Tag Archives: taxes

A reduced Federal tax break for commuters?

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Many would argue that the United States has clearly privileged the suburbs in its fiscal policies including helping to make mortgages more available and providing money for highway funding. At the same time, buried within Washington’s recent debate over tax cuts is a little tax break for commuters:

The amount of income that commuters who use mass transit will be eligible to shelter from taxes to pay their fares drops on Jan. 1 to $125 a month from the current $230 a month, while the tax-free parking benefit for drivers will increase from $230 to $240 a month, officials said today.

The steep reduction in the transit provision is due to Congress’ failure to renew the higher limit in the Commuter Benefits Equity Act, officials said, adding that they are hopeful lawmakers will approve a higher limit sometime in 2012…

The cut in benefits will have a similar effect as a fare increase because riders whose employers participate in the transit benefits program will be able to shield a maximum of $1,500 in income from taxes in 2012, down from $2,760 this year.

It interesting that these changes would boost the break for parking/driving to work while lowering the benefits for mass transit (perhaps temporarily). I bet this law has a fascinating history.

If the public is not particularly interested in tax breaks for large corporations, are they in favor of tax benefits for commuting? Does the approval for this depend on whether someone claims the tax break?

Thinking about the larger topic, it would be interesting to see how much the average driver benefits or pays for driving and mass transit. How much of a typical tax burden goes for transportation? How much does the average driver or mass-transit commuter get in return for the tax money that they pay in? Of course, we could have a much longer discussion about what the government should promote in its policies but I assume this is not at the top of the discussion pile in Washington.

Emanuel floats $2 congestion tax, parking lots fight back

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Chicago’s Mayor Emanuel this week floated the idea of imposing a $2 congestion fee for commuter parking and parking lot operators are not happy:

Parking industry executives said the mayor’s strategy, which City Hall officials said is intended to reduce traffic gridlock in the central business district and River North and encourage increased public transit ridership and investment, fails to address congestion issues across the Chicago region. They said Emanuel’s plan would create more problems than it would solve.

“We think highlighting parking taxes as a fix to a regional problem is missing the point,” said Marshall Peck, chief executive officer of InterPark, a major owner-operator of parking properties downtown. “The congestion of Chicago is primarily on the highways. Once you get off the highways in the morning, traffic is really not problematic.”

Many commuters and numerous traffic studies, however, would challenge the suggestion that downtown traffic flows well.

InterPark and other members of the Parking Industry Labor Management Committee have posted placards in their facilities showing the current taxes and how the top tax would increase 67 percent, from $3 to $5, under Emanuel’s plan. The companies are also distributing fliers to their customers encouraging city residents to tell their aldermen to vote against the proposed new fee.

There are some interesting ideas floating around here:

1. While a number of cities have looked into congestion taxes, they are still not widespread. In an American context, I presume this is due to their unpopularity.

2. This is just one possible idea among many others the City of Chicago is looking at in order to increase revenue.

3. Having parking lot operators suggest we need more regional solutions to traffic is laughable. The whole system as it is currently set up in most American regions privileges automobile traffic. So they want more people not to drive, potentially reducing their business? Additionally, many regions, such as Chicago, don’t really have metropolitan bodies that can enforce metropolitan solutions to congestion. To solve the problem in the Chicago region, the RTA, CTA, Metra, City of Chicago, State of Illinois, and dozens of municipalities would have to be involved and agreeable.

4. A number of people have argued that parking is way too cheap and this encourages driving. Congestion taxes then do two things: (1) raise revenue (2) reduce traffic by discouraging driving.

5. The parking industry is an interesting one as the long-term prospects for many surface lots is to make money while the company waits for a company to come along and make an expensive offer for the land.

6. Just how much are motorists willing to support the parking lot operators? Would companies and businesspeople really leave the city over a $2 charge?

The large percentage of Americans who use software or pay someone to do their taxes

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Here is a statistic that gives us some idea about how difficult the American public thinks filling out their yearly taxes is:

More than 80% of individuals hire someone or buy software to help file their taxes, though only 64% of filers owe them, according to the Tax Foundation. So millions of filers pay for help to learn that their tax liability is zero.

