Bacon's Rebellion

Democracy Thrives in Sunlight

The Lie of Little Tax Increases

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by

James A. Bacon
in

Last month I was a guest at the Colonial Area Republican Men’s Association (CARMA) lunch in Williamsburg. A fellow handed out a table of Virginia State-Local Tax Burden Compared to the U.S. Average (1970-2007) – from the Bureau of Economic Analysis, Department of Commerce. I don’t recall if he made a pitch that the numbers were good or bad.

I glanced at the numbers again today and they tell the same story that Harvard’s long-term study reported in the Jan 06 alumni magazine.

  • Harvard said the average American’s total tax burden went from 24% to 30% since the mid 70s.
  • This table shows the average Virginian’s total tax burden went from 29.2% to 32.9% – before the Republican-controlled General Assembly raised taxes in 04 and 07.

If you take the average (median) income of Virginian families (Fairfax Govt web site) across the Commonwealth ($51,689) and in Fairfax ($88,123), it tells quite a tale. The firefighter married to a school teacher making $51k in RoVa and $88k in NoVa had their total tax burden increased 3% over 35 years (not including the latest hikes).

The tax-and-spend Republicans and Democrats will say, “Virginia is a low tax state.” The increases are small. Look, only 3%.

If greedy legislators at the local, Commonwealth and national governments hadn’t raised taxes, here is what it would mean to that family of four parented by a firefighter married to a school teacher.

  • RoVa family would have $159.37 more EVERY month.
  • NoVa family would have $270.08 more EVERY month.

Go ask the firefighter married to the school teacher what that money would mean to them every month – starting right now.

This is why ‘little’ tax increases are just a lie. That money means a lot to the average family. Even more to the working poor.

How did government services improve, or what essential new ones were provided, since the early 70s to justify taking this money from the families of Virginia?

Don’t say the 3% increase in taxes paid the salaries of the firefighter and the teacher. Their inflation adjusted wages didn’t profit from higher taxes.

Understanding what a couple of hundred bucks means to working families is the genius of Gov. Jim Gilmore’s ‘No Car Tax’. The concept is lost on the Republican leadership in the General Assembly. Witness today’s back pedal on the super max traffic fines from HB 3202 – the ’07 Transportation Tax Panic – they aren’t offering to repeal the whole abortion of Republican principles, just stick the ‘fees’ to out of state drivers too.

Ask your friends, family and neighbors what an extra couple of hundred dollars a month would mean to them. Maybe they should demand that government give the extra money they’ve taken since the 70s back.

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23 responses to “The Lie of Little Tax Increases”

  1. Anonymous Avatar
    Anonymous

    Good post, JAB.

    But don’t forget the other side. Take a couple of hundred a week times the number of families in the state, and tell us what that would mean to the commonwealth.

    Sure, the government is a huge waste, in some respects, with little incentive to conserve. It also does a lot of things that we can’t do for ourselves, not for 200 a week.

    The real issue isn’t what government spends, it is what we get for what they spend. I can think of some other states with lower taxes where you couldn’t pay me to live.

    Anybody got a table that shows the value of goods and services delivered vs revenue taken in?

    —————————

    It might be my imagination, but I seem to see alot more cars pulled over recently, and a big increase in “stealth” unmarked cars.

    I also heard that reckless driving arrests are way down this month. If so the fees are working, but they won’t raise any money.

    RH

  2. Anonymous Avatar
    Anonymous

    Uh, 3 percent over 35 years. And even out of this, aside from the effect inflation would have on this ‘increase,’ JAB still finds reason to gnash his teeth – the outrage of it all, amen. If this is a credible argument, then….. oh nevermind.

    I find it delicious that he chose ‘the firefighter married to the school teacher’ as his example. Two professions that depend on tax dollars for their salaries – it is too sweet!

  3. James Atticus Bowden Avatar
    James Atticus Bowden

    Anon: I chose the two government workers providing essential government services for a reason.

    Name the government service – and it isn’t their pay that caused the 3% increase in tax burden – that justifies the increase.

    Finally, you make my point, thanks, about dismissing the 3% over 35 years as just 3%.

    The Harvard study showed, and this confirms, why a two parent working family has less money at the end of the month than a one parent working family had 35 year years ago.

