A Tax Problem, A Solution, So Why No Repair?

The saga of the troubles afflicting the Philadelphia real property tax continues ceaselessly. First addressed by me in An Unconstitutional Tax Assessment System, it then got attention in Property Tax Assessments: Really That Difficult?, Real Property Tax Assessment System: Broken and Begging for Repair, Philadelphia Real Property Taxes: Pay Up or Lose It, How to Fix a Broken Tax System: Speed It Up? , Revising the Board of Revision of Taxes, How Can Asking Questions Improve Tax and Spending Policies?, This Just Taxes My Brain, Tax Bureaucrats Lose Work, Keep Pay, Testing Tax Bureaucrats Just Part of the Solution, A Citizen Vote on Taxes, Freezing Real Property Tax Reassessments: A Nice Idea, The Tax Price of a Flawed Tax System, Can Bad Tax Administration Doom the Tax?, Taxes and Priorities, R.I.P., BRT, A Tax Agency Rises from the Dead, and Tax Law as Subterfuge: Best Use Valuation v. Current Market Valuation, How to Kill a Bad Tax System That Will Not Die?, The Bad Tax System That Will Not Die Might Get Another Lease on Life , Robbing Peter to Pay Paul, Tax Style, Don’t Rob Peter to Pay Paul: Collect Unpaid Taxes, and The Philadelphia Real Property Tax: Eternal Circles .

This time, the focus is on the plight of property owners who face the long-scheduled expiration of real property tax breaks. Last week, a Philadelphia Inquirer article described a “frustrated taxpayer” who is facing homeownership after the tax abatement on her property comes to an end. Years ago, Philadelphia decided that to encourage home buying in the city, it would provide a ten-year period of substantially reduced real property taxes on properties purchased during the qualifying period. The tax abatement would persist even if the property was resold to a new owner during the ten-year period. The taxpayer in question purchased her home in 2009, “knowing that the house was in the final years of a 10-year tax abatement.” The property was assessed at $350,000, but her tax bill was only $453. She knew that in 2011, when the 10-year-period expired, her taxes would go up. Go up they did. To $10,563. In a city where the average real estate tax bill on a residence is roughly $1,350, the invoice came as quite a shock.

There are two reasons for the huge jump in the taxpayer’s real estate property tax bill. First, although, as discussed in many of the previous MauledAgain posts on the topic, most properties are underassessed, properties blessed with tax abatement are assessed at or close to actual value. Considering that some properties are assessed at 3 to 3.5 times below market value, a property assessed at or near actual value will be subject to a real estate tax bill 3 to 3.5 times what it would have been had it, too, been underassessed. Second, when the assessors placed a value on the taxpayer’s property, they overvalued it.

A private sector valuation expert noted that “anyone shocked by a post-abatement bill was being ‘willfully ignorant.’” Yet, he explained that if enough people are “willfully ignorant but upset, then the city has a problem.” The extent to which property owners do not appreciate the impact of tax abatement in the long term is reflected by a comment made by the taxpayer in question, “I guess I didn’t really understand the tax implications.”

Long-term residents have little sympathy for taxpayers who enjoyed ten years of tax breaks. The taxpayer featured in the story owned the property for only several years, but the previous owner had the benefit of the abatement. In a buyer’s market, ought that not have been taken into account in determining the purchase price? Should the taxpayer have said to the seller, “Look, you’ve pocketed a cumulative real estate tax savings of tens of thousands of dollars over the past seven or eight years. I’m looking at a huge tax increase in two or three years. That reduces the amount I’m willing to pay for the property.” During the real estate boom, that might not have worked, but in today’s market, the buyer has the leverage to take this approach. I wonder how many realtors and home purchasers in Philadelphia take into account looming abatement expirations.

The pending Actual Value Initiative, offered as a solution to the various issues afflicting the city’s real property tax, would also resolve the abatement expiration difficulty. But that effort is stymied by politics and, most likely, a deep misunderstanding of the economics. Politicians, like most taxpayers, aren’t as adept with numbers as they ought to be and need to be.

The taxpayer appealed to the Bureau of Revision of Taxes, which lowered her assessment. But it got hung up on the math, specifically, the conclusion by the State Tax Equalization Board that the city was not assessing at the appropriate fair market value percentage. At the moment, both the taxpayer and the city have filed appeals though the court has not yet scheduled a hearing.

