is to reduce property taxes and the other is to reduce sales taxes. Which one is the best?

I've been complaining about property taxes for years, and since I'm close to retirement I see property taxes as an unending, uncontrollable, and increasing drain on my future fixed income. Sales taxes on the other hand are proportional to my spending, and so somewhat controllable. That's why I'd prefer the property tax cut.

But on further reflection I changed my mind. Here's why...

If government is going to work it needs to be fair, but historians and economists know that this isn't the natural order of things. Throughout history wealth has tended to become concentrated. People in power naturally act in their own self interest, and the result is to further increase their power and wealth. I don't see this as intentionally evil. It's simply the result of rational (as defined by economists) behavior.

The problem is that this trend is unsustainable. At some point it's inevitable that the concentration becomes so extreme that a correction is made, and it's rarely pleasant.

So what does this have to do with the tax cut proposals? Of the two it seems clear to me that the fairest proposal would be the sales tax cut because everyone who spends money would benefit. And it's inherently progressive (tending to reduce inequality) because lower income people spend (rather than save) a higher percentage of their income.

If you're a cynic you can probably guess which of the two proposals is on the fast track to pass. It's the property tax cut. Admittedly it is a progressive cut since the proposed method is to increase the homestead exemption, but before you small fry homeowners celebrate here's another twist or two.

A recent study from UT's McCombs School of Business claims that commercial properties tend to be appraised well below their market value, which shifts the cost of government from the wealthy to homeowners. And remember the last time we were promised a property tax cut? It was quickly offset by rate increases at the local level.

So what's the bottom line? Neither cut is going to make a huge difference to the average Texan, but if the property tax cut wins it will be one more example of how wealth slowly becomes concentrated at the top.

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