    Too many Republican and Democrat politicians exhibit the same sense of being out of touch with what money means.

  4. Groveton Avatar
    Groveton

    JAB:

    A clarification. The 3% is the proportion of income taken as taxes? If so, it is automatically adjusted for inflation if you assume that the salary that forms the denominator in that percentage calculation is also adjusted for inflation by salary raises over time. No?

    And, since we’re talking about individuals here it is a unit cost calculation. The population has been rising over the last 35 years. So, the number of people against which taxes are levied has also been rising. Beyond naturally multipling dollars of revenue, this rise in the number of taxpayers should also allow greater amortization of fixed costs on a per unit basis. For example, the palace that is the Fairfax County Governmental Center is built of “bricks and mortar” on land. The Center requires a certain amount of maintenance each year to keep it running. Let’s say, for example, $10M. When Fairfax County had 500,000 residents – each had to pay $20 / year for building maintenance. If the County has 1M people, they have to pay $10 per year for maintenance. Of course, the cost of maintenance will inflate over time. However, scale is a “unit price deflator” for almost every business in the world except – apparently – government. And scale, in government terms, means the number of people being served. Yet, far from deflating on a unit cost basis in real terms, it is inflating on a unit cost basis in real terms.

    Most businesses have the goal of decreasing their real unit costs (i.e. after inflation unit costs) over time. I guess that the government’s goal is to increase real costs.

    The only acceptable explanation in business would be that profits inflated faster than costs because the products had an inelastic demand or because the business entered new markets. I guess the corrolary in governemnt would be to say that the governemnt is providing new, valuable services or is providing the old services in a much better way. Does anybody really believe this to be true? Is our transportation system, for example, better today than it was 35 years ago? Our criminal justice system? Where is the gain?

    If the government were a business and showed these results the board would have fired the management team long, long ago.

    In my example the voter / taxpayers are the board and the incumbent politicians are the management. This November, it’s time for the board to fire management.

  5. Anonymous Avatar
    Anonymous

    Excellent.

    Isn’t it amazing how may ways there are to look at the same thing?

  6. James Atticus Bowden Avatar
    James Atticus Bowden

    Groveton: Correct. Using constant dollars takes care of inflation.

    The per cent paid in taxes by the median family (50 per centile) in Virginia has grown by 3% over about 35 years.

    Tax and spend politicians and their apologists scoff at a mere 3%.

    It’s real money at the end of the month to real families. It means a lot.

  7. Anonymous Avatar
    Anonymous

    You anti-tax Repblicans live in another universe. The “genius” of Jim Gilmore’s car tax stance? Sure left the state’s finances in shambles.
    Make the case, Bowden, I double dog dare ya!

  8. Jim Bacon Avatar
    Jim Bacon

    JAB, Quite frankly, I would be pleasantly surprised if Virginians’ total tax burden increased only 3 percentage points since the 1970s. I’m not sure what methodology Harvard was using, but I wonder if we’re comparing apples with apples here. My sense is that the federal tax burden alone has increased by that amount. I’ll withhold any further comment on your posting until I have a chance to brush up on the numbers, which I suspect may understate the case you are making.

  9. Anonymous Avatar
    Anonymous

    The “genius” of Jim Gilmore’s car tax stance was that he recognized that tax was universally hated, unfair, administrated badly, ineefiicient, and regressive. It deserved to be done away with.

    But the failure in his genius was that he failed to replace it with anything. Had he replaced it with something based on income or sales he could have replaced the money many times over with no real change in the percentage of taxes paid in constant dollars per individual.

    ———————-

    JAB is right, it is real money to real people, but you have to ask if we are getting $200 a month more services than we were 35 years ago. Yep, the roads are more crowded, education hasn’t improved markedly, but think of all the info you can get at your fingertips now,that you would have had to dig through paper for a few years ago: if the beaurocrat in charge would give you access.

    That is a real change, and one that is likely to generate more change down the road, because the little transparency it provides is likely to be contagious.

    You can now do much of your vehicle transctions on line, saving a trips to DMV. Subtract the value of all the trips not made and the cost of (partially) automating DMV looks small.

    35 years ago government had a much smaller role in environmental protection, so there is a whole new enterprise added to government, that works to our benefit.