With the real property tax system falling apart, it would make sense to conclude that the officials charged with a fiduciary responsibility to protect the city, and its revenue process, would be working assiduously to solve the problem. Instead, the crisis becomes a political football, as is the case with pretty much every other public issue confronting this country, whether nationally, regionally, or locally. The well-being of the public good has become the neglected child of a political system co-opted by those giving highest priority to continuity of office, personal power, and aggrandizement. There is a problem, a workable solution exists, and it’s time for the city’s politicians and the state’s legislators to do the job they were elected to do.

Limiting User Fee Use: Beach Tag Fees

Earlier this week, in an Asbury Park Press story headlined Shore Towns Rake in Millions from Beach Fees, Ken Serrano focused on a specific user fee. The issue is not so much what appears in the headline, namely, that there are beach fees and that millions of beach users generate millions in beach fee revenues. The issue is what shows up in the secondary headline: “Towns May Be Illegally Using Surpluses for Tax Relief.” For whatever reason, towns along the New Jersey shore are collecting more beach fee revenue than they are spending to maintain and repair the beaches and to provide services such as lifeguard protection and public restrooms. In all fairness, when the cost of a beach tag is set, it reflects two estimates, specifically, the number of beach tags that will be sold and the cost of providing beach maintenance and services. If more visitors arrive than expected, if those costs drop, or if there is some combination of the two, a surplus will be generated. At that point, the town faces a simple question, “What should be done?”

A beach fee should be used to maintain beaches and to provide beach services. That is all. More than four years ago, in User Fees and Costs, in addressing a different user fee, I concluded, “It is difficult, therefore, to justify charging motorists on the toll roads for programs that have nothing to do with the toll roads.” Shortly thereafter, I followed up that conclusion, with a similar one, in When User Fees Exceed Costs: What to Do?, by explaining, “But when a government imposes a user fee, it ought to charge no more than is necessary to provide what the user fee purchases.” Two months later, in response to a story about Delaware River bridge tolls being diverted to financing of a major league soccer franchise, I argued, in Soccer Franchise Socks It to Bridge Users that “[T]he tolls should be used for repair of the bridges,” and that “[I]t should not be a surprise that I find it indefensible that motorists paying to cross a bridge are charged more than it costs to operate the bridge because some of the toll that they pay is being funneled into a major league soccer franchise.” A few days later, in a follow-up posting, Bridge Motorists Easy Mark for Inflated User Fees, I noted that when considering the responses to the question of why the Delaware River Port Authority pumped tolls into unrelated projects, “I can imagine the excuses but there aren't any viable worthwhile justifications.” I also pointed out that “the bridge-using motorists are easy marks for those who want to divert public money to the benefit of private entrepreneurs. That's no way to run a tax system, and it's no way to run a user fee system.” About a year ago, in Timing, Quantifying, and Allocating User Fees, I considered a proposed $20,000 fee on each mortgage servicer and advocated that “any proposed user fee should not be treated as a source of revenue to be used for unrelated purposes.”

Though in When User Fees Exceed Costs: What to Do?, I argued that a user fee ought not exceed what is necessary to provide what the user fee purchases, I did not intend to require a precision unattainable when estimates must be used. But the core principle of user fees, that they must be directed to their purpose and not diverted to other activities or projects, provides three possible answers to the question faced by the towns with beach fee surpluses. One, rather difficult to administer, would be to provide refunds to those who purchased beach tags. Another is to reduce the fee for the following year. Yet another is to establish a beach maintenance fund, and to hold the surplus in reserve for the year when costs exceed revenues because of unexpected price increases, unanticipated decreases in the number of visitors, or some combination of both.

According to Serrano, in Shore Towns Rake in Millions from Beach Fees, towns are using the beach fee surpluses to reduce local taxes. Doing so is illegal under New Jersey law, according to one expert quoted in the article, but a town official for one of the towns cited a different law that requires the excess revenues to go into the general fund. The towns claim that the general fund covers expenses that benefit the beaches, and that even with the surplus beach tag revenues pumped into the general fund, they are losing money on the beaches. My suggestion is to bring in the cost accountants, and to allocate the towns’ expenses between beach costs and other costs. It’s not difficult to do, provided the town records are properly maintained.

