I’m a simple person. I’ve got simple needs. All I’m asking for is the ability to levy taxes. Seriously. A guy could make some money doing that. Like, for example, if you taxed digital billboards in Baltimore at a rate of $15 per square foot, and conventional billboards at $5 per square foot, you’d generate $1 million in a year.
That’s what Mayor Stephanie Rawlings-Blake wants going to do. And she wants to tax taxis at 25 cents a ride. And she wants to keep the parking tax at 20 percent (as opposed to dropping it to 19 percent).
Why is the mayor introducing legislation to authorize the levying of these new taxes? To cut taxes. Don’t forget: Rawlings-Blake is cutting property taxes by 22 percent while attempting to make up a $30 million budget shortfall.
I don’t know, I think we could do better. I mean there are so many more things we could tax. 18th century Great Britain had a tax on glass; Ancient Rome saw a urine tax at one point; and Peter the Great imposed a tax on beards. Let’s start thinking outside the box!
Actually, I think that shifting taxes from residential real estate to other forms is sound behavioral economics.
Putting aside the question of whether government services are run efficiently and effectively ( a separate argument) the staunchest of conservatives agree that some government services are necessary and desirable for the health of the city and that these services need to be paid through taxes/fees etc (as opposed to running up debts) .
Given that reality, the question for the urban economist is How Best to generate these revenues in ways which do not discourage growth, or worse which encourage flight of people and business from the city. The key is whether those taxes change the behavior of those taxed in ways detrimental to the city in the long term.
Residential property taxes truly push people to buy/rent in less costly jurisdictions, ultimately resulting in lower revenue, rather than the intended higher revenue from rate increases. Lowering property tax rates has repeatedly proven to increase long term revenue in cities all across America, whereas raising residential tax rates has repeatedly proven to have the opposite effect.
However, politicians naturally fear that the impact of lowering rates will reduce revenue, if only in the short term, so they are understandably looking for ways that they can tell themselves that they are making up for that ‘lost revenue’ with a tax rate increase elsewhere. They really should be more confident that revenue will actually rise with phased in rate reductions, but it’s understandable that they worry.
On the other hand, do we think that raising rates on billboards will so discourage billboard advertising that lower revenues will result? (and if so, is that such a bad thing anyway?!) And do we think that raising taxes on taxis will result in fewer miles being traveled by taxi? Not likely!
So, those of us who believe that market economics really do matter should applaud efforts to be more sensitive to how taxes impact behavior.
By all means, encourage rate reduction wherever it can actually drive long term higher revenue. And don’t overly sweat the rate increases where behavior is likely to change little, if at all.