    Not all of that 3% is evaporating into thin air, it isn’t exactly like we are spending more for the same level of services we had 35 years ago.

  10. Anonymous Avatar
    Anonymous

    Anon 10:34

    Fail to see how replacing one tax with another in the Gilmore case is “genius.”

  11. Jim Wamsley Avatar
    Jim Wamsley

    I would like to expand on the analysis by Groveton (7:20 AM).

    “Most businesses have the goal of decreasing their real unit costs (i.e. after inflation unit costs) over time. … The only acceptable explanation in business would be that profits inflated faster than costs because the products had an inelastic demand or because the business entered new markets. I guess the corrolary in governemnt would be to say that the governemnt is providing new, valuable services…”

    We can calculate the additional cost of providing services to population based on the decrease in population density. The valuable service is the increase in lot size and residential zoning. The effect that this has on the cost of government is only now being considered. Transportation costs have been the canary on this issue.

    Only time will tell whether the added value of large lot zoning is worth the added government costs.

  12. Anonymous Avatar
    Anonymous

    “We can calculate the additional cost of providing services to population based on the decrease in population density.”

    OK Virginia’s population density in 1990, 2000, and 2004 was 156.3, 178.8, and 188.4 persons per square mile respectively.

    We constantly hear about “too much development”, whether in the densly populated areas or not.

    So, where exactly is this decrease in population density occurring?

    Aren’t even the most sprawled out areas increasing in density? Even Alaska, Wyoming, and WV show measurable increases in density, statewide.

    Doesn’t your claim of population density decreasing have to be based on some kind of selective analysis?

    When I look around what I see is much smaller lot sizes. My neighborhood in Alexandria has large lots, but it is old. Nothing new has been built around there with anything like large lots.

    When I look around Loudoun and Sterling, I see more of the same, even large homes are on small lots now.

    If population is increasing generally and land is the same, how do you come up with anyplace that has decreasing density?

    Maybe you can draw some boundaries and show decreasing density within the boundary, but it has to be offset by increasing density someplace else.

    And why is it that the most densely populated areas seem to have the highest costs for services?

    It might be that we have higher costs because we are expanding services in many areas simultaneously: that we do not have a plan that restricts growth only to those locations we can serve (presently) at lowest cost.

    But if that is the case then we are really investing in tomorrow’s infill. The valuable service is the freedom for owners in various locations to act at will instead of under government direction.

    “Only time will tell whether the added value of large lot zoning is worth the added government costs.”

    This is a good point. However, the present argument seems to be that only homes above a certain value cover their own costs, and those large homes tend to be on large lots. At the extreme end we have farms, which are widely advertised to pay more than they cost. And at the other extreme we have the utter failure of large government housing developments because of the costs involved, and the decline of private ones, as described by Deena.

    And considering transportation, it is transportation in the most densely populated areas that have the highest costs.

    If we actually had a decrease in population density or if we could see denser areas that had less congestion and lower costs, then your argument might have merit. And if tht was the case we might hear a lot less about “no more development”, because people would welcome the lower costs and better travel availability.

    I think that what we have is an increase in population density, occurring simulataneously over a larger area, and our increased costs are really an investment for the future. We are footing the bill for our children and future residents. If that is the case we should be borrowing more so that we can send them the bill when they arrive.

    RH

  13. Anonymous Avatar
    Anonymous

    Since the public likes everything at the lowest possible cost and most businesses have adopted policies and procedures to ensure that they cater to the public’s demand, then I suggest that we fire all of the federal, state, and local employees, hire illegal aliens to do their jobs, and cut taxes!

  14. Jim Wamsley Avatar
    Jim Wamsley

    Thank you for pointing out items that need clarification (Anonymous At 11:48 AM)RH.

    I was using density as a zoning concept. The statewide population divided by area of the state has not been used as a cost estimating tool. In zoning, density is measured in families per acre. My selective analysis uses zoning not statewide numbers.

    One factor in the analysis of density costs that you overlooked is the “sweet spot” on the curve. This is around 8 houses per acre. Both high density apartments and large lot zoning are outside the “sweet spot.”

    Individuals who make the argument that only homes above a certain value cover their own costs, and those large homes tend to be on large lots are looking only at costs paid by property taxes. When you add costs for transportation, fire protection and utilities you get a different answer.

