The cost of local government and schools is the fastest growing taxpayer burden. That burden is magnified by basing local taxes on real property value. Property tax is unfair and punitive. It establishes a recurring, non-transactional fee on ownership. Taxes should be a measure of prosperity. Property ownership is an investment not a benchmark of prosperity. Only 54.4% of New Yorkers own homes. Property taxes contribute to neighborhood blight when property owners opt against upkeep to avoid increasing taxable value.
In our fragile economic climate with as many as 17.5% unemployed, millions laid-off and New York leading the nation in first-time unemployment claims, local governments cannot ignore the fact: property taxes do not adjust for fixed or reduced incomes.
My solution to New York’s tax burden is to scrap property taxes AND sales tax. Replace both with a 4% residential flat tax and 3.8% Value Added Tax (VAT) for business. With a state GSP of $1,144,481,000,000 and personal income at $828,443,000,000, the net result would be over $74 billion in tax revenue. With renters direct-paying local taxes, rent bills that include the cost of property tax must be adjusted. To encourage landlords to reduce rent bills, a Rent Adjustment Credit for landlords who lower rent in lieu of property tax will be built into Form IT-214, Claim for Real Property Tax Credit for Homeowners and Renters.
Value Added Tax is misunderstood by many. Essentially it taxes profits on products or services. Example: a sump pump company buys castings at $5.00 apiece, tools and assembles them as a sump pump at a cost of $15.00. The finished pump is sold to a retailer for $40.00. The value added is $20.00 which is taxable. The retailer sells the pump to a customer for $80.00. The value added is $40.00 which is taxable. In the case of service providers, the cost of sending a cleaner to a business for 8 hours is $60.00. The cleaning company charges the business $75.00. The value added is $15.00 which is taxable. For financial institutions, the banks pay a VAT on disposal of mortgaged securities, investment and financial services.
The elimination of property based taxation would benefit especially farmers- for whom land ownership is a critical investment. Besides alleviating the unfair burden placed upon taxpayers, eliminating property taxes would jettison the bureaucracy necessary to administer it. A 4% residential tax and 3.8% commercial VAT would also generate sufficient revenue to accelerate satisfaction of New York State’s overwhelming debt.