taxes

Elizabeth Warren Is Right: It’s Time to Reform Tax Preparation

Rule of thumb: when you're in doubt on an issue, Elizabeth Warren is always right. Do what she says.

Rule of thumb: when you’re in doubt on an issue, Elizabeth Warren is always right. Do what she says.

Michael Arria at Alternet says that Senator Elizabeth Warren introduced a bill called the Tax Filing Simplification Act, which would “direct the Internal Revenue Service to create a free tax preparation and filing service.”

This is an absolute no-brainer. President Ronald Reagan proposed a similar, “totally voluntary” system in which Americans would “automatically receive your refund or a letter explaining any additional tax you owe.” And since the 1980s, computers have only made it easier to track and tabulate what people owe in taxes. And for those who fear dirty tricks from the IRS, this would be a system with plenty of checks and balances: most importantly, if you disputed the IRS’s return, you could simply do your own taxes and file them, the way you do now. Nothing would change for you. Automatic tax filing makes so much sense! Who would possibly argue against making tax preparation easier?

Well, that’d be Intuit, the company that owns TurboTax. Arria says they’ve put $13 million into lobbying against automatic tax preparation legislation. In 2014, Jordan Weissmann at Slate pointed out the sleazy ways that Intuit fights tax prep reform. Their lobbyists trick advocates for poor Americans into believing that automatic tax legislation would somehow harm the poor. They claim that the institution of tax prep reform would mean the end of free tax preparation services for low-income Americans, which is patently false.

If you haven’t already, I’d urge you to read Tom Heberlein’s great article on Vox about Sweden and taxes. It’s packed with all sorts of interesting information about why Sweden isn’t the socialist hellhole that conservatives would have you believe. But the part that’s most relevant to our interests for this post is this description of what tax preparation is like:

In Sweden, the four-page tax form comes in the mail already filled out. On a Saturday morning, Betty and I take our coffee to the couch and review the forms. Seeing they look reasonable, as they always do, we “sign” with a text from our phones. In 15 minutes we are done. We don’t have to hire a tax consultant, and we avoid fights about whether a print cartridge bought at the drugstore is a business expense or not.

To hear certain politicians tell it, you’d think that bureaucracy is the worst thing ever. Conservative politicians hate paperwork, and all the seemingly endless delays that paperwork causes. With tax preparation, the government has outsourced millions of hours of pointless paperwork to the American people, turning us all into bureaucrats. The American people spend an average of $200 a year on tax preparation, and we spend an average of 13 hours getting all those forms filled out. We have the capacity to automate this process, saving Americans money and time every year, and we have the capacity to do so in such a way that Americans who still want to fill out their own taxes are still allowed to do so. Really, why wouldn’t we do this?

A Property Tax Primer (or Why Prop 1 Opponents Don’t Know What They’re Saying When They Say Property Taxes Are Too High)

One of the most frustrating things about covering property tax measures like Seattle’s Proposition 1 is that most people don’t understand the way property taxes work.

From a budget writer’s perspective, the property tax is the best tax ever, because if done correctly, it almost always brings in exactly the amount of money projected. That’s because, unlike the stupid, stupid sales tax, budget writers don’t actually set a rate and just cross their fingers hoping that the money comes in; they request a specific dollar value—for example, about $95 million a year over nine years for Proposition 1’s “Let’s Move Seattle” transportation levy—and then the county assessor adjusts the property tax rate annually based on current assessed value (subject to statutory limits) in order to generate the requested revenue. If property values rise from year to year, the rate goes down; if property values fall as they did when the real estate bubble went pop, the rate goes up. But if passed, Prop 1 is almost guaranteed to generate that $95 million a year.

Over the long run, nominal property values will almost certainly rise. So while the voters guide projects a tax rate of $0.62 per $1,000 of assessed value in year one, even a relatively modest 5 percent average annual rise in home values would leave the rate at about $0.39 per $1,000 of assessed value by year nine.

But unfortunately for city budget writers, as reliable as the property tax is, it is subject to two very important limitations. The first is known as the “statutory dollar rate limit”: the City of Seattle’s property tax authority is limited to $3.60 per $1,000 of assessed value. That is the maximum theoretical rate the city can levy without voter approval. But thanks to the second limit, known as I-747’s “101 percent limit” (or more accurately: “Tim Eyman’s Revenge”), the city’s actual regular levy authority falls far short of the statutory dollar rate limit.

Under the growth limit factor first enacted in the 1970s, and then punitively reduced to 101 percent under Eyman’s I-747 (and later reinstated by a cowardly legislature after the state supreme court tossed out the initiative), the dollar value of property taxes collected may not exceed 101 percent of the taxes collected in the highest of the three most recent years, plus an allowance for net increased property value in the district resulting from new construction.

Seattle property tax rates

Don’t know about you, but my property taxes aren’t so bad.

I know—that’s very complicated. But suffice it to say that thanks to the 101 percent limit, revenues generated from Seattle’s regular levy generally don’t even keep pace with inflation, let alone rising property values. As a result, the actual maximum regular levy rate available to the city council has been steadily falling as I-747’s 101 percent limit has ratcheted down revenue growth.

