Detroit’s rebirth as ‘America’s Great Comeback City’ hits roadblock.....

[sumas]

I should add than any gov't has the option of exempting more non-discretionary spend from the tax to make it more progressive.

Car-sharing, Mass transit, Health insurance, and childrens clothes could all be exempt, for instance.

I am intrigued by your car sharing concept, please elaborate. Is it the concept of car pooling or treating a car like a co-op?

As stated so many times, the public transit is abysimal in Detroit. Sumas

[BankruptcyGuy]

I'm going to pick a bone on the issue of sales tax being regressive. We often here that up here in Canada as an argument against raising the provincial portion of HST.

Yet, here at least, the HST does not apply to either basic groceries, or rent or a first time home purchase at below median prices.

So.....whereas housing is 35% [[or more) of most peoples costs and food another 15% Sales tax only applies to 50% of spend. The Tax also doesn't apply [[in Canada) to tuition, or prescription drugs.

So for someone at a subsistence level likely spending above norm on necessities.....so let's say 60%......they might pay in Michigan's case 6%, on at most, 40% of what they spend. So let's say 6% of $10,000 [[assumes as $25,000 income) or $600 per year.

Now take a typical upper-middle income family, household income of $120k.

Likely in a home where sales tax would/could apply; and spending far less of their income on housing/food annually in any event.

So, let's say paying tax on 80% of their spend, which will be 70% of their income allowing for savings.

They spend $84,000 taxable dollars per year, at 6%, that's $5,400 vs $600 for the low income earner

And in % of income...........the low-income household pays 2.5% total, whereas the higher income household pays 4.5%

While that's not as 'progressive' as income tax CAN be.......its hardly regressive.

Are you explaining Canadian sales tax, or American?

In the United States, sales tax is VERY regressive. The largest item on which you'll pay sales tax is your car. Beyond that [[in MI anyway) it's not much. Food and clothing, probably the largest two, make up a much higher percentage of disposable income for the poor than the wealthy. Groceries are not taxed, but prepared food is.

Here's a quote from a 50-state study on the topic:

Sales and excise taxes are the most regressive element in most state and local tax systems. Sales taxes inevitablytake a larger share of income from low- and middle-income families than from rich families becausesales taxes are levied at a flat rate and spending as a share of income falls as income rises. Thus, while a flatrategeneral sales tax may appear on its face to be neither progressive nor regressive, that is not its practicalimpact. Unlike an income tax, which generally applies to most income, the sales tax applies only to spentincome and exempts saved income. Since high earners are able to save a much larger share of their incomesthan middle-income families — and since the poor can rarely save at all — the tax is inherently regressive.The average state’s consumption tax structure is equivalent to an income tax with a 7 percent rate for thepoor, a 4.7 percent rate for the middle class, and a 0.8 percent rate for the wealthiest taxpayers. Few policymakerswould intentionally design an income tax that looks like this, but many have done so by relyingheavily on consumption taxes as a revenue source.The treatment of groceries is the most important factor affecting sales tax fairness. Taxing food is a particularlyregressive policy because poor families spend most of their income on groceries and other necessities.Of the 10 most regressive sales taxes in the country, five apply the tax to groceries in some form. A fewstates have enacted preferential tax rates for taxpayers perceived to have less ability to pay — for example,South Carolina’s sales tax rate is lower for taxpayers over 85 — but these special rates usually apply to taxpayersregardless of income level. Arkansas exempts some utilities for low-income taxpayers.

http://www.itep.org/pdf/whopaysreport.pdf

[BankruptcyGuy]

I should add than any gov't has the option of exempting more non-discretionary spend from the tax to make it more progressive.

Car-sharing, Mass transit, Health insurance, and childrens clothes could all be exempt, for instance.

Of your four examples, three are not subject to sales tax in MI. Only children's clothes would be taxed.

[Canadian Visitor]

Of your four examples, three are not subject to sales tax in MI. Only children's clothes would be taxed.

Hence the tax is already less regressive than it might first appear.

And my point was you can extend the list of exempt items to make it less regressive.

You might not want to exempt jewellery or high-end furnishings........but you could exempt underwear/socks, mens/women hygiene/grooming products, toilet paper and laundry soap.

If you do that sort of thing; you can mostly eliminate any regression, since the low income earner would pay tax on as little of 20% of what they spend, where middle-class and higher income families could pay the tax on all cars [[or just cars over 'x' price), higher end fashions, electronics etc.