    Transportation in the most densely populated areas has the highest cost is a matter of your measure. If you measure the family expenditure for transportation, the prevalence of one car families, walking to school, recreation and shopping reduces the total. If you measure singe automobile trip costs with parking you get your highest cost answer. The problem is that this does not apply to a household living in the high density location.

  15. Anonymous Avatar
    Anonymous

    “In zoning, density is measured in families per acre. My selective analysis uses zoning not statewide numbers. “

    Even so, show me a zoning area where densities are actually going down. If it is going down somewhere it must be going up somewhere. No?

    If there is no decrease in density then how can there be an increas in costs because of it?

    ———————–

    As I understand it, individuals who make the argument that only homes above a certain value cover their own costs are taking the total county budget and dividing it by the number of homes. Therefore they are including all the costs you mention.
    This gives a figure in tax dollars that a home would have to pay to fully support itself. From that and the tax rate you can calulate wht ahome would have to cost to be self supporting.

    But since real estate taxes are only about one third of the revenue, it always falls out that most homes don’t pay their way. the hypothetical home that would pay its own way turns out to be about three times the average home price.

    I agree it is a bogus argument and bogus analysis, but it is a position that is widely held and frequently published. Especially when arguing against density. The fact remains that at the end of the fiscal year, all the bills got paid with taxs that one way or another come from someone living in a house.

    Otherwise I agree that large density housing and low density housing is probably outside the sweet spot. So what we are really talking about is the extent to which some homes might be supporting other homes, and whther it is a matter so egregious it needs to be fixed.

    —————————–

    I’ve lived in some places that were eight homes to an acre, generally they were crowded and shabby. When you get to that kind of dwelling, you need to add costs for police protection.

    —————————

    “Transportation in the most densely populated areas has the highest cost is a matter of your measure.” I’d measure it three ways:

    My first measure is dollars out of pocket. Study after study have shown that urban residents on average spend more for transportation, even though rural residents drive farther.

    I don’t know what the reason is for all the higher costs, (fancy cars maybe) but unless you eliminate a car entirely, you are still going to endure most of the cost of owning it, and add the cost of public transit on top for the sake of not using the car. Even without a car, public transit is not cheap. people who rely on public transit are frequently poor for a reason: it is expensive, unreliable, and offers less access. Insurance is more expensive in town, and so is parking. The net result is that averge travel costs are higher.

    My brother lives in Arlington and walks to the subway to work. Both his transportation costs and his living costs are higher than mine. He uses his car about half as much as I use mine. But he still has to pay subway fares and somehow support the fact that the subway fares only cover half the cost of his ride. When ALL costs are considered, it isn’t cheap because he has to support two modes of transport.

    Like a lot of people there, his household is two people and one car, but since there are alot of households, there are still a lot of cars, especially when house sharing is involved. congestion is an issue.

    He lives in an area of compact duplexes and they might approach eight per acre, but I doubt it. His place is better than the similar places I lived in, but it is still cramped.

    My second measure is time and aggravation. There are some people that have eliminated their cars entirely, and subsist on rental cars when they need them. I don’t see them making much of a dent in the auto situation, especially when there are so many in shared housing with multiple cars. Those who subsist without an auto must have a very special living situation, or very low requirements, if all their activites can be conducted on foot or transit.

    My third measure is what it cost when urban transportation needs to be repaired, upgraded, or supported: regardless of the mode, it always costs more in town.

    —————————-

    I understand your argument and I even tend to agree, but I think it is mostly hypothetical. Even at eight homes per acre, you don’t have very many homes before you have a neighborhood too big to walk. Even if all your needs and amenities are close by.

    If you have big apartments, then you need more open space to compensate, you have what you call the sweet spot (I’ll agree there is one, not sure of the exact layout and density. Just about everything is a U shaped curve.) and then you have the large lot districts. You have local density, aggregate density, and average density. Then you have commercial density.

    Just because there is a sweet spot, as far as providing government and other services goes isn’t any reason that (all, or even most) people would prefer such a place. The government can incentivise them somehow, but then it is no longer cheap. The current method of providing incentives towards the sweet spot seems to be to prevent whatever it is you don’t want. This isn’t cheap eather, but at least the costs are hidden, for now.

