Wednesday, July 17, 2013

A solution to local tax revenue problems?

The Memphis city council passed a budget a few weeks ago. The city isn't in great financial shape, thus it was difficult for the council to figure out where to cut or how much to raise taxes. Likewise, Shelby County (which is where Memphis resides) is in a similar financial situation. They have recently been debating whether they should raise property taxes in order to pass a fairly modest budget.

One way to generate more revenue without raising rates would be to get more people to start paying property taxes. That would entail changing zoning codes around the county to allow more construction and get more densely populated areas, making that housing cheaper and therefore open to new taxpayers. But that's going to be limited by the state of the housing market and the demand associated with it. Another way to generate revenue would be to start charging property taxes on already existing entities that don't pay anything. I've written about this before. Matt Yglesias has another post on why subsidizing churches and other non-profits is a bad idea:

One huge problem with it is that of all the ways you can come up with subsidizing a worthy nonprofit organization, a property tax exemption has just about the worst incentive structure you can imagine. If you look at the list of things that churches and other religious institutions spend money on, "acquiring land and buildings" has got to be one of the least socially beneficial and worthy of encouragement. And it's the same with universities. The tendency of administrators and the fundraising-donor complex to plow more and more money into more and more buildings is something policymakers should be looking to restrain not encourage. And the distributional impact is perverse. Property tax subsidies give the biggest benefit to the nonprofits with the healthiest financial base. The colleges that do the most to serve the marginal college student get the least benefit from this form of subsidy, while well-endowed institutions reap vast benefits.

But this approach is also nutty as urban development policy. Level property taxes encourage land owners to transform valuable parcels of land into high-value uses that generate useful economic activity throughout the city. George Washington University is using prime land at the corner of 20th and H NW as an open air parking lot.

Two examples close to me are a church that uses it's vast swath of land for a baseball complex and literally, a field of nicely mowed grass. One of the biggest churches in the area uses it's even bigger swath of land for an even bigger sports complex and a huge building supposedly used for a seminary, but which is empty every time I drive by. How any of this is being used for the benefit of society at large is beyond me. These churches can obviously afford to pay some property taxes if they can afford to build a fucking baseball complex.

I'm sure some of these organizations do some fine work that really helps society. For those that can demonstrate as such I'm in favor of finding ways to give them a break. But I agree with Matt that letting them buy up huge amounts of land that they use just to build ridiculously big buildings and sports complexes is a bad policy and it's costing local governments money that they could be using for things that actually benefit society, like fully funding fire and policy departments.

1 comment:

  1. you are right local tax revenue is big problem thanks for sharing story its really helpful
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