Monday night (4/4/11), in a meeting with a group of CMS parents organized by the grassroots MeckFUTURE campaign, Roberts said that keeping tax rates flat when property values increase is not the same thing as raising taxes. The Observer parried: It’s raising taxes and doing so sneakily because it’s, um, not cutting property tax rates.
Wait, that didn’t come out right. Let me rephrase. Between 2003 and 2011, property values in Mecklenburg County increased by 7% or so, on average. The county knows that because they just did a revaluation, which happens every eight years, statutorily. Because the value of real estate has increased, overall tax receipts will increase if the county keeps the property tax rate flat. Keeping tax rates flat is the very definition of a tax increase, you see. Yeah.
If this happens, then it will be a tax hike that is absolutely inconceivable. And the BOCC is sneaky, because the tax hike will opaque. Opaque? Yes, I say, opaque! As in the opposite of transparent! It’s obviously...What? You require an explanation? Okay, people can investigate how their property was revalued, and the county discloses the rate and how it comes to that decision, but other than that, the megahugegigantic tax EXPLOSION is dastardly and underhanded and secretive and ¡“sneaky”!
Sneaky!!!!!!
I have read the editorial all the way through enough times (i.e. at least once) to absorb its crystalline logic, and as far as I can tell, the Observer’s considered editorial position is due to sophistry, fatuity, or just plain intellectual laziness.
Note that at this point, I’m not addressing the merits and demerits of increased tax receipts, simply whether Commissioner Roberts was being “misleading”. From what I understand, she was alluding to a 2005 article by John Hood of the conservative John Locke Foundation: “A failure to enact a revenue-neutral tax rate after property revaluation does not constitute a tax increase.”
Quick definitions and notes
Tax receipts are taxes that a government collects.
Tax receipts = Base (value of property, income, etc) TIMES Rate MINUS whatever people can avoid paying.
Growing the base and keeping the rate the same increases tax receipts without raising taxes.
Keeping the base the same and raising the rate increases taxes by raising taxes (So does growing the base and raising the rate).
Growing the base and dropping the rate (by a set amount) can keep tax receipts the same while lowering taxes.
You get the idea. When we talk about raising or lowering taxes, the pertinent item is the rate, not the tax base, and not tax receipts.
There are two terms being bandied about: rate neutral and revenue neutral. Rate neutral means that the county keeps the property tax rate flat year-over-year (which will mean an increase in tax receipts this year). Revenue neutral means that the county adjusts the property tax rate downward so that, when multiplied by the larger base, the total tax receipts come out the same year-over-year.
In the Interest of Full Disclosure
Please bear with me as I mention a few things.
Item 1: Chairman* Roberts made the statement at an event for MeckFUTURE, a parent-led advocacy group that is lobbying the BOCC to provide stable funding for Charlotte-Mecklenburg Schools (CMS), which is slated to have its budget cut by ~$100mm, or ten percent, next year. I am a member of MeckFUTURE’s steering committee. I am writing this as an individual and not on behalf of the group. This piece has not been vetted or approved by anyone, even (or perhaps especially) my wife (Sorry, dear). Other than the call to keep property rates flat, every opinion expressed herein is mine and mine alone.
* Typically, I go for gender-inclusive language. Chairman presents a challenge, however. Chair Roberts doesn’t sound right. Chairwoman sounds like charwoman, which is a rude non sequitur and oddly Dickensian. Chairperson sounds ridiculous. Chairman is the best I can do. Oh well.
Item 2: I am a registered Republican and one who is fiscally conservative (I describe myself as a common-sense conservative). I am a budding party activist and the GOP chairman of Mecklenburg Precinct 123. I am opposed to increasing the rate of any tax at the local, state, or federal level. Period. If you think that Republicans are a bunch of heartless windbags who don’t know what they’re talking about and should be treated as tartly as possible, then I support your right to have whatever views you like, applaud you for having such strong ones, wish that they were more well-informed (with all due respect), and suggest that you stop reading here, because everything that Republicans say is a lie or misinformed garbage for rich people like Warren Buffett and stars who are paid tens of million dollars for acting in a movie. I respect Jennifer Roberts, a Democrat, which is why I am coming to her defense; civility and support cross party lines, or should.