Also; let's keep in mind income tax is not nearly as progressive as it first appears in North America; the U.S. acutely so. When factoring in favourable treatment for forms of income like Capital gains which fall overwhelmingly to higher income earners, and when considering deductions that for most part only apply to those with 'some' money [[mortg. interest, IRAs) etc.

Very few middle or high income folks pay 'sticker' rates for Income tax; while the poor often come closest.

That's not an argument for sky-high VAT [[value-added sales tax) nor an argument against income tax; just an argument for a more nuanced-read of how tax policy can and often does work in practise.

[BankruptcyGuy]

Hence the tax is already less regressive than it might first appear.

And my point was you can extend the list of exempt items to make it less regressive.

You might not want to exempt jewellery or high-end furnishings........but you could exempt underwear/socks, mens/women hygiene/grooming products, toilet paper and laundry soap.

If you do that sort of thing; you can mostly eliminate any regression, since the low income earner would pay tax on as little of 20% of what they spend, where middle-class and higher income families could pay the tax on all cars [[or just cars over 'x' price), higher end fashions, electronics etc.

Also; let's keep in mind income tax is not nearly as progressive as it first appears in North America; the U.S. acutely so. When factoring in favourable treatment for forms of income like Capital gains which fall overwhelmingly to higher income earners, and when considering deductions that for most part only apply to those with 'some' money [[mortg. interest, IRAs) etc.

Very few middle or high income folks pay 'sticker' rates for Income tax; while the poor often come closest.

That's not an argument for sky-high VAT [[value-added sales tax) nor an argument against income tax; just an argument for a more nuanced-read of how tax policy can and often does work in practise.

I suppose in theory you could exempt everything except truly luxury items from sales tax, but then it wouldn't be much of a tax. Providing each of the exemptions you mention would make the tax less regressive. But they would also take larger chunks of the sales tax as a whole; rich people bathe, too.

Look at it this way: let's define "the poor" as the bottom 20% in income. Let's pick an item [[clothing) that everyone buys. Clothing prices are [[relatively) inelastic; that is, when your income doubles, you don't double your clothing purchases.

Eliminating the sales tax on clothing would make the tax less regressive, yes. But for every dollar of tax savings for the poor, you'd have 5 dollars of tax loss for the treasury. I think most states have concluded that is too steep a price to pay.

Making sales taxes cover more services would probably reduce the regressivity, but many states have rejected the concept of raising taxes that way. People won't vote for it. So we're left with what is currently constituted as a regressive tax. Increasing the percentage makes it more regressive.

Also, states differ from the federal government in that they must have balanced budgets. So if the sales tax were made less regressive, and thus less was collected, the state would have to either cut spending or raise other taxes. Again, pick your poison.

Ideally, you'd give the poor a credit for sales taxes paid. That's available in the US tax code, but for most poor people, the standard deduction is much higher.

[Wesley Mouch]

Next time you're at your local Whole Foods, look around and remember that they're mostly not paying sales tax. Then think again about whether a sales tax exemption on food really is progressive.

[mwilbert]

Next time you're at your local Whole Foods, look around and remember that they're mostly not paying sales tax. Then think again about whether a sales tax exemption on food really is progressive.

Since less well-off people tend to spend a higher percentage of their income on food then better-off people, even ones who shop at Whole Foods, the answer is yes, it really is progressive.

[mwilbert]

Ideally, you'd give the poor a credit for sales taxes paid. That's available in the US tax code, but for most poor people, the standard deduction is much higher.

No it isn't. What is available is a deduction, which as you point out is not going to outweigh the standard deduction which causes poor people in the US to generally not have any income tax liability at all. A refundable credit would presumably be the correct approach, if you wanted to do something about this through the Federal tax code.

[Canadian Visitor]

I suppose in theory you could exempt everything except truly luxury items from sales tax, but then it wouldn't be much of a tax. Providing each of the exemptions you mention would make the tax less regressive. But they would also take larger chunks of the sales tax as a whole; rich people bathe, too.

Look at it this way: let's define "the poor" as the bottom 20% in income. Let's pick an item [[clothing) that everyone buys. Clothing prices are [[relatively) inelastic; that is, when your income doubles, you don't double your clothing purchases.

Eliminating the sales tax on clothing would make the tax less regressive, yes. But for every dollar of tax savings for the poor, you'd have 5 dollars of tax loss for the treasury. I think most states have concluded that is too steep a price to pay.

