An Armchair Economist and Local Taxes

Introduction:

Recently, (posted in 2002) our Board of County Commissioners (BOCC), that's Florida-speak for the governing board of a county, hired a consultant group to give them recommendations on new sources of tax revenue. The board apparently didn't think the current collections were sufficient to slake their thirst for providing more services (read, buy votes of some with money from most property owners). Obviously, there was insufficient thought given to controlling the level of spending on county projects or pet causes.

The consultant firm, headquartered in a coastal resort city in a nearby county, reported to the BOCC that they had uncovered several as yet untapped sources of increased funds. The consultants came up with a $3100 impact fee  to be levied on the builder of new construction, presumably a house, $57 increase in the total tax for public works projects, and a 5-cent per gallon increase in gasoline taxes. The editorial writer for the local pages of our newspaper asked for comments on the published preliminary recommendations. He saw fit to publish my response. I post it here as a means of providing insight to my way of thinking.

TAX Proposals

Certain tax revenue sources are more accessible than others. When a tax is placed on a product or service, it must be done in the context of competition.

In spite of the thoughts that taxing authorities have some inexhaustible supply of money in their jurisdictional area, the public still has choices. One choice is to purchase gas in a nearby community whose taxes are lower than ours. When a tax is added to a competitively priced commodity the purchase price will rise, putting the seller at a competitive disadvantage.

Since we have heard that 40 percent or more of Clay residents with paid employment leave the county daily, where do you think they will tend to buy the gasoline for their cars? Despite the clever (says who?) recommendation of the consultant, gasoline tax revenue will be reduced if the County Commission adopts the gasoline tax increase as a revenue source.

Very recently, the politicians in New York extolled the virtue of adding still heavier taxes on cigarettes. They proclaimed that the new taxes would add some staggering amount to the coffers. Some recent data in says the sale of cigarettes in New York has gone down significantly. Some indications are that the decrease is nearing the 30% range. Does this mean that New Yorkers are giving up smoking at that rate? I doubt it. More likely is the probability that at lease two-thirds of the decrease is among those who had, or have developed an alternative source, outside the city, to purchase their cigarettes. It has been estimated that a trailer load of cigarettes now has the "street value" of nearly $1 million.

Taxes can be an incentive for certain behaviors and a disincentive for others. Who in the period just before our Revolution, said, "The power to tax is the power to destroy?"

On the other area, impact fees, imposition of such fees on the developers and subsequently, on the purchasers of new homes and other real estate does seem to place some of the burden on the source of the demand for increases in service and infrastructure. Like so many other taxes, it is a blunt instrument that often hits other targets beyond the specific one intended. Is it appropriate to impose such a tax on a family, newly arrived, that buys the home from the new construction purchaser?