A Tale of Two Taxes

The following is my first post at The Patriot Ledger's election blog.

One of the discussions here that made me decide I'd like to contribute to the debate more was about taxes. Specifically, it was asked that someone show the difference between two tax increases, as measured by the average Quincy homeowner's tax bill. That single aggregate number doesn't tell the whole story - no one metric does - and there is actually a very large difference between a tax bill increase from house price appreciation and one from a tax rate increase.

Koch's contentious tax rate increase this year did a lot of good (keeping city workers employed, keeping the city running) in the face of a lot of bad news (house price DEpreciation and impending reductions in state aid putting downward pressure on city revenues). What was the appropriate balance of tax increases and budget cuts to get Quincy through the economic downturn with a minimum of pain to residents. It's an incredibly tough decision, did he make the correct call? Would Quincy be better off with fewer services but lower taxes? Or with more services and higher taxes?

I don't know; Nobody knows.

I wanted to make it clear that I'm not making a judgement about Koch's tax rate increase here, I just want to refute the argument that this year's tax increase imposes the same burden as one that came about through the housing market boom - because it is demonstrably untrue.

Let's look at the two situations from the homeowner's perspective. In case one, in the early-mid 2000's, the homeowner has just gotten hit with a 500 dollar property tax bump, due to their house being reassessed at a higher value. A $500 increase at a tax rate of around $10 per thousand dollars of property value translates to about $50,000 more equity in their home.

What's important to note is that this homeowner has a lot of options. If times are good (which they likely are, all the economic indicators like unemlployment rate, average salary, average hours per week, etc. were doing well), that equity can be leveraged into home improvements or expansions. If times are tough, they could sell their home into a booming market and keep the change. Is it great to be paying more in taxes? No, that's never fun, but this example family has their options open to help balance their budget.

On the other hand, a rate increase during a recession is very rough on families. The ability to pay is at a low because unemployment is high and even those who are employed are losing hours. Even the ability to reduce expenses by moving is weakened, as anyone attempting to sell their home will tell you. House price depreciation and a tax rate increase are a double whammy for homeowners - they have less and have to pay more to keep it.

Again, this isn't a value judgement about Koch's choices. These are hard times, and the alternative of more budget cuts could very well hurt the city even more than the tax increase. We're in the middle of a tremendous economic downturn, and anyone in the mayor's seat will be making tough choices. I've great respect for all the candidates - they are all fighting hard for a difficult and sometimes thankless job.

Later I'll be posting some actual numbers from the department of revenue, and links so you can go look these data up yourself. Both the Koch and Phelan campaigns use limited metrics to measure taxes, so it's important that we as voters take the time to educate ourselves.