With budgets at the State and local levels being "right sized” (remember that euphemism?) due to the economy and Amendment 1, I regularly read that Florida needs a “fair” tax system. The folks demanding this never describe what that “fair” tax system is. I think the reason they don’t is that the “fair” tax system doesn’t exist. All taxes can be criticized as “unfair” in some way.

Let’s look at the fairness issues for the principal State and local taxes. I’ll even throw in the Feds as a bonus. Of course, we can’t do much about the Feds since they need lots of money to buy our vote, as Mark Hohmeister points out.

At the local level, property tax is the big kahuna. With Save Our Homes and Amendment 1, some folks say that the property tax is not fair because two homes with similar property values will not pay the same property tax because of differing length of ownership. That position is based on the idea that similar home values should pay similar property taxes to be “fair.”

But that idea assumes that property value is a valid indicator of wealth and ability to pay.  Perhaps that was true at one time. But in a rapidly growing state like Florida, and real estate speculation (buy that home and flip it), that is certainly not true now. Many folks bought their homes years ago and the fair market value (FMV) of the home today has little relationship to wealth or ability to pay, particularly for retirees who have “paper“ wealth (home value) but limited cash income. (And a report on the Democrat website says the fastest growing segment here is those aged 55-64... those close to retirement or recently retired.)

Here’s my personal example: we bought our home in 1989 for $80,000. In 2006, a similar sized home onoury street (and built one year before mine) sold for $220,000. But… our income is not 275% of what it was in 1989. So the idea that the FMV of our property means we can afford to pay taxes at that level is absurd. When I retire in two and a half years, my situation will be worse…which is why I’m looking at leaving Florida (and possibly the country, since Costa Rica is my first plan) after I retire.

I invite you to check the Property Appraiser’s records online for sales on your street before the housing market went south.  Calculate the percentage increase in FMV (not Save Our Homes value) since you bought the home, and compare that to the percentage increase in your income since you bought your home. Is your income percentage increase at least as much as the FMV percentage increase? If not, then why is it “fair“ for you to pay on the FMV?

I say it is grossly unfair for long time homeowners to pay based on FMV when that run up in value has everything to do with growth pressures and real estate speculation  and not a corresponding increase in wealth and ability to pay. But, if you can afford to buy a home at its current  FMV, then that suggests you can also afford to pay property tax on that value for at least the first year, after which you begin to benefit from the protection against future run-ups as Save our Homes and Amendment 1 provisions take effect.  That is fair!

At the State level, sales tax is the big one. Certain necessities, such as food, are exempt from sales tax to make it more “fair” for lower income folks. At first glance, everyone paying the same tax on an item appears to be eminently “fair,” right? After all, isn’t this exactly what those who say that if two homes have similar FMV, both homeowners should be paying similar property tax are saying?

Yet, even with the exemptions for necessities, sales tax is criticized by liberals as being “unfair” to lower income folks because that sales tax is a larger percentage of their income than that of wealthier folks. The technical term is “regressive.” (But that didn’t stop our City and County governments from pushing sales tax increases for infrastructure twice and again for indigent health care.
 
So, in one case (property tax), it is “unfair” if two homes with the same FMV do not pay the same tax. But in another case (sales tax), it is “unfair” if the tax amount paid is the same! Are you confused about what is “fair” yet? Because it gets better….or worse, depending on your view.

Now let’s look at  the poster child for unfairness in taxation…. yes, the Goliath Federal income tax which begs for a David to slay it. If the income tax’s purpose was simply to raise revenue then it could be very straightforward, e.g., pay X percent of your income. When the federal income tax was first adopted, it was very simple. But government often abhors simplicity….

Today, the income tax code is less about raising revenue and very much about social engineering. The government wants you to make decisions based on what it believes you should do with your money and uses the tax implications to make you an offer it hopes you can‘t refuse. Do you believe the government knows better than you do about how to spend your money? I sure don’t!

If you know of two households (not filing the 1040EZ) with similar incomes that pay similar Federal income tax, you may have a rare find and should call Ripley’s “Believe It or Not.”  So how “fair” is it that folks with similar incomes are not paying similar federal income taxes?

Of course, if two households have different incomes then there is the issue of “progressive”, i.e., tax brackets.  What incentive is there to work if the government confiscates an ever-increasing percentage of each incremental dollar? There isn’t. (Europe already has tax refugees, and we may be there soon too.)

 But here’s the irony…..

Because of all the social engineering provisions (a/k/a “deductions“), I wouldn’t be surprised if most wealthier folks pay taxes on a smaller percentage of gross income than most lower income folks. Wealthier folks have many more opportunities for deductions.

And I don’t mind giving you my personal example in this area too:

I have no children and my mortgage interest is too low to deduct. Those are two common deductions.

But… thanks to two tax code provisions involving deferred compensation (which is not reported as income until I receive it after retirement) and an IRA (which I can deduct only because my “reported“ income is below a  threshold thanks to deferred comp) I was able to shield about 32% of my income from taxes.

From those two provisions alone, my tax refund was $1,400. (I know… I should never given the government that interest-free loan to begin with.) The government paid me to save, but I’d have done it anyway because paying myself first is good financial practice. Do I feel I’ve “unfairly” taken advantage of “loopholes” and should pay more?  With my screen name….?  LOL!

Then, liberals established the Alternative Minimum Tax (ATM) because they felt wealthy folks were getting away with paying little or no tax just for following the tax code incentives Congress approved and that wasn‘t “fair“!  But Congress has had to enact “temporary” fixes to the ATM because it is threatening middle income tax payers. (I had to do a calculation to see if I needed to pay it.)

So where is that "fair" tax? Whether, in similar situations at the local, state or federal levels, the tax amount paid is the same or not the same, it is criticized as "unfair" and the critics (including me) do not have a consistent position that to be "fair" the tax paid at all levels either must be or should not be the same to qualify as "fair.".

For those who demand a “fair” tax at any level, I say:  Get on the unicorn you’ll find at the Fountain of Youth and ride it to the pot of gold at the end of the rainbow. That’s the only place I know where you might find a “fair” tax!

Otherwise, how about this: since all taxes can be criticized as “unfair” in some way, why not reduce taxes as much as possible and substitute fee-for-service whenever possible? This can be done fairly easily at the local level.

The County’s recent decision to make some private events pay for services required for the event is a step in the right direction.  The County Budget Director was quoted on the Democrat’s front page as saying “This what we should have always been doing.” Really? Then why the heck wasn’t the County doing it before?  Why only now? You know why…Amendment 1 forced the County to think about how to get by with less taxes and so subsidization of private events had to end. Amendment 1 will hopefully accelerate the paradigm shift and it’s long overdue.

And that is exactly why I voted for Amendment 1. Without Amendment 1, it’d have been  the usual “tax more and spend more” year after year which is government’s “business as usual” model. And that’s why I’ll be voting for any and every other tax reduction / budget limitation proposal that comes my way…. It’s the right anarchist thing to do!

Sunday, I’ll discuss why “fee for service” is something an anarchist can support even though it does not appear to advance us to  “no government.”