Item 3: I loathe using the word revenue to describe collected taxes and prefer the term “tax receipts”. Revenue is money that an individual or company receives from its business activities, through voluntary exchange with a customer. The government has zero revenue in the traditional sense of the term, unless you count park admission or parking fees or something along those lines. Taxes are monies that an individual or business is forced to pay in order to have something (property, income, cigarettes, etc) that the individual or business desires, and tax receipts are the taxes collected. Because the item in question is desired, the government can use it as a point of leverage for wealth, income, or property confiscation. (See item 2, above. I will avoid quoting Hank Rearden or Francisco d’Anconia. This time.) Another handy way to distinguish revenue from tax receipts is that revenue is what a company can charge, through voluntary exchange, before a customer takes his business elsewhere, and taxes are what a government can charge, through involuntary exchange, before people move their pursuit of whatever makes them happy elsewhere.
Item 4: Six of my eight children attend CMS schools, so I have a vested interest in Dr. Gorman’s success. The other two attend a charter (high) school, so I have a vested interest in the success of charters as well (I support NC Senate Bill 8, for whatever that is worth).
Item 5: I am extremely verbose and opinionated. If you haven’t figured that out already, well, as a polite Southern grandmother might say, bless your heart.
Read on.
John F. Kennedy, Ronald Reagan, and George W. Bush were Sneaky, Tax-Hiking Liars!
Kennedy, Reagan, Bush all cut top marginal income tax rates. Instead of dropping, federal income tax receipts increased all three times.
The reason is something called the Laffer Curve. Here are a couple of videos explaining it (They are long, but good):
As income tax rates drop for the top brackets, people have more money to invest, and there is more incentive to move from one bracket into another and to avoid loopholes and tax shelters. The result is that the tax base (i.e. overall income) grows so much, due to an economy that expands because of the lower tax rate, that it more than makes up for the lower rate.
When Reagan implemented widespread tax reform in the 1980s, he was ridiculed, and a lot of people still don’t understand how lowering income tax rates increases tax receipts. This is why people who talk about the government losing revenue due to the Bush tax cuts are dead wrong. Some tax policy (such as the child tax credit, which I just love) actually do contribute to an overall drop in tax receipts, but cutting top marginal rates has increased tax receipts.
The point is that an increase in tax receipts is not necessarily due to raising taxes. I understand that keeping tax rates flat and cutting them are not the same, but the analogy is fair.
What would a “sneaky” property tax increase look like?
There are a couple of possibilities here.
One would be if the county commissioners set a goal for tax receipts and revalued property to increase the overall value upward by a certain percentage which, coupled with a set rate, increases revenue by the desired amount. (N.B. No one in his or her right mind thinks that this is how the county revalues property. Well, there was that one time that they met in secret with a Bilderberger and an Elder of Zion, but generally, tax values track with recent sale values and comps for a particular house.)
Another would be to increase tax rates incrementally, year-over-year, between revaluations, when there’s not a whole lot of press coverage. This isn’t exactly sneaky, but it lacks the transparency and high profile of this year’s debate.
The Merits of Keeping Property Taxes Flat
Hopefully I’ve put to bed the Observer’s ill-considered claim that by spelling out exactly what she’s doing, Jennifer Roberts is being sneaky. She’s not. Done.
Now, I’d like to examine, as briefly as I’m able (not very), whether Mecklenburg County should keep tax rates flat or aim to keep tax receipts flat. For those of you who have stuck around so far for cheap laughs, now is a good time to abandon ship, because the rest is more substantive.
