NYS Assembly Hearings on Property Tax Cap

Living on the edge?



Polly Cleveland, author of our current lead article, Restore the Original Wealth Tax, testified before the New York State legislature yesterday, arguing against Governor Andrew Cuomo’s proposal to cap property tax increases at 2% or the rate of inflation, whichever is less.  See below for her testimony.

Polly reported that someone from a New York State-based liberal policy group testified in support of the cap on property-tax increases, and even argued that it didn’t go far enough. “Because, he says, ‘the property tax is not related to ability to pay,’ there should be a circuit-breaker program, reducing people’s property taxes to what they can afford based on their reported income.” Here’s what Polly had to say about that claim:

As at least some of the legislators recognized, this is nonsense. As one upstate legislator said, if I buy a house I can’t afford, I should then get a tax break? That would amount to having other taxpayers subsidize people who bought expensive houses. Of course property taxes ARE related to ability to pay, because they’re based on the value of an asset–which people can sell or borrow money against. And as for basing property taxes on reported income–i.e. income after loopholes…

I do however support allowing a limited class of hardship cases–low income elderly or disabled–to DEFER taxes with interest as long as they retain title and remain resident. That should take care of any genuine sympathy cases, at little or no cost in tax revenue.

The New York Times had an article a couple of weeks ago giving tacit support for Cuomo’s proposal, with this misleading title: Rising Property Taxes Overwhelm Many Who are Living on the Edge.  It’s misleading because it gives examples of four families who are being overwhelmed by property taxes, but if these are the best examples they can find of people who are “living on the edge,” then their case for reining in property taxes isn’t very strong!  Here was Polly’s take on the article:

Despite the suggestion in the title “living on the edge” none of these families is poor. There’s a couple whose income from a pottery business has fallen off; they are spending $300,000 in savings to buy a new home in Nova Scotia. There’s an 81 year old woman hanging onto her house, assessed at $73,000 but probably worth several times that, plus an investment in 23 acres of woods in a nearby town. There’s an elderly Westchester couple with a 3 bedroom house and $850,000 in savings; they have health problems and an autistic son to care for. There’s a couple where the husband was twice laid off communications executive job, forcing them to give up their four bedroom house on 1.5 acres, defaulting on a $290,000 mortgage.

It is sad cases like these which lend support to Gov Cuomo’s effort to (further) cap New York property taxes. And of course these middle class property tax victims vote at higher rates than genuine poor.

The image that accompanies this blog post is from the article; it depicts the unfortunate Jaqueline Cohen, the potter who has to move to Nova Scotia with her partner Vaughn Smith because they can’t afford the property taxes in Ulster County.  Here’s their story:

Jacqueline Cohen and Vaughan Smith moved their pottery business and 12 cats to the Ulster County, N.Y., community of High Falls from Columbus, Ohio, in 1994. They paid $210,000 for an 1824 farmhouse on 1.9 acres, and spent $70,000 to build a studio out back. They later invested an additional $10,000 to add a gas kiln.

After 17 years, though, they are moving to Nova Scotia–driven, they say, by the taxes on their home, which have tripled to $10,065 a year while their net income has fallen to $35,000.

“I think property taxes are destroying our community,” Mr. Smith, 55, said, adding, “Families have to choose between paying their property taxes and buying health insurance and putting food on the table.”

After paying their property taxes, the couple had about $25,000 left over for food, utilities and other living expenses. Health insurance was $8,000. Water was $700 a year, and garbage pickup $600. Switching to a wood stove lowered their heating oil bills to $600 a year from $2,000.

As sales of their hand-crafted bowls, mugs and tableware have slowed, they have withdrawn $5,000 to $10,000 a year from their savings to cover their costs. “We’ve tried to hang on,” said Ms. Cohen, 54. “We’re self-employed and we don’t have a safety net of pensions. We have to be able to save, and that’s why we don’t see a future here.”

The couple used their remaining $300,000 in savings to buy a 2.5-acre waterfront property in Nova Scotia, where they will pay just $1,440 in property taxes that include water and garbage pickup. They plan to sell their High Falls home, which is assessed at $430,000.