In determining the use to which beach tag fees are put, it is important to specifically identify the costs of maintaining the beach, aside from obvious items such as lifeguards, cleaning the sand, and emptying beach waste receptacles. Should the cost of building and maintaining parking lots for beachgoers be covered? Certainly. Should an allocated portion of police and EMT services representing calls requiring them to deal with a situation on the beach be covered? Probably. Should the cost of running the town’s school, or collecting residents’ trash, be covered? No. Should the cost of providing a tax reduction for a private entrepreneur building something blocks from the beach be covered? No.

The principle is simple, and the application doable though intricate and tedious. There is no reason to avoid dealing with this user fee properly. Beach tag revenues ought to be directed toward the cost of the beach, and nothing more.

Borrowing Money to Fund Tax Cuts

One of the principal causes of the current economic crisis is the decision to cut federal income taxes while simultaneously increasing military spending to fight two wars. That decision necessitated a huge increase in borrowing by the federal government, ultimately causing increased economic stagnation for everyone other than those who benefitted from the tax cuts and the making of loans. I’ve analyzed this issue many times, including posts such as A Memorial Day Essay on War and Taxation, Peacetime Tax Policy While Waging War = Economic Mess, Some Insights into the Tax Policy Mess, and What Sort of War is the “Real Budget War”?, to point out just a few.

Now the governor of New Jersey wants to borrow money in order to finance tax cuts for millionaires. According to this Philadelphia Inquirer story, the governor intends to get around the borrowing restrictions I mentioned in Tax Ignorance: Legislators and Lobbyists. The governor plans to shift $260 million from the state’s transportation fund into the general fund, to finance tax cuts for millionaires. Then the state would borrow $260 million to replace the cash taken out of the transportation fund. This isn’t the first time this sort of back-door stunt to avoid borrowing restrictions has been employed in New Jersey. As I discussed in A Tax Lesson to be Learned, New Jersey politicians took $4.7 billion out of the state’s unemployment compensation fund, leaving it powerless to deal with unemployment claims when the economy tanked.

The irony is that the governor of New Jersey had been a critic of the fund-shifting technique. At least he was until he realized that he could put it to work in his efforts to cut taxes on millionaires. He not only wants to dip into the transportation fund, he wants to take money out of the environmental fund established to assist businesses shift to renewable energy sources, as he did last year. He also wants to dip into the housing fund.

The governor’s theory of tax cuts is that by cutting taxes, the state will encourage millionaires to remain in New Jersey. The state treasurer said, “We tend to focus on very high-income taxpayers. I want them here so I can tax them.” But do the numbers add up? On one side of the ledger are the taxes collected by the handful of millionaires who decided to remain in the state, though an actual tally of their numbers is impossible. On the other side of the ledger are the taxes lost by reducing rates and the increased costs of paying interest on the money borrowed to finance the tax cuts. Eventually, tax rates need to be raised, borrowing needs to be increased yet again, or state spending needs to be cut. If services are cut, will not many non-millionaires leave? Eventually New Jersey will be left with no one to tax.

When the state treasure admits that the purpose of the tax cut for the millionaires is to keep them subject to New Jersey taxation, does he expect that the subset of millionaires who seek to minimize their contribution to society will be satisfied with a 10 percent income tax cut when they can move to states that have no income tax? The millionaires who are leaving are going to leave so long as New Jersey has an income tax and there are other states that do not. The state treasure went so far as to plead, referring to millionaires, “We need more of them in New Jersey. So, give me more millionaires so that I can tax them, please.” It’s tough to imagine a millionaire living in a no-income-tax state deciding to move to New Jersey because of a 10 percent income tax cut. Millionaires can afford to live in states with low taxes, miserable public education, miniscule funding for infrastructure, and meager state services. The rest of the nation’s citizens can’t.

In the meantime, the governor attended a transportation conference to argue for state funding of his transportation infrastructure plan. Does it makes sense, then, to take cash OUT of the transportation capital fund while advocating using those funds to build and repair infrastructure? Of course not. But did it make sense to argue for increased federal military spending while draining revenues out of the Treasury to cut taxes for those least in need of tax cuts? Of course not, and we’ve seen what that decision did to the economy. Apparently some people in New Jersey weren’t paying attention.