I recently finished doing these by hand and while it wasn’t terrible, it was time consuming. While the article suggests both individuals and companies spend a lot of time and pay a lot in order to have their taxes done, it sounds like the tax preparers and software companies have plenty of business…

The possible shifts in the foundations of tax bases

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Governments are dependent on tax bases for revenue. Hopefully, the tax base meets financial expectations and if things are going well, the taxes bring increased revenues, leading to more spending (and saving?) possibilities. But what happens when tax bases decrease?

This is an issue facing a number of government bodies and a number of taxes are affected:

-I was reminded of this again by this piece (h/t Instapundit) which suggests that increasing income taxes on the rich may not work out in the long run as economic troubles can greatly affect the incomes of the rich.

-Property taxes are affected by the assessed value of properties. If property values are down, such as in this economic crisis where it appears housing prices will be depressed for quite a while, then tax revenue may go down. (Or they may not – can local communities really afford to have less money coming in through property taxes?)

-So called “vice taxes,” on things like cigarettes, may be self-defeating: as people smoke less, the revenue will slowly dry up.

-The gas tax will be interesting to watch in future years: as the government pushes for more electric vehicles and with higher gas prices, this could mean that less gasoline is purchased. Money to pay for new roads and maintenance will have to come from somewhere.

A couple of questions about these different taxes:

1. Is the uncertainty about tax revenues in the last few years really that different from other points in history? If not, what have people done in the past?

2. Might we expect to see some major changes in taxation in the coming years as governments look for different (perhaps more stable?) or more sources of revenue?

3. How are sales taxes or VATs affected by economic crises?

(The realm of taxes is not my area of expertise but I do know the importance of some of this to communities: limited or decreasing property and sales taxes lead to big issues with budgets which then affect services which then angers residents.)

A few comments by Joel (3/31/2011):

One way that cities and states are seeking to increase collection revenues is through enhanced sales tax enforcement.  As Amazon is finding out, for example, governments have their ways of pressuring online retailers.

Of course, to a certain extent, this is simply turning into an arms race, with businesses increasing their lobbying budgets and hiring more tax attorneys.

Chicago Tribune calls for phasing out of mortgage-interest deduction

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What interesting arguments people will make in the midst of an economic crisis. While one commentator has a number of reasons why he is “never going to own a home again,” the Chicago Tribune argues that the United States needs to phase out the mortgage-interest deduction. The main reason seems to be that the deduction primarily benefits wealthier homeowners, not the middle class:

Trade groups such as the National Association of Home Builders portray the benefit as a middle-class tax break. But it does a lot less for most Americans than those with a vested interest in promoting home sales would have you believe: If you rent, you get nothing. If you have reasons not to itemize deductions, you get nothing. If you pay off your mortgage to live debt-free, you get nothing.

Borrow a fortune for a McMansion, however, and the Internal Revenue Service provides a big discount, at the expense of every other taxpayer. More than three-fourths of the benefit from the mortgage-interest deduction goes to the 14 percent of tax filers reporting six-figure incomes. Almost one-third of the subsidy goes to the population reporting incomes of $200,000 or more. Those 3 percent of tax filers at the very top receive about the same amount as do the 86 percent earning less than six figures.

As a consequence, this deduction does little to promote homeownership — supposedly its main objective. Data suggest that almost no one now benefiting from the break would flee the real-estate market. People just wouldn’t borrow as much to fund home purchases.

What is remarkable to me about both of these arguments is that such arguments might have been unheard of before this economic crisis. But since the economy has gone downhill, the housing market in particular (and the most recent housing figures are not good), desperate times apparently call for desperate measures.

All of this bears watching: will homeownership remain a cornerstone of the American Dream?

Discussing the mortgage interest deduction and how pricy (and large) a McMansion is

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One common use of the term McMansion is simply a large home. In this blog post about the mortgage interest deduction, the writer contrasts the price of McMansions to more normal-sized homes:

That means average homeowners with modest Capes and fixer-uppers are helping subsidize others stretching to keep up with the Jones and their million-dollar McMansions.

