Saturday, November 22, 2014

Property tax caps don't create 'losses'

You’ve heard me say that property tax caps are unjustly being blamed for causing our fiscal problems. I’m going to try to explain what I mean and why blaming this mythical villain is counterproductive.

Posted on Aug. 16, 2014 at 6:21 p.m.

The county wants/needs/is gonna have to have more money. That’s what is being said.

That could be. It is not the purpose of this column to challenge the statements of the notables who are making this claim. The purpose of this column is to challenge the misuse of the word “loss.”

You’ve heard me say that property tax caps are unjustly being blamed for causing our fiscal problems. I’m going to try to explain what I mean and why blaming this mythical villain is counterproductive.

Sure, if tax caps were not in place, theoretically all government would have to do to raise funds is to keep raising the tax rates and thereby increase taxes. Ergo, all taxing units would be funded.

Of course all taxpayers would have less and less money. And in fact, that’s what led to the creation of caps. Property taxes were getting so high that voters screamed “Enough!”

But with the creation of the caps, a scapegoat was also created. Caps became a darling of the blame game. A scapegoat makes for good oratory, but it evades the core of the problem.

Let me use a metaphor to explain tax caps. Let’s say there’s a guy named Bob. He is living on an income from a trust fund called the Caps Trust Fund (CTF). Let’s say Bob gets $4,000 per month. He’s doing OK until one month when he spends too much and runs out of cash by the third week. Yipes!

He borrows from a friend and squeaks by. But on the first day of the next month, he asks the CTF for a larger allowance. He wants $5,000. He is refused and given just the regular amount of $4,000. He now has received the same amount as before, but he complains that he has “lost” $1,000 because of CTF.

And Bob gets in more trouble. Now he has a loan to pay back, plus he had to go to the dentist unexpectedly. The next month, he asks for $6,000. Again he gets only his regular amount of $4,000.

“My losses are growing,” he says. “I have now lost $3,000 because of CTF.” But he has not suffered a loss in the true sense of the word. He has just been denied an increase.

He may indeed need more money. Maybe it’s his fault for not having a savings account. Maybe it’s not his fault because living expenses have risen. But the CTF did not cause his problem. It just didn’t solve it.

Here’s a real-world example. When taxing units find they need or want more money, the tax rate on property may be raised to ask for more. Tax caps, however, are saying, “No, you can’t have more.” But that is not a loss. It is a refusal of the request for an increase.

I went to a financial planner and tax expert for some input. He ran some numbers. He pulled up info on a home in Elkhart County. In 2012, the property tax that was paid was $1,921 (It had received a tax cap credit of $1,622.68).

The next year, the property tax that was paid increased slightly to $1,935. (It had received a tax cap credit of $1,706.16 that year.) So government picked up an extra $14 from the taxpayer in 2013.

But the 2013 tax cap credit was $83.48 more than the year before. So even though the government received more money than before from this taxpayer, it claimed a greater loss “because of caps.”

Now before critics start jumping up and down and hyperventilating, let me say that I am not passing judgment on the needs of taxing units for more money. Their actual total income does appear to be diminishing for one reason or another. Their call for more funds may be entirely justified.

I’m just trying to cut through what I consider the bogus labeling of an accounting number as a “loss” in the hope that proper reasoning might be used to address fiscal responsibility.

Former Elkhart furniture store owner Richard Leib has served on planning committees in several industries. An avid auto fan, he raced in the 1972 coast-to-coast Cannonball Run. He has written on a wide range of subjects.

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