First, I want to thank Bill Cullen for reading my website and engaging in a
debate about tax policy. I think it is very important that we talk about
taxes in our community because we need to talk explicitly about the impacts
that the tax system creates.
Bill Cullen wrote:
Carol Becker's website says:
(A)lthough property values have been going up, the tax base really hasn't
because commercial and rental property are paying less.
My response:
Hogwash. I own multiple rental properties and not one has seen a decline
in property taxes. NOT ONE! Increased valuations have offset any change
in
the mill rate.
This may be true if 1) you have had rental property that was 1-3 units,
which is treated differently under the tax system than larger rental
property (it is treated much more like a home) or 2) if your property has
been increasing in value faster than the tax breaks have been reducing
taxes, which has been happening with many of the properties that used to be
very low value. Rental property on the extremely low end has seen valuation
increases of 500% or 600% or even more which would make the owner rich but
would also increase the taxes.
In the end it depends on your individual property. I have written about the
tax system generally. But let me show you a typical rental property:
16 unit rental property in Whittier:
Value in 1995: $425,000
Value in 2005: $1,263,500
% change in 10 yrs: 297%
Taxes in 1995: $21,023.34
Taxes 2005: $23,318.28
% change in 10 yrs: 11%
Annual change in taxes 1.1%
Now let me compare that to my house:
Carol's bungalow:
Value in 1995: $84,000
Value in 2005: $216,500
% change in 10 yrs 257%
Taxes in 1995 1,437.52
Taxes 2005: 2,506.32
% change in 10 yrs: 74 %
Annual change in taxes 7.4%
So let me say this in summary: An average apartment had its value triple
over ten years with an annual tax increase of 1.1%, less than inflation. My
house had an increase in value of about two and a half times and an annual
increase in taxes of almost 7.5% a year.
What you dance around is the fact that apartment buildings used to pay
THREE TIMEs as much taxes as homeowners (per thousand in value). The
adjustment
our state legislators made was to move apartment buildings down close to
homeowners -- but apartments still pay more. How come you don't say that?
The tax system is extremely complex and I could probably write a book on all
of the subtleties of the Minnesota tax system. The piece I wrote was
focused on the issues of homeowners and I didn't try to address issues of
rental or commercial properties.
It is true that rental properties pay more. Rental property is perceived
both as a home and a business. As such it has always paid a tax somewhere
between commercial properties and homes.
Carol Becker website continues:
(T)he City is taxing us more. Tax collections
from 2001 to the Mayor's recommended 2006 have gone
up 43% in real dollars over the last six years.
My response:
So what you are really saying... Is that City expenditures are going up
faster than the rate of inflation (you said inflation was 18% during those
years).
I made no statements about the City budget (which is another whole kettle of
fish) only about the dollars levied, which have gone up faster than
inflation.
Carol's website hints that homeowners should be complaining about the
rental property tax equalization. If you take Carol's advice, Please
respond to
the following questions:
1) Rental property is the most affordable housing in Mpls. Do you think it
is wise to increase the cost of such housing?
The best way of an individual building wealth is to own their own home. The
state has chosen to have the lowest tax levels for owner homes to help
persons build wealth. This has been successful as Minnesota has the highest
home ownership rates in the country.
The reductions made to rental and commercial properties have worked against
this goal by shifting a larger amount of tax onto homeowners.
Also, there is no free lunch. The reductions made to rental and commercial
properties contributed to the lack of funds for police, firefighters,
libraries, snow plowing, and parks, which has made Minneapolis a poorer
place to live. As my neighbors are in fear of crime in a way that I have not
heard since I moved here 13+ years ago, I become increasingly of the option
that the tax cuts made to commercial and rental property haven't served the
City well. There is no cutting tax without cuttings services or shifting
burden to someone else.
2) Apartment dwellers still pay a higher percentage of taxes on the
property evaluation. If their current higher tax rate is not enough, how
much higher
taxes do you think they should pay?
Your statements assume that all the property taxes get passed onto renters.
But in reality, even though taxes have declined for large rental properties,
rents have been increasing faster than inflation. (The Fed - report at
http://minneapolisfed.org/pubs/fedgaz/05-05/Fair_Market_Rents.xls) So it is
hard to see how these savings have been passed onto renters. If it is true
that tax costs have gone down and rental rates have increased due to overall
market conditions, it is hard to see that these reductions did anything but
go into the pockets of property owners instead of renters.
So the real question it seems is that was it worth not having enough money
for cops and libraries and firefighters to put more money in the pocket of
rental property owners? As my family talks about the mugging in front of
the Modern and the beating that a man took on 31st after confronting some
hookers which took the cops 30 minutes to respond to just to find out that
simple assaults are not being prosecuted, I'm thinking it hasn't been worth
it.
Also I would note that the State does provide circuit breakers for low
income renters so the rental tax is a progressive tax.
I want to thank Bill Cullen again for bringing up these issues and I hope
that this inspires more debate about the tax system.
Carol Becker
Longfellow
Candidate for the Board of Estimate and Taxation
Go Geeks!
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