On the Subject of “Increasing the Tax Base”

Whenever we hear of a new residential development proposal, it is accompanied by the promise that it will “increase the tax base”, as if this is something that will somehow make taxes lower for existing property owners.

Here’s why I think this thinking is flawed, but I’d be happy to become educated in this area….

If a development generates housing for new residents, the costs of servicing those new residents needs to be collected as taxes. To the extent that the new development generates new taxes, it can be said in that we have “increased the tax base”.

However, the notion that this increased tax base will help keep taxes lower for existing property owners is questionable. There are three possible scenarios:

  1. The new tax is exactly enough to cover the costs of servicing the new residents – In this case, the tax base is revenue neutral, and their there is no reduction in taxes for existing residents.
  2. The new tax is more than the cost of servicing the new residents – the city is collecting more taxes than is required to service the new residents. Since we all pay the same rate, and since the services provided are no different for a new or existing resident, it would seem that we are being overcharged in our current tax bills, and there should be a resulting across-the-board reduction in the net taxes paid by all existing residents. Has this ever happened?
  3. The new tax is less than the cost of servicing the new residents – In this case, the difference needs to be made up by increasing everyone’s taxes or there will be a deficit.
    Do any of these cases confirm the notion that new residential development will help lower our tax bills?

Here’s a proposal………..

When a new development or redevelopment project is proposed, part of the analysis, performed in public at our city council meetings, should be

  1. How much new annual tax revenue will be generated by the project?
  2. What will it cost the city, annually, to service the project?
  3. What will be the resulting net increase, or decrease, in taxes to existing city residents?
    On a related topic…..

It is often stated that we must increase the tax base, as if it is a given that government requires ever more money, year after year, no matter what the current circumstances. Witness the recent decade – When property values were increasing, net taxes went up. When property values were decreasing, taxes also went up!

Government is really “half a business”. By that I mean that both should manage costs in a similar manner, but manage income totally differently:

– The city should manage cost and expense side of operations relentlessly downward, much as any business is driven to do.

– However, business and government should behave in opposite manners on the income and profit side of the equation. Businesses exist to profit, and thus are driven to generate as much income as possible. Government should be doing just the opposite – reducing their income to match the decreasing costs of operations, thus releasing their grip on our wallets. Rather than looking for ways to increase the tax base, government should, in fact, be looking for ways to decrease the tax base!!

An ideal outcome would be that both costs and taxes are being driven downward, which is quite different than constantly looking for ways to “increase the tax base”!