The home certainly looks lovely!  And it has certainly appreciated in value since they bought it.  They make a bit less than I do, and I can’t afford a home that’s worth $430K, and I don’t have $300K in savings with which to purchase a 2.5-acre waterfront property.  It is sad that they can’t continue to practice their art and run their business in Ulster County if that’s where they’d prefer to be, but I don’t think it counts as hardship.  The other stories similarly offer little support for lowering property taxes;  they could just as easily be framed, as Polly put it in her testimony, as “business failure, job loss, poor health, or–in one case, reluctance to cash out of an investment property–23 acres of woods inside a town.” (Add to this that it could also be framed in terms of the economic conditions that lead to business failure and job loss, or the fact that we have a society in which poor health or the need to take care of a disabled child can lead to financial ruin; these might be proper political lessons of these stories, not that property taxes should be lowered.)

Now, here’s the testimony Polly gave to the NYS Assembly:

New York Assembly Committee on Ways and Means

Testimony on Cap on Property Taxes

Dr. Mary M. Cleveland

March 1, 2011

Honorable Assembly Members:

I teach environmental economics at the Columbia University School of International and Public Affairs. My specialty is economics of wealth distribution. The views here are my own.

I am speaking in opposition to the bill to cap increases in property tax rates at 2% or the rate of inflation, whichever is less.

  • Limitations on property taxes serve to shift taxes from large corporate property owners and wealthy individuals to ordinary taxpayers.

o      In an age of income and corporate tax loopholes, the property tax remains the only tax many rich people and corporations pay.

o      On average about 50% of taxable real estate is corporate property, not residential.

o      The top 20% of US families own over 90% of “non-home wealth”, which includes corporate securities. This makes them the primary payers of taxes on corporate property.

o      Proposition 13, which rolled back and froze California property taxes in 1978, was promoted by real estate interests. The largest beneficiary was Standard Oil of California, which saved $25 million a year in taxes.

o      On the PBS NewsHour 2/25/2011, Republican Governor of Indiana Mitch Daniels boasted how he had put through “the biggest tax cut in the history of the State of Indiana,” by replacing property taxes “two for one” with sales taxes.

  • It is profoundly undemocratic to limit the ability of citizens of local governments to tax themselves to provide desired services. There are no such limitations on sales or income taxes.
  • There is no “property tax crisis” that might justify such a measure.

o      The February 2011 Gallup Poll asked respondents to “name the most important problem facing this country today.” Answers were: Unemployment—35%; Economy in General—29%; Healthcare—16%; Dissatisfaction with government—12%; Federal budget deficit 11%; Other—29%.

o      The most recent Gallup poll addressing the local property tax, in 2005, found 35% of respondents considered it the “least fair tax” vs. 20% for the Federal income tax—but still far short of a majority.

  • The tax on residential property within a given jurisdiction is highly progressive, because the value of homes rises much faster than income. Studies have shown home value rising with the 1.8 power of income.
  • Many tendentious anecdotes supposedly show how property taxes burden poor homeowners.

o      A New York Times story on February 20, 2011, Rising Property Taxes Overwhelm Many Who are Living on the Edge, recounts the cases of four families supposedly threatened by rising property taxes. Despite the title, none of these families is close to poor. Each of these cases could equally have been a story of business failure, job loss, poor health, or–in one case, reluctance to cash out of an investment property–23 acres of woods inside a town.

  • The hardship of low-income elderly or disabled homeowners can be addressed by a program to defer taxes with interest as long as owners remain resident and retain title.
  • We don’t need property tax relief; we do need property tax reform. Like the income tax, the property tax is riddled with loopholes and often poorly administered.

o      All property should be assessed at market. It’s especially important to keep the land component of assessments up to date.

o      There’s no justification for multiple classes of property in New York City, each assessed and taxed at different arbitrary rates.

o      There’s no justification for special assessments for farmland or forest land. These loopholes just provide cover for speculators.

o      There’s no justification for special property tax abatements to attract businesses to particular locations. Such deals cost more than they generate in jobs, and again, benefit primarily speculators.

  • Since all citizens have an interest in the education of children, it makes sense to follow New Hampshire and implement some property tax revenue sharing between richer and poorer jurisdictions.
  • This property tax cap proposal is yet another corporate wolf dressed as a poor widow.
  • I attach my article, “Restore the Original Wealth Tax,” to appear in the March/April issue of Dollars & Sense magazine. I will be glad to provide the Committee with further references on property taxation.

Finally, we’ve gotten some negative feedback on Polly’s article from the folks at Citizens for Tax Justice, who are on record claiming that property taxes are regressive–while Polly argues that they are progressive. Polly’s article criticizes them for helping to fuel anti-property-tax initiatives, like Cuomo’s. We are hoping that someone from Citizens for Tax Justice will contribute to a debate with Polly for our May/June issue so we can sort through the policy ramifications of this disagreement.

–Chris Sturr

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