    It would be nice if we could achieve in reality all those things we talk about here, but I can’t see by any measure any places where it is actually happening the way we might like, except anecdotally.

    Rather than trying to reach some hypothetical goal, we would do better I theing top see what actually happens, and try to figure out how to make that work better and cheaper. In the end, we probably find out that this is the real sweet spot.

    RH

  16. Leslie Carbone Avatar
    Leslie Carbone

    Excellent post, JAB. Our would-be overlords have no regard for how much a few hundred dollars means to the average family. When the last great president was promoting a tax cut, the Democratic Party masters whined that it would save middle-class families only $147 annually and encouraged their constituents to oppose it. Congress was then flooded with callers–demanding the tax cut.

  17. Anonymous Avatar
    Anonymous

    I guess my comments above were a long way of getting around to this: by zoning for one-acre lots and larger we put ourselves in a position of investing in infrastructure that we cannot capitalize on to a greater extent later. Since zoning is so hard to change we wind up locking ourselves permanently out of the opportunity for hitting the “sweet spot” if the economic conditions develop to support it. In that respect I suppose you could say that density is “declining” in the sense that, over time, it will not develop tothe extent it might.

    My other observation is that if we think the “sweet spot” can be defined at eight homes per acre, that definition is probably far too simple. We need to consider the cars per acre, the vehicle miles traveled per acre, the amenities per acre, the street coverage per acre, the jobs per acre, etc. etc. By the time you get done, the net homes per gross acre will be nothing like eight.

    Even a quarter acre lot is pretty small, and such neighborhoods tend to look pretty junky. You would at least like to have enough room to throw the frisbee for the dog. After that, you might as will give up and go to townhomes. But, just this week a co-worker moved out of her townhome into an sfh. She said, “I will never have a shared wall again.” Once you go to town homes, then you need to provide public open spaces, and that is a lot more epensive than privte open spaces.

    I’m sure there is a “sweet spot”, someplace where the net total costs summed over all individuals is at the bottom of a U shaped curve. I just don’t think we have identified what it is, yet.

    Even if we figure out what it is, it isn’t the government’s job to order people to live a certain way in order to minimize its costs. People ought to be able to live the way they please. If the government can show that certain conditions lower its costs, then it can incentivise people to live a certain way, by offering to share the savings.

    That is a lot different situation from what is going on now.

    RH

  18. downstate aside Avatar
    downstate aside

    I hate the NoVa RoVa thing. Its a gross simplification. Its especially bothersome when you try to attach #’s to a RoVa that includes everyone from Richmond to Richlands.

  19. Anonymous Avatar
    Anonymous

    Downstate:

    Right you are. By JW’s oversimplified definition of the sweet spot, much of downstate should be in a world of hurt. Yet millions seem to leve there perfectly well.

    Fancy that.

    RH

  20. Groveton Avatar
    Groveton

    At the bottom of this debate is a set of facts which tend to go ignored.

    1. The developers who build large houses on large lots are targeting wealthy customers. Big houses on big lots cost big money.

    2. I think it is fair to assume that those who buy big houses on big lots are in the higher income brackets.

    3. In 2004, the bottom 50% of Americans in income paid a smaller share of total income taxes (3.3%) than the last year of Clinton’s administration (3.9). The 3.3% number is the lowest percentage paid in the 30 odd years it has been measured and probably the lowest paid ever.

    4. The top 5% and 10% earners paid an increased tax share over that same period. For example, the top 5% of Americans in income paid 57.1% of income taxes in 2004, up from 56.5% in 2000.

    5. The same basic math that applies to income tax also applies to real estate taxes (more expensive homes generate more real estate taxes), personal property taxes (people with more disposable income have more and more expensive personal property). sales tax (people with more money buy a greater dollar amount of goods).

    Many people on this blog would like people to believe that the people buying large homes on large lots are failing to pay their fair share of the costs associated with those houses and lots. However, there is never any quantitative analysis behind these statements.

    In fact, it is quite established that the wealthy pay a vastly disproportionate share of total tax dollars (e.g., top 5% pay 57.1% of income taxes).

    There is no evidence that the wealthy people, living in their large houses on those large lots, cost anything like 10X the average.

