Stephen Henderson: Help Detroit break its high-tax habit.

[Novine]

"And again [[I've said this so many times, but no one ever addresses it) the income tax is KILLING ITSELF ANYWAY.. Declined nearly 50% over the past 10 years.. "

As are revenues from property taxes but I didn't hear you advocating the city cuts its property tax millages. Why not? If Detroit does turn around, revenue from property taxes will grow more slowly than those from income taxes. You want to dump the more effective method of revenue in favor of the least effective. It's like you want to saddle the city with the worst possible financial structure, setting it up for guaranteed failure.

Why not re-examine the amount of property tax money that gets diverted by the DDA and the various tax authorities? That's revenue that could be going to the city to pay for general operations like police and fire. Instead, it gets funneled to an unelected board to the benefit of a very small percentage of the city's area. Does George Jackson need that money more than Mayor Bing?

[Novine]

"As Henderson suggests, the city's income tax for both residents and non-residents should be eliminated in gradients over a five-year period. In addition, the city's property tax rate should be pegged at the median for the metropolitan area. Once the city-tax disincentives are eliminated, the trickle of entrepreneurs, new residents, and jobs will become a flood!"

Sorry Mr. Page but you might as well ask for helicopters to fly over the city and drop money.

[Fnemecek]

"Factually accurate? No."

Point out which facts I got wrong.

Start with your assertion that the City of Detroit can't afford to cut taxes.

[Fnemecek]

"Finally, if you don't believe that bringing our tax burden closer to averages will lure suburbanites into Detroit, you only have to spend a few minutes at any community meeting to learn that it will unquestionably do wonder to stop or slow down the exodus of people leaving the city."

I've talked to a lot of people who've left the city for the suburbs. If they mention taxes, it's at the end of a long list of ills that would have to be addressed to keep them in the city. Cutting their taxes isn't going to keep them.

Taxes are an important issue, but only one issue. This is why I've always argued in favor of putting tax cuts in the context of other things to address those other issues. For example, putting competent law enforcement professionals in charge of DPD will do a lot to address crime and public safety issues as well as dramatically reduce the cost of operating the department.

Reducing the cost of operating DPD also frees up funds to deal with all of those other issues. Reforming other areas of government [[e.g., combining CPC staff and planning staff from PDD) and restructuring our debt will also free up cash for those issues.

[Fnemecek]

As are revenues from property taxes but I didn't hear you advocating the city cuts its property tax millages. Why not?

We can reduce the property tax instead of the income tax. Either option will improve things in this city.

[sehender1]

"And again [[I've said this so many times, but no one ever addresses it) the income tax is KILLING ITSELF ANYWAY.. Declined nearly 50% over the past 10 years.. "

As are revenues from property taxes but I didn't hear you advocating the city cuts its property tax millages. Why not? If Detroit does turn around, revenue from property taxes will grow more slowly than those from income taxes. You want to dump the more effective method of revenue in favor of the least effective. It's like you want to saddle the city with the worst possible financial structure, setting it up for guaranteed failure.

Property tax is much, much trickier to deal with, and less flexible for the city itself to manipulate.
As I pointed out in the column, city government isn't the only entity that has the ability to raise property tax mills. There are several other authorities [[including DPS) whose bonding and other debt obligations make our property tax bills go up or down. So while the city could lower its millage, DPS or the library or any number of other folks could come in an raise it to take away the effect of the tax cut. It's just not as clean a situation.

Phasing out the income tax would eliminate the equivalent of 24 mills[[!!!), and put the city at a little more than double the statewide average, rather than triple.

For my money, the income tax is where you'd make the most formidable difference..

[ghettopalmetto]

Phasing out the income tax would eliminate the equivalent of 24 mills[[!!!), and put the city at a little more than double the statewide average, rather than triple.

For my money, the income tax is where you'd make the most formidable difference..

That's great. But is it enough money to provide adequate services? We don't know--you've focused strictly on the revenue side of things without even thinking of expenditures. That's the whole gist of the argument--low taxes and the same crummy services ain't exactly going to reverse a death spiral.

Let's see some numbers on expenditures that can be cut too, yes? And then see if the revenues you've left on the table are adequate to support those expenditures. Because as much as you may dislike taxes, default is a far more demanding mistress.

[sehender1]

Ghetto:

aargh.. frustrating that people are not reading.
I've been over this before, but the mayor himself says he has identified $85 million in efficiencies that can be achieved in city government.
The Mackenzie Group also identified a slew of opportunities for the city to cut costs, rather than services, to run more efficiently.
There is the pension issue, which is absurd - requiring payments into the fund if it doesn't grow by like 7 percent a year... Better smoothing for those requirements [[and a much lower requirement) would save tens of millions [[j$65 million this year alone) over the long haul.
It's estimated that regionalizing DDOT would save tens of millions of dollars.
Confronting the police department's ridiculous overtime rules [[anytime an officer just walks into a courtroom, it's something like four hours of overtime pay, for example) could again reduce costs without slashing services.