Making sales taxes cover more services would probably reduce the regressivity, but many states have rejected the concept of raising taxes that way. People won't vote for it. So we're left with what is currently constituted as a regressive tax. Increasing the percentage makes it more regressive.

Also, states differ from the federal government in that they must have balanced budgets. So if the sales tax were made less regressive, and thus less was collected, the state would have to either cut spending or raise other taxes. Again, pick your poison.

Ideally, you'd give the poor a credit for sales taxes paid. That's available in the US tax code, but for most poor people, the standard deduction is much higher.

I'm not sure how inelastic clothing budgets are; some people but at Walmart; others at Nordstrom.

An entry-level winter Parka can be had for $100; A top of the line Canada Goose Parka will be $600.

You could nit pick item to include or exclude or set a single-item value threshold. [[ie. clothing purchases under $50 are exempt)


***

On Tax Credits.

Canada has these; for the 5% [[federal portion) of the HST the amount of the credit varies by income, number of children etc.

But for the sake of example, I picked someone child-less making $30,000

They would receive a sales tax credit of $410 per year [[issued in quarterly installments)

The Province is less generous, but for its 8% portion, there is a credit of $281 for someone earning less than $27,000, with the credit then phased out above that.

Using my example from before where we had a low income person paying about $600 in sales tax; They would actually be refunded $697 up here.

[BankruptcyGuy]

I'm not sure how inelastic clothing budgets are; some people but at Walmart; others at Nordstrom.

An entry-level winter Parka can be had for $100; A top of the line Canada Goose Parka will be $600.

You could nit pick item to include or exclude or set a single-item value threshold. [[ie. clothing purchases under $50 are exempt)


***

On Tax Credits.

Canada has these; for the 5% [[federal portion) of the HST the amount of the credit varies by income, number of children etc.

But for the sake of example, I picked someone child-less making $30,000

They would receive a sales tax credit of $410 per year [[issued in quarterly installments)

The Province is less generous, but for its 8% portion, there is a credit of $281 for someone earning less than $27,000, with the credit then phased out above that.

Using my example from before where we had a low income person paying about $600 in sales tax; They would actually be refunded $697 up here.

Is this credit on their income tax return [[your T1, I think it's called)? Or is it something returned to them in a transfer payment?

I get the impression that Canadian federal taxes have much more of a phaseout of exemptions, etc. as higher incomes are reached, but that's just an impression.

[Wesley Mouch]

I'm not sure how inelastic clothing budgets are; some people but at Walmart; others at Nordstrom.

An entry-level winter Parka can be had for $100; A top of the line Canada Goose Parka will be $600.

You could nit pick item to include or exclude or set a single-item value threshold. [[ie. clothing purchases under $50 are exempt)...

Exempting purchases from sales tax is just plain stupid. Canada has it right. Rebate money up to some threshold of total income. Otherwise, you're giving a tax break to people who don't need it.

Food? As above, Whole Foods shoppers by and large do not need the exemption.

Clothing? You're spot on. If you exempt clothes, you'll be granting a huge exemption to people who spend mountains of discretionary money on expensive clothes, or just a huge volume of normal clothes.

We do a lot of things with our tax policy that feels good, but hurts us socially. For example, the sacred mortgage tax deduction. Sounds like a policy to benefit hard working families. Yet who really saves? You guessed it! People who buy expensive houses. 1) The house value is high, so the deduction is high, 2) They itemize on their taxes. Its worth noting that the most standard deductions aren't used by working-class people, since they don't itemize. So when we grant deductions, we mostly are granting them to those who are better off. Thank you ever so much. If I were generous, I'd buy a beer for the next working-class staff who didn't itemize so I can enjoy the money from more itemized deductions.

[Canadian Visitor]

Is this credit on their income tax return [[your T1, I think it's called)? Or is it something returned to them in a transfer payment?

I get the impression that Canadian federal taxes have much more of a phaseout of exemptions, etc. as higher incomes are reached, but that's just an impression.

The HST Credit[[s) are paid out separately as a transfer, typically quarterly; they are not lumped in with any income tax refund or payment. Though you must file your taxes to get it.

***

Much to my chagrin the list of deductions of all sorts grows ever longer, I'd prefer a more streamlined tax system.

However, most deductions are not income contingent.

