Since I’m a fiscal wonk, it’s sometimes tempting to overstate the importance of good tax policy. So I’m always reminding myself that all sorts of other factors matter for a jurisdiction’s competitiveness and success, including regulation and government effectiveness (and, for national governments, policies such as trade and monetary policy).
That being said, taxes are very important. In some cases, you could almost say tax policy is suicidally important.
Here’s some of what the Wall Street Journal reported earlier this week.
Hartford, Connecticut…is edging closer to joining a small club of American municipalities: those that have sought bankruptcy protection. …The city must pay nearly $180 million on debt service, health care, pensions and other fixed costs in the coming fiscal year beginning July 1. That is more than half of the city’s budget, excluding education.
This sounds like a run-of-the-mill story about a city (like Detroit) that has spent itself into fiscal trouble, mostly because of a bloated and over-compensated bureaucracy.
But tax policy is the story behind the story. Here’s the headline that caught my attention.
As I’ve written before, this is the “Fox Butterfield” version of financial reporting (he’s the New York Times reporter who was widely mocked for repeatedly expressing puzzlement that crime rates fell when crooks were locked up).
Simply stated, it would be more accurate to state (just as it was in Detroit) that the city is in trouble “because of” high property taxes, not “despite” those onerous levies.
Imagine being a homeowner or business with this type of burden.
Since 2000, Hartford has increased its property-tax, or millage, rate seven times. The rate is now more than 50% higher than it was in 1998. At the current level, a Hartford resident who owns a home with an assessed value of $300,000 currently pays an annual tax bill of $22,287, at rate of 7.43%. A West Hartford homeowner with a similar house pays $11,853 at a rate of 3.95%.
Wow, you get to pay twice as much tax on your home simply for the “privilege” of subsidizing an inefficient and incompetent city bureaucracy (not to mention the problem of excessive state taxes).
No wonder some major taxpayers are escaping, leaving the city (and state) even more vulnerable.
…the impending departure of one of its biggest employers, Aetna Inc. …Aetna and the other four biggest taxpayers in the city contribute nearly one-fifth of the city’s $280 million of property-tax revenue. Property-tax receipts make up nearly half of the city’s general-fund revenues.
To make matters worse, the city exempts a lot of property owners, which is one of the reasons for higher tax burdens on those that don’t get favored treatment.
Half of the city’s properties are excluded from paying taxes because they are government entities, hospitals and universities. …In Baltimore, about 32% of the property is tax exempt, and in Philadelphia it’s 27%.
Excuse me if I don’t shed a tear of sympathy for Hartford’s politicians. The city is in dire straits because of a perverse combination of excessive taxation and special tax favors. Combined, of course, with lavish remuneration for a gilded bureaucracy.
That’s the worst of all worlds. It’s Detroit all over again. Or you could call it the local-government version of Illinois.
Needless to say, I don’t want my tax dollars involved in any sort of bailout.
P.S. Though it would be amusing if Hartford politicians thought this bailout application form was real rather than satire.
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Big problem with municipal bankruptcies is that the judges are local. They have families, kids in school etc. They are vulnerable. In the Vallejo case, the bondholders took a 99% haircut while the pensions were not touched. Stockton was similar. Guess why.
Those numbers cannot possibly be right. $22,287 per year in taxes is $1857 per month in taxes. You can RENT an $400,000 house for that –in California of all places.
In other words it takes you thirty years to repay your mortgage but you repay your entire house in taxes every 13 years? That can’t possibly be right.
Even at half that taxation I would think most people would have left. If the numbers are real then the most depressing thing is that there are any people left in Hartford. What does that say about the elasticity of taxation? Or the elasticity of Hartford residents’ stupidity for that matter?
AETNA is casting a huge, negative vote on Hartford and Connecticut. Current property taxes and policies have already reduced the value of AETNA’s property. It can’t recover the value that the tax burden has destroyed. A buyer subtracts the value of future taxes to be paid when buying any real property.
The only savings AETNA can make is to avoid future INCREASES in property taxes and to flee future decline which may be caused by the socialist politicians of CT. So, AETNA is betting that things are going to get much worse, and is willing to pay the costs of relocation to escape now. AETNA is used to discounting the future, as an insurance company.
Great example of excessive taxation and its effects….
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