I favor flat tax rates, at least for this year, with an important caveat in the final paragraph of this piece (far below). The reason is that Charlotte-Mecklenburg Schools are set to have their budget cut by $100mm, or ten percent. That is on top of $185mm of cumulative cuts from the past two years. While one can argue, reasonably and successfully, that schools are inefficient and can reduce expenses by cutting the fat, CMS is expected to eliminate ~600 teacher positions if the full $100mm of budget cuts are realized.
There is a tipping point at which CMS, which has been improving for a few years, will begin a steep decline, especially in its schools with large populations of economically disadvantaged students.
If students and their families fail to take advantage of opportunities, then there is not much that we can do to help them. Equality of outcomes will never exist. However, if we, as a county, fail to provide opportunities to overcome despair and the soft bigotry of low expectations, then we are failing to fulfill one of most basic duties--to provide equality of opportunity to all citizens.
The opportunity of a good education for all is not simply a moral issue. It is also a practical one. As long as we do not have a punishingly high tax burden, Charlotte will grow if we have good schools, whereas she will stagnate or decline if we do not.
In other words, this is not simply an issue of being our brother’s keeper. Good education is an issue of rational self-interest for every Charlottean. Ultimately, I hope that families will have significantly more choice, through more charters, but education reform is another topic for another day. (I favor a voucher program as well, but this is not politically viable right now.)
The law of diminishing returns applies to education as well as any other endeavor, of course. If we were to double per-pupil spending, there is no evidence that student performance will double or that drop-out rates will halve. I suspect that throwing more money at schools won’t do much, in fact, and we need to focus on reform to turn our schools around.
That said, it is likely that if we have to lay off six hundred teachers across the district, if teacher’s assistant positions are eliminated, and if class sizes are forced to increase, then student achievement will decline.
Will performance stay the same for some students? Sure. Of course. Will it improve for others? Probably. Some teachers and administrators may come up with some neat ideas to do more with less. However, I fear that those are the exceptions, not the rule.
I suspect that many or most teachers will be increasingly stressed and unable to control their classrooms, and schools will become filled with even more outrageous behavior, more student apathy and sloth, and declining aggregate test scores that reflect thousands of students falling into the group of individuals whom the school system is failing to educate.
In other words, if school funding remains stable due to flat property taxes, then we will give Dr. Gorman, the Board of Education, and principals across the county time to reform without losing wider swaths of students to a culture of destruction.
The Demerits of Keeping Property Tax Rates Flat
The problem with the rate neutral proposal is pretty obvious: More money will leave the private sector and be removed from the economy. We should be honest here and admit that this is becoming an increasingly serious problem across America. Just as there is a tipping point where too little money will cause schools to crash, there is a tipping point where the accumulation of too much debt, coupled with too little money staying in the private sector, can cause our economy to crash.
This is primarily a national problem, though. It is true that spending by the federal government is increasing at an alarming rate (from 1.8T in 2000 to 2.9T in 2008 to 3.7T for 2012), and as government spending increases, it will threaten the health of the economy overall.
We do not have a similar local problem, however. Do county and city government waste some money? Certainly. Every government does. We Charlotteans do not, however, have a local problem of profligate spending and an out-of-control government like we Americans do in Washington. The city and county manage their books pretty effectively. In Mecklenburg County, we spend an appropriate portion of tax receipts on things on debt service, and we maintain a AAA bond rating, which not many governments manage to do. There are even outstanding bonds that have been approved by voters but not issued. Things are pretty sound in the Great State of Mecklenburg, fiscally speaking.
There are certain things that can only be done, or best be done, by government, including national defense, minting currency, providing first responders, and ensuring the availability of education for all. Some of these are national (defense, currency), but most are local. One of the big political problems of our day is that the national government is trying to do things that should be done locally. This is one of the key ideological differences between the two political parties.
To return to the issue of local property tax rates, Mecklenburg County does run the risk of continuing to lose people to surrounding counties. The tax rate is necessarily higher here than in neighboring counties because we have a big city, more complex infrastructure, and more problems due to violent crime, narcotics, domestic violence, the assimilation of immigrants, etc, all of which require significant governmental support.