The Sales tax credits phase out into middle income; deductions for non-insured medical expenses [[dental/drugs/physio) only count if they amount to a fair bit and a fairly high % of income.

But deductions for kids in sports or transit passes are universal.

However the big one is the National Child Benefit. It is is income variable.

I'll post below. Its also structured as a transfer.

The numbers are from 2011, just the page I found.

Number of Children	Basic CCTB	NCBS	Total	Monthly Benefit
1st child	$1367	$2118	$3485	$290.41
2nd child	$1367	$1873	$3240	$270.00
3rd & each additional child	$1462	$1782	$3244	$270.33

• Families with net incomes below $24,183 will get the maximum CCTB - including the full NCBS and the supplement for the third and each additional child - of:
  
  • $290.41 per month [[$3,485 per year) for the first child,
  • $270.00 per month [[$3,240 per year) for the second child, and
  • $270.00 per month [[$3,244 per year) for all other children in the family, along with any supplement for children under 7 that is applicable.
  
  
• Families with net incomes between $24,183 and $41,544 will get the maximum basic CTB, the supplement for the third and each additional child, and a partial NCBS, along with any supplement for children under 7 that is applicable. Families with four or more children will also be entitled to a partial NCBS if their income is just above $41,544.
• One and two-child families with net incomes between $41,544 and approximately $109,894 will receive partial benefits. Larger families may also be entitled to a partial CCTB if their income is above $109,894.

[Canadian Visitor]

I am intrigued by your car sharing concept, please elaborate. Is it the concept of car pooling or treating a car like a co-op?

As stated so many times, the public transit is abysimal in Detroit. Sumas

I was meaning like ZipCar; you have that in Detroit.

http://www.zipcar.com/

[BankruptcyGuy]

The HST Credit[[s) are paid out separately as a transfer, typically quarterly; they are not lumped in with any income tax refund or payment. Though you must file your taxes to get it.

Here in the good ole U.S. of A., transfer payments are not a preferred form. We like to hide them amongst government programs. Such Conservative stalwarts as Bill Clinton cut transfer payments [[welfare) to able-bodied males.

I remember reading a scholarly writing in college that argued that it would be better to combat property by getting rid of Medicaid, food stamps, WIC, unemployment insurance, and all the other programs and just give people a check. The argument was that we'd save a ton of money by cutting all the government bureaucracy. I think that may be correct, but we wouldn't stand for it here.

[sumas]

I was meaning like ZipCar; you have that in Detroit.

http://www.zipcar.com/

Interesting concept, but just how to people get to these zipcars, cab/bus? For a day I can call enterprise rental, they pick you up, rent a vehicle and take you home for less.

I have a nice cross over and we do loan out our van to select friends and neighbors. Function as unpaid jitney for seniors. Got people to work who's bus never showed which happens alot. Yes got those calls at 4:00am from people desparate to get to work and blue with cold, they didn't want to lose their jobs for being late.
Zipcars doesn't sound feasilble here for the average low income worker who needs reliable transportation just to survive

[Canadian Visitor]

Interesting concept, but just how to people get to these zipcars, cab/bus? For a day I can call enterprise rental, they pick you up, rent a vehicle and take you home for less.

I have a nice cross over and we do loan out our van to select friends and neighbors. Function as unpaid jitney for seniors. Got people to work who's bus never showed which happens alot. Yes got those calls at 4:00am from people desparate to get to work and blue with cold, they didn't want to lose their jobs for being late.
Zipcars doesn't sound feasilble here for the average low income worker who needs reliable transportation just to survive

Carshares vary in their exact pricing model [[there are 3 in Toronto); Zipcar btw is now owned by Avis, and its largest competitor here is owned by Enterprise.

Typically, the model is different from 'car rental'. Most often for a low annual or monthly fee [[varies by market and how much drive time you'll use) You get to rent the car by the hour; or in the case of Car2Go by the minute.

Hourly fees range from $6-12 depending on your package and the model of the car chosen. So expect that the Lexus goes for more than the Corolla.

You may also pay a per mile/km fee depending on the deal you chose and the company.

The distinctions from rental are that cars are [[typically) closer at hand, I think in downtown Toronto there are over 100 carshare sites btw the various companies and its rare you would have to walk more than 2 blocks to get one. Once you've done your initial membership/deal you're approved as a driver and can simply reserve vehicles online or even at the vehicle itself w/no hassle.

