Property Tax


			QUESTION 2

			PRIMARY (AD VALOREM) PROPERTY TAX IMPLEMENTATION --RESOLUTION NO. 8649

			Shall the City of Mesa be authorized to raise an amount not to exceed Thirty Million Dollars ($30,000,000) by primary property tax (ad valorem tax)? IF SUCH AMOUNT IS APPROVED BY THE VOTERS, IT SHALL BE THE BASE FOR DETERMINING LEVY LIMITATIONS FOR THE CITY FOR SUBSEQUENT FISCAL YEARS.

Regressive Tax or Not?

Both the Property Tax and the Sales Tax have been labeled "Regressive". What's the deal with that?

	Income	Fixed		Regressive		Proportional		Progressive
	Income	Tax	Rate	Tax	Rate	Tax	Rate	Tax	Rate
Jones	$10,000	$500	5%	$500	5%	$500	5%	$500	5%
Smith	$80,000	$500	0.625%	$1,600	2%	$4,000	5%	$20,000	25%
Brown	$500,000	$500	0.1%	$5,000	1%	$25,000	5%	$250,000	50%

Principles of Economics

If you study the table you'll see that a Regressive tax is such that you pay a smaller percentage of your income as your income rises. Conversely, Progressive taxes have you paying a higher percentage of your income as your income rises.

An example of a Progressive Tax, that everyone is familiar with is Income Tax. The higher your income, the higher the Tax Rate. Social Security FICA Taxes, however, are Regressive. You pay a Flat rate of 6.2% for income up to $90,000, but nothing after that. That mean for those earning over $90,000 the withholding rate is less than 6.2%.

That said, Sales Tax on food is somewhat regressive because the proportion of an individual's budget spent on food declines as income rises. (Mesa currently does not have a Sales Tax on food.)

Property Taxes can be considered either "Regressive" or "Progressive". People with higher incomes tend to buy more expensive homes and pay higher Property Taxes (Progressive); yet those with lower income pay a greater portion of their budget for Property Taxes on their more modest homes (Regressive).

The confusion comes about because these are not the true definitions of the terms "Regressive" and "Progressive". Sales Taxes are Transaction Taxes which are incurred only at the time of a transaction. Property Taxes are Ad Valorem taxes incurred through ownership of an asset. (Ad Valorem is Latin for "according to value")

Both are actually Proportional Taxes (Flat Rate) on the things that they tax. Either 8% Sales Tax or $1 per $1000 Property Tax are Flat Rates. They only become "Regressive" when you consider them in the context of the person paying them. That's beyond the original definition, but both the "Yes" and the "No" crowd stretch the definitions to make their points.

So calling Sales Taxes or Property Taxes "Regressive" is mostly a moot point. Think the poor are being fleeced? Try cashing a check at PayDay Loans. $50 on $500 for a two week loan is hella-regressive!

YesForMesa 2007 Example

Numerous references point you to the YesForMesa website to get a handle on what your likely Property Taxes will be. In fact, one Arizona Republic writer claims that this will tell you "EXACTLY" what your taxes will be. That couldn't be further from the truth. At least I hope so.

Here's a snapshot of what their site says:

What about my 2007 estimated tax?

The total amount that the city can collect from a property tax would be capped at $30 million a year with an available 2% per year increase for inflation. Any other increase would require a vote of the people. Since the limited property values went up for 2007, the assessment ratio would go down. Also, remember that the Limited Property Value (LPV) is capped in how much it can increase in a single year.

It is estimated that the new assessment rate will be close to $0.95 per $1000 in limited property value in 2007 which is down from $1.00 per $1000 in 2006.

Use the number circled in the sample below to calculate the 2007 estimated tax.

In the sample, this home would pay approximately $143.50 in a property tax in 2006 and $157.23 in a property tax in 2007. A difference of $13.00 or about a dollar a month.

Some Observations

First of all, should the Property Tax pass, using YesForMesa's own numbers, the TAX INCREASE in 2007 from 2006 is $157.23 - $143.50. That's a difference of $13.73. That's a bit more than the "$13.00" they quote. That's really nearly $14. It's pretty sloppy math.

More importantly, $13.73 represents an INCREASE of nearly 9.6% over the $143.50 City of Mesa Property Taxes to be paid in 2006. So that's a 10% increase; and this just because your Property Valuation went up? That's really sloppy math.

In theory as Property Valuations go up across-the-board, the Tax Rate should decline accordingly. For the YesForMesa example, that means that in 2007, the rate should have declined to about $0.87 / $1000. So either the $0.95 / $1000 they quote is way off, or they know something that you don't

By the way, that example is assuming that the City Council doesn't exercise it's option to apply a yearly increase on the $30 Million Property Tax (which is limited to 2% per year).

Secondary Property Tax

Secondary Property Taxes have only been mentioned in passing. Despite some questions to the city, to clarify how they might be implemented, I'm not satisfied with the responses. Recently the Arizona Republic had this to say:


	Regardless of the election results, the City Council has the option of instituting a Secondary Property Tax at its discretion to pay bond debt, but has said it would only use it for future bond elections. Arizona Republic

My Questions

Do you trust the City Council to keep it's word, and only apply a Secondary Property Tax to future bond elections?
It's unclear, but this implies that at it's discretion, the City Council could retroactively decide to pay down existing bond debts by implementing a Secondary Property Tax, WITHOUT Voter Approval.
Would you have approved of past Bond Measures, had you known that the City Council would implement a Secondary Property Tax?
Even if you do have trust in the current City Council to keep it's word, these are only their promises. Nothing here is legally binding on any future City Council.
Would you vote now, to implement the Primary Property Tax (on the ballot), if you knew that just around the corner, was a Secondary Property Tax in the offing?