Inserting CRS Reports into the Tax Policy Discourse

In last Wednesday’s post, The Failure of Tax Policy Deductions: Specific Evidence, I examined the conclusions and analysis of a Congressional Research Service report on section 168(k) bonus depreciation and section 179 first-year expensing. I noted that “[t]he report does not seem to be available online, but can be purchased from private vendors.

The post generated feedback. One reader kindly pointed out that the report in question is available at this web site. He explained that in addition to purchasing the reports, they “can also be obtained from a cooperative Congressional staffer” and that another web site has gathered some of the reports. He suggested that “it would be useful in the longer term if people like you and me would pressure our representatives to make these public.”

Another reader provided similar reactions. He pointed out that searching Wikipedia for “congressional research service” and “congressional research service reports” would lead to web sites for at least some of the reports. He, too, lamented the lack of an online source where all the reports could be obtained without charge, pointing out that $112 million is spent every year to generate these reports. He also noted that General Accounting Office and Congressional Budget Office provide their reports online, for free.

This reader also directed my attention to a Congressional Policy Concerning the Distribution of CRS Written Products to the Public. Current law prohibits release of a CRS report without approval by the Committee on House Oversight or the Senate Committee on Rules and Administration. To quote the policy, “Congress, courts, and administrative tribunals have declared CRS communications to the Congress to be privileged under the Speech or Debate Clause of the Constitution and to be under the custody and control of the Congress.” The policy offers several reasons for the general nondisclosure of the reports. One argument reflects institutional concerns. Arguably, the CRS would be swamped with requests for changes and additions to its reports, outsiders would evaluate CRS reports using standards different from CRS standards, public disclosure might cause CRS authors to shift their focus from a Congressional audience to a public audience, legislators would increase the number of requests for confidential reports, lobbyists would have the opportunity to influence the CRS, and disclosure would cause increased pressure for public release of other Congressional documents. Another argument reflects legal issues. Arguably, disclosure of CRS reports to the general public would reduce the availability of the speech or debate clause immunity defense, would expose the CRS to copyright infringement claims, would put CRS file confidentiality at risk, and suppress CRS claims of constitutional immunity.

Though it is understandable why reports that, if fully disclosed, would jeopardize national security or put a person at risk for identity theft, need to be withheld or redacted, it makes no sense to deny taxpayers analyses of the tax provisions to which taxpayers are subject. This nation is in deep need of serious, non-partisan, electoral-free, intelligent discourse about our tax system, tax policy concerns, and tax compliance. Congressional participation in this process needs to see the light of day and not take place in dark, secret places.

The Philadelphia Real Property Tax: Eternal Circles

That old quip about death and taxes takes on an even sharper meaning when one considers the never-ending story of the Philadelphia real property tax system, its flaws, and the politicians who run in circles as they purport to deal with a serious fiscal issue. My commentary on the tale began in An Unconstitutional Tax Assessment System, and continued through Property Tax Assessments: Really That Difficult?, Real Property Tax Assessment System: Broken and Begging for Repair, Philadelphia Real Property Taxes: Pay Up or Lose It, How to Fix a Broken Tax System: Speed It Up? , Revising the Board of Revision of Taxes, How Can Asking Questions Improve Tax and Spending Policies?, This Just Taxes My Brain, Tax Bureaucrats Lose Work, Keep Pay, Testing Tax Bureaucrats Just Part of the Solution, A Citizen Vote on Taxes, Freezing Real Property Tax Reassessments: A Nice Idea, The Tax Price of a Flawed Tax System, Can Bad Tax Administration Doom the Tax?, Taxes and Priorities, R.I.P., BRT, A Tax Agency Rises from the Dead, and Tax Law as Subterfuge: Best Use Valuation v. Current Market Valuation, How to Kill a Bad Tax System That Will Not Die?, The Bad Tax System That Will Not Die Might Get Another Lease on Life , Robbing Peter to Pay Paul, Tax Style, and Don’t Rob Peter to Pay Paul: Collect Unpaid Taxes.

