If you live in Connecticut in general,
or Hartford in particular, depreciating assets such as grandma may
one day become very, very important to your financial future. So,
don't forget to call on her birthday, send her a nice card on Valentine's
Day and don't threaten to put her out on an ice floe if she starts
to complain about her health.
If she's a rich grandma, get her on
the next plane to Florida to establish a dubious six-months-and-a-day
permanent residence, to avoid Connecticut's income tax and estate
tax, both of which Florida doesn't have.
If grandma doesn't have much in the
way of annual income, you may just have a treasure on your hands
- should Mayor Eddie Perez sneak his property tax gimmick through
the Connecticut General Assembly. The mayor would transform Hartford's
property tax into a kind of income tax calculated on a sliding scale
based on the owner's income.
Are you beginning to see what a doll
your grandma really is? If through some miracle such a tax scheme
actually came to be, make sure grandma "owns" your house
in Hartford. Get her out of the nursing home, or the old family
homestead, and bring her to Hartford. If the only "income"
she claims is her Social Security check and the interest off a $5
certificate of deposit in the savings bank down the street, Mayor
Eddie would be more likely to stop by and help her paint the living
room than send her a sky-high property tax bill.
Mayor Eddie's proposal to grab all
he can get from the undeserving rich; to create a more aggressive
income redistribution system to benefit the deserving poor; and
to grab the ill-gotten gains of the absentee landlords would, of
course, accomplish almost none of those things -while making Hartford
worse off for the effort.
The problem is that people are economic
actors; that is, they respond to the financial incentives available
to them. If, in fact, the financially comfortable resist a newfangled
income tax designed to pay for the social service nightmare in Hartford,
they will move to the suburbs and send Mayor Eddie postcards from
their new homes.
The irony is that many of the suburban
people who are, in fact, moving back to the city have surprisingly
little in the way of "income" for Mayor Eddie to plunder.
Many of these folks are teetering on
the edge of retirement, or have retired, and they have assets hidden
in underground vaults, or second homes somewhere warm and happy.
What many of them don't have, or won't
have for long, is much in the way of "annual income."
The notion of slapping "absentee landlords," who, in the
real world, are called "investors," with a property tax
penalty rate will add to the already nightmarish incentives for
them to pull up shop and abandon the very multifamily properties
that the city needs to house its deserving and undeserving poor.
And for the folks in the middle, neither
comfortably rich nor dirt poor nor evil-demon landlords, Mayor Eddie's
plan promises a city unfriendly to the big spenders, unfriendly
to the low-end real estate investors; and stuck with a property
tax system that is perhaps best suited for Mars, where everyone
is green and lives in a socialist paradise.
Mayor Perez has proposed (with the
understanding that it will probably die in the General Assembly)
a scheme that founders as much on the economic premise as it does
on the practical complexities of designing an accurate snapshot
of property value and income. Housing decisions tend to be made
based on family's long-term perceived income, not the income in
any particular year. The new system would be no more "fair"
in taxing the asset-rich and income-poor; or the guy who is "rich"
Wednesday but broke Thursday; or the high-income guy smart enough
to stick his "income" in an out-of-state subsidiary.
Although not a perfect system, the
traditional property tax system is a reasonable proxy for the income
of those who own the property - and an effective measure of the
market value of the asset. A hybrid income tax complication would
lead to unintended and unfortunate consequences.
Reprinted with permission of the Hartford Courant.
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