I don’t think that we’re at the point where the tax burden is excessive. If the county were going to raise rates, I would probably complain, but they’re not. The position that government bodies should cut taxes whenever possible is tempting on the surface, but (especially where local government is involved) it is, in fact, doctrinaire and dangerous.
Summary and Conclusion: Balancing Priorities and the Promise of Common-Sense Conservatism
In the end, it comes down to an issue of balance. The BOCC must determine what will provide the best return on investment to Mecklenburg County. We are dealing with trade-offs, and the issue is best viewed in that light.
Revenue Neutral, benefit: The BOCC can cut tax rates to create the revenue neutral scenario. (Again, reducing rates is a tax cut, even if it yields flat tax receipts.) A major benefit is that this will leave individuals and businesses free to spend money as they like, which will probably yield some economic benefit. It will also make Mecklenburg County a more attractive place to buy property. Under normal conditions, this would probably lead to slightly increased demand and, therefore, a slight bump in property values. Given the continuing correction to the value of real estate, I have a hard time imagining this particular benefit in the short term.
Revenue Neutral, cost: If the 10% cut in CMS funding causes enough classroom damage, it will make Mecklenburg a considerably less attractive place to live and is likely to lead to flight to surrounding counties. The same holds true on a place to headquarter businesses.
Rate Neutral, benefit: Keeping rates neutral, at least in the short term, will allow Dr. Gorman and the Board of Education to enact reforms slowly and avoid drastic cuts and ad hoc class structure redesign. CMS has been improving for the last few years and is a finalist for the third consecutive year for the $1mm Broad Prize for Urban Education. Consistent, predictable funding will allow for smooth transitions to more efficient, high-quality education. This benefits the county because it makes it a more attractive, better place to live and locate businesses.
Rate Neutral, cost: This is essentially the converse of the revenue neutral benefit. Some individuals will be more likely to pick a surrounding county to buy a house, and less private sector money will slow short-term economic growth.
The best course, as I see it, is to maintain current rates, or something very close to them (perhaps a penny or two less), with a tiered approach that cuts rates gradually over a few years, down to a strategic target rate, which could be set by a bipartisan commission, if lowering property tax rates is one of the county’s goals.
Just for the sake of illustration, the current property tax rate is 83.87 cents per $100 of value. A revenue neutral rate is ~75 cents per $100. We could have a goal of getting to 70 cents per $100 (or 65 cents or whatever number the theoretical commission recommends) within a fixed number of years by steady, planned cuts. Or, if elections or referenda determine that Charlotteans have a goal of increasing the budget of local government, perhaps we set a rate that is fixed at the current rate and index it to inflation so that, at the very least, county employees can receive cost-of-living increases (which they have not received in the last couple of years).
This would allow for stable, predictable taxation in the future without jeopardizing the health of CMS or the potential success Dr. Gorman’s reforms or jeopardizing other essential, county-funded programs (There are many).
I do have one reservation about the rate neutral approach: We do not know how Raleigh will react. If they compensate for increased local school funding by allocating fewer per-pupil state dollars, then we will have done ourselves harm. In effect, we would be socializing incremental local property taxes statewide (i.e. the 8 cents per $100 of value between the revenue neutral and rate neutral rate). The state taxes that we would not get would be sent to other counties, and so the benefit of incremental rate neutral receipts would be realized by other communities.
This is a real concern, and our commissioners need to communicate with politicians in the statehouse to understand how they would act in both scenarios.
If commissioners discover that Mecklenburg’s per pupil allocation will drop, then the course of rational self-interest for Mecklenburg is a revenue neutral rate. If, however, they determine that the state’s per pupil allocation will be fixed, regardless of local tax receipts, then the prudent course, at least this year, is to keep property tax rates flat and allow Dr. Gorman to do his job.
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