The city's a very inefficiently run unit of government. The money it collects would be plenty to provide much better service than we have if it were spent more wisely.. There is no shortage of examples. [[and as I said, I've been providing them over and over.)

This isn't a question of taxes versus services. You can reduce one without touching the other..

[ghettopalmetto]

That's all and good. If money can be saved without compromising services, it *should* be saved. As far as I'm concerned, though, there is no impetus to cut taxes if the streets aren't getting plowed in the winter, the grass isn't getting cut in the parks, and the police aren't showing up when called.

It's not the taxes that are discouraging--it's the value one receives for those tax dollars that is discouraging.

[mwilbert]

No one doubts [[I hope) that there are savings to be had. But Detroit can't spend those savings, on better services or on tax reductions, until they have actually been produced. Not only that, but you also have to use those savings to eliminate the deficit before you even get to the taxes and the service. So far I'd say the savings have been elusive and the deficit persistent.

[davewindsor]

Confronting the police department's ridiculous overtime rules [[anytime an officer just walks into a courtroom, it's something like four hours of overtime pay, for example) could again reduce costs without slashing services.

How could the city possibly confront this kind of police pay without the governor changing the state's law on mandatory binding arbitration for emergency services because the police are not allowed to strike? It's a non-starter.

[Detroitnerd]

People fundamentally and intentionally misunderstand the Laffer Curve. It's a curve, not a straight line. So many people, perhaps Henderson included, seem to believe that if we cut taxes to zero, then taxes will start POURING in. This is absurd and impossible, and yet it seems to be almost exactly what our free-market fundamentalist types believe.

[ghettopalmetto]

People fundamentally and intentionally misunderstand the Laffer Curve. It's a curve, not a straight line. So many people, perhaps Henderson included, seem to believe that if we cut taxes to zero, then taxes will start POURING in. This is absurd and impossible, and yet it seems to be almost exactly what our free-market fundamentalist types believe.

But see, to understand a curve, you have to understand the calculus. And well, we just can't be bothered with that because it's too hard.

[ndavies]

People fundamentally and intentionally misunderstand the Laffer Curve. It's a curve, not a straight line. So many people, perhaps Henderson included, seem to believe that if we cut taxes to zero, then taxes will start POURING in. This is absurd and impossible, and yet it seems to be almost exactly what our free-market fundamentalist types believe.

Nobody is talking about taking all the taxes to zero. All we're talking about is lowering the tax rates to be competitive with the surrounding area. We are at a point on the curve where the tax rate is truly hampering investment from the people and groups that aren't large enough to demand a tax incentive.

[Detroitnerd]

Nobody is talking about taking all the taxes to zero. All we're talking about is lowering the tax rates to be competitive with the surrounding area. We are at a point on the curve where the tax rate is truly hampering investment from the people and groups that aren't large enough to demand a tax incentive.

"First, start to cut the income tax rate for residents to bring it into parity with the rate for nonresidents. Then roll them both back, over time, to nothing. The utility tax could be reduced by one percentage point per year until it's gone.
Such actions could literally save Detroit's fiscal life..."

Oh, sure, not all taxes. Just income taxes. You know, the ones the city needs to levy to pay for services. This is more patently absurd free-market fundamentalism.

[ndavies]

"First, start to cut the income tax rate for residents to bring it into parity with the rate for nonresidents. Then roll them both back, over time, to nothing. The utility tax could be reduced by one percentage point per year until it's gone.
Such actions could literally save Detroit's fiscal life..."

Oh, sure, not all taxes. Just income taxes. You know, the ones the city needs to levy to pay for services. This is more patently absurd free-market fundamentalism.

Well I see your theory of really high taxes and really terrible city services is doing such a wonderful job of Reviving Detroit. The city is charging way too much in taxes and needs to slash them. Until the city slashes taxes there will be no recovery in Detroit. We will just be rewriting the tax laws again after cities population declines another 25% in the next census.

[Novine]

"Nobody is talking about taking all the taxes to zero. All we're talking about is lowering the tax rates to be competitive with the surrounding area."

Good luck with that. How is Detroit supposed to fund city government operations by cutting tax rates to a level to be "competitive with the surrounding area"? That would require dumping the income tax entirely and slashing property tax millage rates in half.

Property tax rates in Detroit are so high because property values are so low, especially compared to surrounding suburbs. Nick Lidstrom pays around $25,000 a year in property taxes on his home in Novi even though his millage rate is around 48 mills because his home and property are worth $1.5 million. While that's a high-end example, there's quite a few people in Novi who have property tax bills in the $5,000 - $10,000 a year range even though the millage rates in Novi are much lower than in Detroit. Millage rate comparisons are pretty much meaningless unless you are comparing like communities. As long as Detroit's property values continue to be so depressed, no amount of tax cutting or consolidating services is going to change the reality that Detroit is going to have levy substantially higher millage rates in order to capture even a fraction of the revenue as is raised in suburban communities with much lower millage rates.

[ghettopalmetto]

Nobody is talking about taking all the taxes to zero. All we're talking about is lowering the tax rates to be competitive with the surrounding area. We are at a point on the curve where the tax rate is truly hampering investment from the people and groups that aren't large enough to demand a tax incentive.