The measuring stick of a McMansion in this post is how large the mortgage is:

A close look at the interest rate deduction reveals much of its benefits go to homeowners with mortgages far larger than most in the middle of the housing pack. Check out this Forbes piece, which nicely lays out the argument for taking away this perk from the homeowners with outsized mortgages – incredibly the limit is currently $1 million…

The president’s deficit commission recommended capping the deduction’s use at $500,000 in mortgage debt, down from $1 million now, while nixing its use for vacation homes and converting what’s left to a 12.5 percent tax credit.

OK, I vote for keeping it simple and just lowering the mortgage cap to $500,000 or $600,000, while making second homes ineligible as well.

So a McMansion here would start with homes that cost $500,000 to $600,000. In most suburban communities, this buys a large home. In denser areas, not necessarily. What about older homes that cost this much – are these McMansions? It wouldn’t take too much searching online of real estate listings to translate these prices into square footage in particular areas.

Overall, this use of the term McMansion seems to refer to any large house beyond “modest Capes and fixer-uppers.” This use of the term seems quite vague: a McMansion is any (presumably larger) house above a certain price point.

City locations straddling the fine line between acceptable and edgy

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Certain urban neighborhoods draw attention because they are “edgy” and offer something different than mainstream American locations. What happens when these “edgy” areas start to disappear or start to become established, mainstream places? Here is a look at this process in New York City:

Around countless corners, the weird, unexpected, edgy, grimy New York — the town that so many looked to for so long as a relief from cookie-cutter America — has evolved into something else entirely: tamed, prepackaged, even predictable.

“What draws people to New York is its uniqueness. So when something goes, people feel sad about it,” says Suzanne Wasserman, director of the Gotham Center for New York City History at the City University of New York…

If there’s one thing that doesn’t change in New York City, it’s nostalgia. Consider Mayor Fiorello La Guardia. After his election in 1934, he worked to remove the pushcart peddlers clogging the streets of the Lower East Side, viewed by many as a problem.

Once they were gone, people missed them.

A couple of thoughts about this article:

1. Cities thrive on these edgy or odd locations. The whole city doesn’t have to be different but young people (and perhaps even the Creative Class) tend to like these edgier locations. When it becomes too mainstream, people move on to the next novelty. But the character of a city is expected to be more unique and odd than a typical suburban setting.

2. The article highlights how people generally don’t like change, even if it is dealing with issues they once thought were problems.

3. I wonder how much money this has been worth to New York City. For example, what kind of taxes did the seedy Times Square bring in compared to the sanitized and Disneyfied version of Times Square? Certainly, some of these areas are now more palatable to suburban residents and families, broadening the group of people who might visit a location.

4. This is a reminder that what is now “edgy” or “cool” likely won’t stay that way for long. Cities, in particular, change fairly rapidly as new residents and businesses move in and out. I’m sure more edgy places will pop up in New York City.

4a. Could a city develop a “historical preservation district” (or something like it) to protect an edgy establishment or block? By making it official, does the site automatically lose some of its edgy status?

About that New Jersey radio ad running in Illinois and asking businesses to relocate

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On the drive home from work last week, I heard a new radio advertisement where New Jersey governor Chris Christie appealed to Illinois businesses to take advantage of New Jersey’s business-friendly climate. The typical appeal was made: possible tax breaks or incentives, proximity to New York City and other notable cities, and an able work force await in New Jersey. Hear the ad here. (And New Jersey is not the first state to make an appeal in Illinois since Illinois raised its personal income and business tax rates.)

On the question of whether such radio advertisements actually do draw businesses to another state: I would guess that the success rate is low. In fact, perhaps the main goal is not to attract businesses from Illinois but rather to alert New Jersey residents that the state government is doing all it can to attract businesses and jobs and that it has a good business climate compared to other states. States have certain options by which they can attract jobs or make direct appeals to businesses and an opportunity like this, where a state notably raises taxes, presents an opportunity to make a comparison.