Just as I thought there might not be much more to say about this saga, along comes a Philadelphia Inquirer report that examines the growing public discussion about the effects on property owners of assessments being reset to market value. What caught my eye in the article was not the description of which neighborhoods would see assessments increase and which would see them go down, but the musing that “there seems to be little rhyme or reason why that divide between assessed and actual market value would be less than $4,000 in Kingsessing but more than $18,000 in West Fairhill.” Though the city’s finance director mentioned in response that some people think properties on the lower end of the price range end up with more accurate assessments, he also noted that when one looks at the assessment-to-market-value comparisons, “it seems much more random than that.”

The answer is simple. Current assessments have been derived by a group of assessors who did not and do not necessarily think in the same manner, give the same weight to particular factors, or exercise the same judgment when dealing with subjective matters such as a property’s condition. Though in theory the same system should be in place for the assessment of each property, in practice the process generated all sorts of outcomes that cannot be reconciled with each other on any sort of rational basis. In theory, the market sets the value, but in any given year, the market usually is quiet with respect to most properties and even with respect to most adjacent properties. Properties, though, are valued for other purposes, such as an owner’s application for a home equity loan, but this information is not public, unless the property owner wants to make it public, such as for purposes of contesting an assessment. Outfits such as Zillow provide asserted values, but those figures reflect basic data such as property size, number of rooms, and sales of nearby properties, without taking into account the condition of the property’s electrical, plumbing, heating, and other systems, the existence of radon or termites, or the condition of the interior.

Ultimately, valuation is a guess, and in the market place it is determined by where two guesses meet. That is how two different people can end up paying different amounts for the same product or service. In the property tax assessment process, more than one person is guessing, and each uses a different perspective, influenced by differences in education and experience. The new assessment system being put into place by the city attempts to push these variables to the side. Only time will tell if it makes a difference, or if the widespread inconsistencies continue. And if they do, the story’s ending will be pushed off even further into the future.

The Failure of Tax Policy Deductions: Specific Evidence

Earlier this month, the Congressional Research Service released a study of section 179 first-year expensing and section 168(k) bonus depreciation. These provisions are poster children for the repeated “tinkering” by the Congress with tax provisions that contribute to complexity not only in terms of computation, but also in terms of dynamic instability. The overall conclusion of the report is that these frequent changes in the tax law have failed to provide any sort of economic benefit to the nation. The report does not seem to be available online, but can be purchased from private vendors.

The CRS report concludes that “temporary accelerated depreciation is largely ineffective as a policy tool for economic stimulus.” At best, it provides benefits to taxpayers who already had planned to make the investment rewarded by the special deductions. In terms of economic efficiency, the provisions fare poorly, because they “worsen the deadweight loss associated with the federal tax code” and “divert some capital away from relatively productive uses and into tax-favored ones.” Similarly, the provisions get low marks for tax equity, tilting “the federal income tax away from vertical equity,” having “no effect on the taxes paid by small business owners over time on the income that can be attributed to the affected assets,” and having “no discernible effect on the distribution of after-tax incomes.” When it comes to tax administration, the benefits in terms of reduced depreciation record-keeping for assets whose cost is totally written off under the provisions is more than offset because “the rules governing the use of the allowance add a layer of complexity to the tasks of administering and complying with the tax code,” generating costs that are “regressive to firm size.”

About a year ago, in Who’s More Important in the Tax World? People or Machines?, I reviewed the reasons I object to section 168(k) and the overuse of section 179. To highlight some of my comments:

More than two years ago, in Just Because It Didn’t Work the First 50 Times Doesn’t Mean It Will Work Next Time, I criticized the revival of section 168(k) bonus depreciation and the expansion of section 179 first-year expensing. I argued that these changes to the tax law don’t help restore vitality to the American economy. I wrote:

Does it make sense to increase deductions for acquisitions of equipment? How does that restore confidence in the economy, which is essential to putting the nation back on track. How does a tax provision that encourages businesses to use their limited funds to buy machinery put people in this country back to work? * * * * *

Almost a year ago, in If At First It Doesn’t Work, Try, Try, Try Again, I criticized the Obama Administration for proposing a change in the tax law that would permit taxpayers to deduct the full cost of asset acquisitions made in 2011. I noted:

