Saturday, October 14, 2006

Taxes, taxes, taxes

In the current gubernatorial elections the issue of potentially changing the state income tax from its current flat 5.3% to (a voter approved) 5% even has been harped on quite a bit. Healey supports the drop, Patrick opposes it.

Now, let's just ignore the issue of whether income taxes should be decided by a vote. If people really decided their own taxes nobody would be paying anything.

I have little experience with tax codes and this is going to be a little bare so take this all with a grain of salt, but I'm going to try to make the point here that all but the super-rich should support Patrick on a purely economic basis.

Massachusetts' 5.3% is a flat income tax. It applies to you if you're at the minimum taxable rate, it applies to you if you're a billionaire. No graduated taxes here. Sure, the billionaires can afford to pay a lot more than 5.3% and the poorest can't even necessarily afford 5.3%, but the state doesn't care. Rich people love taxes like this, the poor don't.

Yet when discussing taxes like this, people like to talk about how the poor will benefit. If you make $20,000 a year it's the difference between paying $1,060 and paying $1,000! That's sixty bucks you can now spend on other things.

Things like your steadily increasing property tax, fees, and so forth. When the income tax goes down these things go up, because the money needs to come from somewhere.

If you're the lucky sort who makes $200,000 a year it's the difference between and $10,600 and $10,000. That's a rockin' six hundred bucks you now have to spend.

Also on property taxes, fees, and so forth.

If you make 2 million then you have six grand to spend. Pretty sweet. That should cover a lot of those property taxes and fees easily.

The problem is that property taxes and fees tend to impact the rich a whole lot less than they impact the poor. Let's take the registry of motor vehicles. If I make 20 grand a year and go down and to renew the basic Class D license it costs me $40. No problem, I can use my $60 tax break and still have $20 left to get my brother a birthday present. Maybe a DVD.

If I make $200,000 a year and go to renew my license I have to pay... $40. Well, no problem. I got that sweet tax break and still have $560. I can get my brother a new DVD player now, and probably a pretty decent surround-sound system to go with it.

Seems like the fee was a bigger problem for the person who makes less, doesn't it? It's just one little fee. While the license renewal fee may not itself be likely to decrease no matter what happens, cutting income taxes does make it more likely to go up. After all, there's $600 now missing from everyone making 200 grand a year that needs to be recouped somehow.

Now add in all the other fees we face in our everyday life. If you have kids in school you're paying fees, if you drive down the Mass Pike you're paying fees, basically if you do anything in this state you're paying fees.

Then there are property taxes on top of that. Maybe you rent, so you think you're safe. Not so! If the landlord is hit with a high property tax expect your rent to raise accordingly. Property taxes have been increasing in Massachusetts, largely because towns need to recoup funds lost from the state government. Cutting the income tax will exacerbate that. The rich will have no problem paying these property taxes. If you can afford a mansion, you can afford the taxes on it. The poor can't afford either.

This is getting a little convoluted, so let me wrap it up. Dropping the income tax from 5.3% to 5.0% gives rich people more money. It gives the state less money, which raises local taxes and fees (since the town can't get money from the state). These fees easily wipe out the minor savings average people get, while the rich are left with a nice fat paycheck, courtesy of the state.

In a nutshell, lowering the income tax benefits the rich and the rest of us are stuck with more suffering. Don't be fooled into thinking that a little more money in your paycheck equals a little more money in your pocketbook. They'll have other ways to take that away, and it'll hit you a whole lot harder than it hits the rich.

1 comment:

thoughtful said...

My thoughts exactly. Thanks for explaining that in clear, honest, well-defined terms.

Also, if you run those numbers using the benefit of a fiscally responsible, well run single payer universal healthcare system, the difference is even more pronounced.

Your average taxpayer could stand to save up to $3,000 annually.