A few other pieces of information would be helpful in interpreting this advertisement:

1. How exactly does New Jersey’s business climate compare to Illinois in areas like the tax rate, labor force, etc.? How many businesses have moved back or forth in recent years?

2. Is Christie’s ad politically motivated? Here is a chance for a Republican governor to tweak a Democratic state.

h/t Instapundit

Side effect of housing slump: lots of property tax appeals

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With property values dropping in recent years, one side effect is that more homeowners are appealing their property tax bills. This has led to some problems in local government as officials try to keep up with the increased number of requests:

From Los Angeles to Atlantic City, the New Jersey gambling resort whose credit rating Moody’s Investors Service cut by three levels last month, property owners are demanding lower taxes after real-estate values plunged. The disputes over billions in dollars come as municipalities are already slashing services such as police and fire protection and may depress revenue further as communities try to recover from the longest recession since the 1930s. In Michigan, Governor-elect Rick Snyder has warned that hundreds of towns face financial crises…

Oakland County, the Detroit suburb with Michigan’s second- highest median income, didn’t previously pay much attention to Tax Tribunal cases because any losses were covered by new construction gains, said Robert Daddow, deputy county executive. Now, about $3.9 billion in taxable value, or 5 percent of the county’s tax base, is under review, he said.

Cities and towns across Michigan had property-tax collections plunge as much as 20 percent in the past year, the steepest drop since a 1994 rewrite of state levies, forcing scores to decide whether to borrow to pay bills or risk default on bonds.

Municipal budgets “tend to lag economic conditions” by 18 months to several years, according to a National League of Cities report in October that Pagano co-wrote.

The consequences for local municipalities could be staggering: less tax revenue means fewer services and in the long run, unhappy residents. And this is not just a short-term problem – economic recessions like this can have a long effect as the communities must rebuild budgets and restart development projects. I particularly like the example from Oakland County: when times were good, these sorts of appeals didn’t matter much because new development covered whatever appeals for lower taxes were approved.

One of the hallmarks of suburban development after World War II was the interest many communities had in promoting tax generating land uses. Additionally, many residents desire low property taxes. When population growth and housing construction was on the rise, even residential properties, which bring in property tax dollars but also require outlays for increased levels of services, were seen as a good. But in worse economic times, communities will have to double down even more on this issue: what land uses generate the most money for the community at large?

Battle over downtown land in Brookfield: private owners wants a church versus village’s long-term downtown plans

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The Chicago Tribune has a story about a battle over one area of possible development in downtown Brookfield, Illinois. Though it may be an relatively small development in a relatively small community, it illustrates a classic struggle in older suburbs: a property owner versus a community’s long-range plan.

On one side is a local resident who bought a significant piece of downtown property because she wants to build a larger building for her Methodist church and provide a place for families and teenagers to hang out. On the other side is the village who has a long-term plan for the downtown that includes using this land for tax-revenue generating purposes.

Here is some more detail about the discussion between the property-owner and the village:

After the vote Francis said she was disappointed but undaunted. She has invested more than $1 million and owns the 14 parcels of empty land and vacant buildings that form the triangle between Grand Boulevard and Washington Avenue, and she vowed that the church/community center will go there even if it takes years…

And village staff and the planning commission stressed that the project does not comply with the long-term 2020 plan. That plan calls for a mixture of businesses to attract customers and boost sales tax revenue along with residential development that would provide customers to those businesses during the day and evening hours.

“I just cannot bring myself to say this is a good project for that area of town,” Trustee Michael Towner said before the vote.

He acknowledged that new development has been slow in coming to the area, but said that just because it is the only proposal doesn’t mean it should be approved.

Both of the proposed uses for the land could be good: new businesses would bring in new tax revenues while a church/community center could help bring people into the downtown area as well as improve the chances for this church.

But in the end, Brookfield seems very concerned about not letting the property go off the tax rolls. How long will this woman fight the village or could they come to some compromise?