Such is the life of one of the business world’s favorite tax breaks. Entrepreneurs salivate at the idea of getting a deduction for making an investment. * * * * *

I then asked:

The previous incarnation of section 168(k) “bonus depreciation” as well as continual expansion of section 179 expensing have been consistently hailed as solutions to the nation’s economic woes of the moment. Yet no evidence exists that these tax giveaways have had the claimed effect. Why is it, for example, that during 2008 and 2009, while businesses basked in the benefit of 50-percent bonus depreciation, the economy got worse, not better? * * * * *

Last December, in When the Bonus Depreciation Tax Deduction is Not a Bonus for the Economy, I concluded:

This expansion of section 168(k) bonus depreciation is touted as yet another essential piece to putting the economy back on track, which is pretty much the equivalent of asserting police departments would be improved if they hired and gave guns and badges to convicted felons. This approach hasn’t worked in the past, and it won’t work now. * * * * *

Coming on the heels of my recent post, The Failure of Tax Policy Credits: Specific Evidence that described the failure of the first-time homebuyer credit to revitalize the housing market, this CRS report adds to the growing list of reasons that the Congress must cease and desist from using the tax law as a disguised spending program that does little, if anything, for the vast majority of Americans.

Don’t Rob Peter to Pay Paul: Collect Unpaid Taxes

A little more than a week ago, in Robbing Peter to Pay Paul, Tax Style, I reacted to news that some state legislators are trying to divert gaming revenue from wage tax reductions to supplementing revenue for the financially distressed Philadelphia School District. I concluded:

Hence the dilemma. There are four choices. Let the school system fall apart. Cut city services significantly. Increase the wage tax by 15 percent. Increase real property taxes on properties that are, and have been, grossly undervalued for at least a decade.

After my post appeared, a reader contacted me to point out that there is a fifth choice, namely, collecting back taxes that have not been paid. According to this reader, there are thousands of delinquent taxpayers, with an accumulated unpaid tax debt of $472 million. These statistics are reported in an analysis of Philadelphia’s unpaid taxes that examines a variety of aspects of the problem. According to the story, there are more than 110,000 properties on which taxes have remained unpaid past the due date. The reader asks a good question, specifically, “Why should the person who continues to pay their taxes have them increased over and over again and be forced to pay for those who haven’t paid their taxes for decades, and have no intention to pay in the future?” I replied with questions of my own, because I don't understand what the hold-up is with respect to foreclosing on these properties. Is it a concern that flooding the market with sheriff sales will drive down the prices? Is it a staffing resource issue, namely, how many sales can the department process in a week? Is it a logjam in the courts? Where is the bottleneck?

According to the previously mentioned article, the city has proceeded against only 18 percent of delinquent properties, and in recent years the number of sheriff sales has declined. Whatever might be the reasons, it’s not a market value problem. According to a related article, a renowned valuation expert examined 72,000 of the delinquent properties and concluded that almost 71,500 of them were worth more than the accumulated tax debt, and that 68,500 of the properties were worth at least twice as much as the unpaid taxes. According to yet another article in the series, one reason is the disarray in the city’s property and tax delinquency records. The accounts in this story are reason to lift one’s eyebrows. The system is filled with erroneous classifications, non-delinquent properties tagged as delinquent, payments not credited to the property for which made, liens not cleared after taxes are paid or properties transferred to new owners with allegedly clear titles, and records for properties that no longer exist because they’ve been subdivided or merged into another property. One taxpayer afflicted with the consequences of this chaos noted, “we are still trying to solve a problem that was created by poor performance of city agencies.”

A petition now exists for Philadelphia taxpayers to sign, urging the city to get moving on collecting back taxes and asking the state to compel the city to do so. Considering that other counties in the state need one or two years, at most, to collect unpaid taxes, it is not unreasonable to expect the city of Philadelphia to get up to speed, quickly.

Putting Tax Money Where the Tax Mouth Is

Certain taxpayers are in the habit of trying to obtain public funding for private sector enterprises through tax breaks. The gist of the argument is that the private sector activity for which they seek a tax break is good for the public. The problem with that argument is that pretty much every private sector activity, aside from criminal behavior, is good for the public. Carried to its extreme, the argument supports a conclusion that every private activity ought to be the recipient of tax breaks. As a practical matter, the private activities that benefit from this feeding at the public trough are those with sufficient funds to hire lobbyists to push for advantages unavailable to most entrepreneurs.