Zipcar uses the 2-way model where you must return the car to its normal spot at the end of your use; Car2go allows one-way carsharing where you only pay for it while you drive it; though, you may find no car waiting when you return w/your shopping [[unless you've paid for the whole time).

It works well in areas w/good density, the more suburban you get the more inconvenient or far the cars will be.

In Detroit, I see Zipcar has 4 locations clustered close to the Westin Book Tower w/8 cars; then 8 or 9 clustered at Wayne State. That's where it works as a concept.

Also works better in Toronto where people use it to compliment mass transit, say for that trip to IKEA or Costco....

But take transit to work or for small shops.

That's also partly cause parking in D/T Toronto will now set you back $30 a day or more.

Condos in this town [[of which there must be 50 or more under construction right now also typically sell their parking spots separate from their units.....at about $40,000 per space)

[Hermod]

In Detroit they use the nine millimeter car sharing system.

[Wesley Mouch]

...Condos in this town [[of which there must be 50 or more under construction right now also typically sell their parking spots separate from their units.....at about $40,000 per space)

So the real estate value of a parking space in a high-rise condo in Toronto is greater than many Detroit houses. HA!

[ABetterDetroit]

Condos in this town [[of which there must be 50 or more under construction right now also typically sell their parking spots separate from their units.....at about $40,000 per space)

Sounds nice, everything in Detroit is already primed for new condo projects with the exception of the 5 figure property tax bill that would come with them. Instead we build them out in the sticks.

[bailey]

So the real estate value of a parking space in a high-rise condo in Toronto is greater than many Detroit houses. HA!

There are developments HERE that are/were demanding 35k for a second spot for the unit. As two car household...that was just another check in the 'con' box back when we were looking. Detroit is loong way from being able to charge that type of premium.

[Bham1982]

There are developments HERE that are/were demanding 35k for a second spot for the unit. As two car household...that was just another check in the 'con' box back when we were looking. Detroit is loong way from being able to charge that type of premium.

Exactly. There are places around here that will change around that premium. Ann Arbor has one condo that charges even more.

In NYC, there are million dollar parking spaces in some buildings. And those car owners are arguably lucky, in that most luxury buildings have no parking whatsoever. Not really surprising that big cities charge for parking.

[iheartthed]

So the real estate value of a parking space in a high-rise condo in Toronto is greater than many Detroit houses. HA!

Single family homes in Toronto also average about $800K. That's what happens when you proactively implement policies to contain sprawl:

http://en.wikipedia.org/wiki/Greenbe...n_Horseshoe%29

[Canadian Visitor]

Single family homes in Toronto also average about $800K. That's what happens when you proactively implement policies to contain sprawl:

http://en.wikipedia.org/wiki/Greenbe...n_Horseshoe%29

Not so fast.

There are still 10's of thousands of acres of 'whitebelt' land [[undeveloped, but permitted to be developed) in/around the GTA.

The build-out, however, has slowed considerably.

There is a strong preference among the younger generation not to have uber-long commutes; and particular in the pre-family starting period, short-walks to good restaurants/clubs/stores is taking precedence over a backyard and 2 car garage.

Toronto also has lots of immigration from Asia where many folks live in condos/apartments and where connections to transit are seen as critically important features of home-choosing.

Is the greenbelt a factor? Perhaps. Certainly it will be one day; but as yet, there's lots of room for single family homes, as long as you want to car commute an hour to get to work.

More likely issues for now are merely preferences among buyers; and the fact that transit quality while not abysmal is mostly unappealing in the white-belt areas and in some places nonexistent outside of limited rush-hour commuter rail service.

There's also relatively little room to build new single-family housing w/in Toronto proper meaning that greenbelt or not, there is more demand than supply.

Of course, one day housing prices here will correct, most likely whenever we finally raise interest rates......

[ABetterDetroit]

Exactly. There are places around here that will change around that premium. Ann Arbor has one condo that charges even more.

In NYC, there are million dollar parking spaces in some buildings. And those car owners are arguably lucky, in that most luxury buildings have no parking whatsoever. Not really surprising that big cities charge for parking.

Here we go again.

Let's compare Detroit to one of the most vibrant expensive international cities in the free world.

Market rate is market rate. Nobody is "lucky" to pay it. It is nothing more than what the market dictated on that particular day. "A2 has 1 condo that charges more" so???

[Cincinnati_Kid]

In Detroit they use the nine millimeter car sharing system.

Good call....