Stephen Henderson, the author of the piece linked in the OP, is. Allow me to refresh your memory:

First, start to cut the income tax rate for residents to bring it into parity with the rate for nonresidents. Then roll them both back, over time, to nothing. The utility tax could be reduced by one percentage point per year until it's gone.

[Detroitnerd]

Well I see your theory of really high taxes and really terrible city services is doing such a wonderful job of Reviving Detroit. The city is charging way too much in taxes and needs to slash them. Until the city slashes taxes there will be no recovery in Detroit. We will just be rewriting the tax laws again after cities population declines another 25% in the next census.

If you have to resort to putting words in my mouth, I guess I have to conclude you don't have very much confidence in your anti-tax theories to begin with ...

[ndavies]

Did you ever think that property values would go up if the property tax rate was cut? This would llead to increase tax revenues for lower tax rates. The tax rate is a major contributer to the very low property values. Ask any home purchaser where they would like their monthly payment to go? Would they prefer their monthly payment going to pay tax or to building equity by paying off their mortgage.

Go ask the realtors in the city how many sales they lose when people figure out what the tax rate is going to be? Ask them, Why do NEZ'd home values crash when the NEZ runs out? Why haven't there been any new developments started in the last 25 years that hasn't included an NEZ?

[ghettopalmetto]

Did you ever think that property values would go up if the property tax rate was cut? This would llead to increase tax revenues for lower tax rates.

Just like federal income tax cuts would pay for themselves, right? Show your math. Otherwise, it's just speculation.

[sehender1]

People fundamentally and intentionally misunderstand the Laffer Curve. It's a curve, not a straight line. So many people, perhaps Henderson included, seem to believe that if we cut taxes to zero, then taxes will start POURING in. This is absurd and impossible, and yet it seems to be almost exactly what our free-market fundamentalist types believe.

Sigh.. Reading comprehension, folks.. Seriously...

The income tax is just one of the many taxes levied on Detroiters. It equates to around 24 mills. The other 75 mills [[yes, we pay around 99 mills equivalent in Detroit) are sucked up in property taxes, the utility tax and other levies.

So even if you're talking about the Laffer Curve, a concept with which I've strongly disagreed in the past, you're not talking about taking taxes to zero. Just ONE tax, the one that's the biggest outlier in the state.

Detroit would still have plenty of tax revenue. And, as I've pointed out before in this thread, I believe that every dime of that tax decrease could be paid for through efficiencies and restructuring. No services would need to be compromised. No people would even need to be laid off.
Yes, that's how bad things have gotten in Detroit. We're paying more for benefits and pensions and overtime and auxilliary city departments than we are for core services.

This is hardly a radical solution - it's a necessity given the fact that the income tax is dying anyway.. on a very steep decline because of the population exodus.

What I proposed was a very responsible, managed phase-out of just one onerous tax in the city.
It speaks volumes that people are invoking heated ideological rhetoric about supply-side, free-market theories..

[ghettopalmetto]

Detroit would still have plenty of tax revenue. And, as I've pointed out before in this thread, I believe that every dime of that tax decrease could be paid for through efficiencies and restructuring. No services would need to be compromised. No people would even need to be laid off.

Believing is for religion. How about we first get some budget analysis going and figure out how much it would actually cost to run the city, before we run with scissors toward the income tax?

What you propose is not only radical, it's downright irresponsible. You don't just start bleeding the city dry, hoping that it will survive on a wing and a prayer. You have to do your homework first. And right now, you're only presenting half the picture.

You're trying to get a 300 lb. person to lose weight on a diet intended for someone who weighs 120. First, determine if that's actually healthy or not, lest you kill the patient in the process. In other words, do your homework before you get all preachy with one side of the story. You're presenting an incomplete argument. Shame on you for your intellectual dishonesty.

[ndavies]

If you have to resort to putting words in my mouth, I guess I have to conclude you don't have very much confidence in your anti-tax theories to begin with ...

So then what is your suggestion? You have 2 choices, cut taxes or improve city services. City services are not improving and don't show any signs of getting better soon.

My argument is there is no way you can improve city services enough to make a difference. You have to make it cheap enough that the people with money, who don't use a lot of city services to begin with, must be willing to move back. They are not going to move back for the city services. People looking for city services can get far better ones in the suburbs for a much smaller tax tab.

[Novine]

"You have to make it cheap enough that the people with money, who don't use a lot of city services to begin with, must be willing to move back. They are not going to move back for the city services. People looking for city services can get far better ones in the suburbs for a much smaller tax tab."

Great plan. Who are these hypothetical people who are going to move back based on lower tax rates?

"The tax rate is a major contributer to the very low property values."

You can say so but I can say pretty confidently that there's no correlation between this claim and actual property values in SE Michigan. Ann Arbor, Birmingham and the GPs have some of the highest local property tax rates. They also have some of the highest property tax values. Why? Because people get value in services for the money they pay in property taxes.