The long-term disadvantage of this approach to funding private sector enterprises has reared its ugly head in Chester, Pa. That city has been in woeful financial condition for decades. A few years ago, a stadium was built in Chester, which is used primarily by a major league soccer team. More than four years ago, in Soccer Franchise Socks It to Bridge Users, I criticized the decision of the Delaware River Port Authority to divert bridge toll revenue from bridge repairs and maintenance to funding of that soccer stadium. In addition to diverted bridge tolls, another $77 million of taxpayer funds, perhaps more, was funneled into the project, as described in this article. In addition, the site was granted property tax exemption for a period of time ending in 2014. One of the arguments for public funding of the park was the promise that it would bring economic development and transactional activity to the city of Chester, thus increasing the city’s tax base and increasing its revenue. Now, according to this Philadelphia Inquirer story, facing a revenue crisis, in part because the promised economic development did not materialize, Chester has announced that “it is considering a 10 percent tax on ticket sales and a 20 percent charge for parking” at the stadium.

A team representative expressed dissatisfaction with the idea of taxing tickets and parking, and claimed it would be “catastrophic to our business.” The representative then offered the clever argument that the promised development did not occur because no one would want to invest in Chester when there “could be future taxes.” Wasn’t the entire argument for public funding the notion that the city of Chester would have increased tax revenues from the activity generated by the taxpayer-funded private enterprise?

Here’s the problem. Private enterprise, which for the most part rejects taxation and government regulation, is quick to find ways to tap into public funding that is financed by the very tax systems that private entrepreneurs detest. Though the argument that a particular private enterprise is good for the public gets transformed into a plea for public funding, what’s missing is evidence that the public funding is necessary. And, if the public funding is necessary because the private enterprise otherwise is not economically viable, ought not the private sector not pursue an uneconomical proposal? Ought not the question be whether the private enterprise is necessary for the health and welfare of the public? It’s one thing to seek public financing for a private enterprise that puts out fires, prevents river flooding, and improves public safety. It’s a totally different animal to seek public funding for the construction of a stadium that is important to the small fraction of the public that cares about the sport in question.

The absurdity of private enterprise feeding at the public trough is illustrated by the almost-completed deal to finance the construction of a stadium for the Minnesota Vikings. The team, a member of a league that hauls in billions of dollars of revenue every decade, managed to cajole state and local legislatures to approve public funding for its private activity. According to this Alexandria, Minn., Echo Press story, Minnesota would fork over $348 million and Minneapolis would dish up $150 million for the construction of a stadium owned by taxpayers who supposedly were going to use their increased after-tax-cut dollars to fund job-creating enterprises. So apparently the get-richer-quick deal is to buy some votes, get a tax cut, use a fraction of the tax cut to hire lobbyists, and have those lobbyists extract tax dollars from the government.

Here are two solutions. The first is easy. When a private enterprise seeks government funding, just say no. If it’s an economically viable project, it will survive in the free market on its own. The second solution is an alternative, to permit flexibility in cooperation between the public sector and the private sector. When the private sector entrepreneurs offer promises that their project will increase government revenues, hold them to that promise. Compel them to offer a number. Compel them to guarantee that if the revenues do not materialize, they will make up the difference. If they truly believe their project will do what they promise it will do, they ought not hesitate to agree, because the guarantee rarely if ever will need to be met. I doubt, though, that the private sector handout seekers will agree to such a guarantee, because they know the reality of these sorts of deals. The promised tax revenue benefits rarely, if ever, show up.

The Failure of Tax Policy Credits: Specific Evidence

Recently, Sarah J. Webber, of the University of Dayton School of Business Administration, released a paper written last year that explores the effectiveness of the first-time homebuyer credit. In Don’t Burst the Bubble: An Analysis of the First-time Homebuyer Credit and Its Use as an Economic Policy Tool, Webber concludes that real estate experts advocating use of the credit to stimulate the housing market “have failed to objectively evaluate the true economic benefit of the homebuyer credits” and “have not empirically demonstrated that the homebuyer credits stabilized the real estate market or that the recent, modest improvement in the market would not have occurred but for the credits.” Worse, “despite the credits, economic data suggests that foreclosures continue to plague the real estate market and home prices have yet to fully rebound.”