Fortunately, state law does allow for “lid lifts,”* enabling the city to raise revenues in excess of the 101 percent limit, but within the $3.60 statutory cap, subject to voter approval. That’s what Prop 1 is—a lid lift—as was the expiring “Bridging the Gap” it replaces. When you add up Seattle’s regular levy together with its various lid lifts, Seattle is currently levying a combined rate of just over $2.62 per $1,000 of assessed value. Add on Prop 1’s proposed $0.62 per $1,000 and our combined rate would still come in below the $3.29 per $1,000 we paid as recently as 2013! And our current combined rate of $9.27—city, county, schools, state, everything—is our lowest combined rate in six years.

Compared to the rest of the nation, that’s pretty damn low, ranking Seattle’s effective rate at 38th out the 51 largest cities in each state and the District of Columbia. (Also, we don’t have an income tax. So I suppose yay for our low taxes, if you’re into that sort of thing.)

And it’s not just our property tax rate that’s held relatively flat. According to data compiled by the Seattle Times, the property tax bill on a median Seattle home climbed from $3,214 in 2005 to $4,022 last year—an increase of $808, or 25.1 percent. But inflation increased almost 22 percent over the same period, resulting in a negligible increase of only about a hundred bucks in real dollars.

How is this possible? How could Seattle’s property tax hold steady in both rate and real dollars even in the face of skyrocketing home values and a seemingly endless parade of voter-approved levies?

Well, one reason this sounds so counterintuitive is that while everybody makes a big deal every time we put a new levy on the ballot, nobody sends you as much as postcard when these levies ultimately expire—and voter-approved lid lifts (typically 6 to 9 years) are expiring all the time! For example, sure, “Let’s Move Seattle” would add an additional $275 a year to the property tax bill of the median Seattle homeowner, but only after “Bridging the Gap’s” $130 a year levy expires. That’s not nothing. But it’s not really a $275 increase.

Second—and this is a concept that many folks find difficult to wrap their minds around—your property tax bill doesn’t necessarily rise or fall with your home value. Rather, your property tax bill mostly rises or falls when your home value rises or falls relative to median value. Again, this is the way property taxes work: we levy a dollar amount, not a set rate. Prop 1 is asking for $95 million a year. If Seattle home prices rise 10 percent, Prop 1 still only raises $95 million—we’ll all still collectively pay the same amount, just at a lower rate. However, if your home’s value rises faster than median, while my home’s value rises slower, your share of that $95 million will go up while mine goes down.

Again, I know, it’s all very complicated. But the point is, if you oppose Prop 1’s $930 million “Let’s Move Seattle” transportation levy because you think it’s filled with pork (or filled with the wrong pork), well, I suppose there may be coherent arguments to make against the measure. But if you oppose Prop 1 because we’re “piling one pricey property tax levy on top of another,” then you’re not being honest either to yourself or to your readers.

 


* There is also the option of rarely-used voter-approved “excess levies,” which get around the statutory cap entirely, but since they are limited to 1 year, they’re not really practical for dealing with anything but an emergency.

Skunkworks Stinker of the Day: Donald Trump

Donald TrumpRepublican presidential frontrunner Donald Trump insists that his tax cut plan would increase tax revenues, because growth!

“Overall, it’s going to be a tremendous incentive to grow the economy and we’re going to take in the same or more money. And I think we’re going to have something that’s going to be spectacular,” Trump said. “We’re going to grow the economy so much.”

Which would be great. Except, this trickle-down fantasy never, ever works.

That said, it’s not luck Trump’s tax plan is any stupider than any of the other Republican tax plans. So there’s that.

What’s the Matter with Kansas? It’s an Economic Shit Show, That’s What

If the goal was to lag the rest of the nation in job creation, Kansas Governor Sam Brownback's massive tax cuts were a huge success!

If the goal was to lag the nation in job creation, Kansas Gov. Sam Brownback’s massive tax cuts were a huge success!

By now, most of you are probably familiar with the budgetary disaster that Kansas Governor Sam Brownback’s massive tax cuts have created in the Sunflower State: Double-digit percent annual budget deficits as far as the eye can see.

Brownback’s pitch was familiar—cut taxes deep enough and the resulting economic boom would more than replace the hit to state coffers. But it didn’t work. Because it never works. Dr. Laffer’s Patented Low-Tax Elixir is pure economic snake oil.

Still, Brownback and his supporters have continued to argue, give his plan time to work and the lower corporate and personal income tax rates would surely draw businesses and jobs to the state. Well, now we know that’s not happening either:

Gov. Sam Brownback’s income tax-cut plan to spur job growth in Kansas has become a full-time disaster.

On Friday, the state announced it had lost 3,000 total jobs in August. That’s on top of the 5,100 jobs lost in July.

Here’s even more dire news: The Sunflower State in the past 12 months gained a total of a puny 1,000 new jobs.

That’s the fourth worst record in the entire United States, at .1 percent employment growth for the entire last year.

In terms of job gains/losses over the past 12 months, only West Virginia, North Dakota, and Alaska have performed worse—all states whose core fossil fuel extraction industries have been hard hit by the collapse in energy prices. Meanwhile, neighboring Missouri has added a robust 30,800 jobs over the past 12 months, despite its higher tax rates.

And in case you’re wondering, Washington added 92,200 jobs from August 2014 through August 2015, including 12,100 jobs in food services and drinking places, despite our highest in the nation minimum wage!

Hmm. If Brownback wants to grow jobs, maybe he should consider raising the minimum wage rather than cutting taxes? I’m just sayin’.