    In truth, the real argument would be more clearly stated, “The rich already pay for far more than own personal costs. However, they must also pay for a share of the costs attributable to those of lesser means. Are the rich paying enough for others?”.

    In my opinion, BaconsRebellion needs to get past the “Are they paying their share?” debate and onto the “Is the wealth transfer big enough?” question.

  21. James Atticus Bowden Avatar
    James Atticus Bowden

    Groveton:”In my opinion, BaconsRebellion needs to get past the “Are they paying their share?” debate and onto the “Is the wealth transfer big enough?” question.”

    Surely, you are kidding.

    The point of this post is that the average family is hurting because of taxes.

    Lower taxes serve all citizens.

  22. Groveton Avatar
    Groveton

    JAB:

    I am not kidding.

    Reducing taxes is good for everyone but better for those with less income because they need each dollar more than wealthy people (marginal utility or money).

    However, there are only 3 ways to lower the taxes for lower and middle income people:

    1. Government spends less and everybody pays less in taxes.

    2. Wealth is created faster than government costs. Total tax dollars (and government spending) increases but each person pays a smaller percentage of a larger income.

    3. Government spends the same or more but increases taxes on the waelthy in lieu of additional taxes on middle and lower income taxpayers.

    Any of these approaches will work in so far as letting low and middle income families keep more of their money.

    When I read comments on this site that constantly say people buying expensive homes are not “paying their fair share” or “paying their location specific costs” I have to wonder whether we’re talking about governement spending less or taxing the wealthy more.

    Lower taxes serve all citizens.

    True.

    However, people who keep saying that one acre lots create more costs than other residential arrangements are making a different point.

    They are positioning their arguments to tax the people in the expensive homes more as an answer to the “unfairness of location specific costs” arguments.

    Unfortunately, these same people never look at the disproportionate amount of total taxes paid by people living in those expensive houses.

    Mr. Bowden – You may be firmly in the “less governemnt spending” camp. However, others on this site are not. They are trying to craft a half-argument that will support higher government spending by increasing the taxes on the wealthy. The “half argument” they make is that people living in large houses on large lots generate more “location – specific costs”. They then jump to the “they should pay more” (i.e. more wealth transfer) conculsion. They wrap their argument in terms of “fairness”. However, they ignore the other side of the argument – how much are people paying in taxes versus how much they are generating in costs. That is never considered.

    So, I accept your focus on lowering taxes through less government spending or more efficient government spending. However, I question other regular contributors to this blog on their philosophy. Do they really want less government spending / more efficient government or do they just want a bigger wealth transfer.

    Oddly, many of those on this site who really want a bigger transfer of wealth wrap their arguments in an otherwise conservative philosophy.

    My opinion is that increasing the existing transfer of wealth is an idea that should be considered. I think it is a weak idea but it is a legitimate topic of debate. However:

    1. It should be discussed in plain and simple terms.
    2. It should be accompanied with facts and figures as to the present transfer of wealth existant in present tax policy.
    3. It is a liberal concept and those who espouse that approach should admit that they are endorsing a very liberal approach.

  23. Anonymous Avatar
    Anonymous

    Nice going, Groveton. In my rambling incoherent way, that is what I have been trying to say these several years.

    There are more than one way to skin a cat.

    Less spending is not ALWAYS better, and neither is more spending.

    Taxation for social engineering is a really bad idea, however a certain amount of progressive taxation is probably justified – those that have more, have more to protect.

    Likewise, their might be some justification for taxes that are progressive with respect to location, but I don’t know what it is. I seriously doubt that anyone else can quantify/justify such claims, yet.

    Clearly, you can’t get taxes out of someone with no cash flow, so taxing property is a bad idea to begin with, and it is unevenly applied. The exact same house in different neighborhoods is assessed differently, while a person with the same value as the homes, but in cash gets taxed nothing for his property, only on the income it produces. At the very least, taxation of property should have some relation or ceiling with respect to income.

    On your last three points, I’d go one further. There are some people who would do anything in favor of conservation and ecology. They are willing to make any kind of argument, true, false, liberal or conservative, if it gives them more control over someone else’s land or promotes a “cleaner world” at someone else’s expense. This is an entirely different form of wealth transfer. If that is your agenda, then say so.

    RH

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