Webber points out more effective approaches were available. Congress could have “funded the administration of a subprime mortgage modification program,” using the revenues lost through the credits. Alternatively, if pushing money into the hands of homebuyers “was necessary,” a better solution, in light of the difficulty in proving tax credits to be “the most effective and efficient vehicle,” would be, quoting National Tax Advocate Nina Olson, “a HUD-directed spending program where the home buyer is given the money at closing.” This is the point I have been making about tax policy credits for many years, most recently in posts such as The Problem with Income Tax Vehicle Credits, Congressional Mis-delegation Endangers Tax Collections, and More Criticism of Non-Tax Tax Credits, When Tax Credits Aren’t Worth the Trouble, The Disadvantages of Tax Incentives, Tax Incentives Gone Wild, and Tax Credit = Reverse Tax.

In her analysis, Webber points out the challenges of using the tax law as a substitute for direct subsidies and other approaches to solving problems. The first-time homebuyer credits posed administrative challenges to the IRS, even more serious than those posed by credits generally. Policing compliance was difficult, with tens of thousands of falsely-claimed credits, and logistical difficulties in finding ways for the IRS to confirm the validity of credit claims. The opening of hundreds of thousands of investigative files and the freezing of even more refund claims based on the credit have choked the tax system. Criminal charges have been brought against taxpayers and against tax return preparers gaming the system. The fact that prisoners were claiming and receiving refunds based on the credit should be enough, standing alone, to demonstrate the foolishness of trying to hide subsidies and federal spending in the sheep’s clothing of tax credits.

Worse, because of the stratification of the home market and the different rates of foreclosure between low-cost homes and high-end residences, the credit appears to be subsidizing the latter much more than the former. Considering that the Congressional Research Service has concluded that falling prices and low interest rates have contributed far more to the modest recovery in the residential real estate market, the value of the credit not only is questionable in terms of its goals, it poses far more disadvantages than advantages. It is even possible, according to some researchers, that the credit merely affected the timing of purchases by those who would have been purchasing homes in any event, and did not increase the finite pool of home buyers. Others have argued that the credit prevented the market from clearing out the effects of the housing bubble and even encouraged the building of new homes at a time when that market was saturated. In all fairness, similar arguments can be made against direct spending subsidies, although those can be more precisely directed at specific market targets, and are much more transparent in their administrability.

There are lessons to be learned from this experience, even as other lobbying forces are ramping up their efforts to add more credits to the tax law for their pet projects. It’s not a question of whether the stated goal of a credit is a good thing, because of course it is a good thing to encourage home ownership, adoption, energy efficiency, use of alternative fuels, research and development, and the other dozens upon dozens of activities funded by tax credits. What is not a good thing is to fund these activities in a manner that hides the increase in federal budget deficits that are condemned when they occur through direct spending. If it’s acceptable to increase the deficit to fund these activities, why is it not acceptable to increase the deficit to improve education, enhance worker training, and repair the infrastructure, to name a few of the activities for which funding is so strenuously challenged?

Tax Cheating and Tax Complexity

Late last week I received a press release describing a new book, Tax Cheating: Illegal – But Is It Immoral?, written by Donald Morris, an associate professor of accounting at the University of Illinois Springfield, a CPA, a certified fraud examiner, and a former tax practitioner. According to the press release, the book focuses on the question, “But who is to blame for tax cheating when most partaking in the activity don’t even realize they are breaking the law and are merely victims of the complexity of the tax code which is born out of 100 years of adding special provisions and exceptions?”

When I read this question I was taken aback. If a person does not realize he or she is breaking the tax law, the person is not committing fraud. Depending on the circumstances, the taxpayer could be accused of being negligent, perhaps even reckless. But in order to commit fraud, there needs to be intentionality and knowledge. For example, in Conforte v. Comr., 692 F.2d 587, 592 (9th Cir. 1982), the Court of Appeals for the Ninth Circuit explained that tax fraud is “intentional wrongdoing on the part of the taxpayer with the specific intent to avoid a tax known to be owing.” The Ninth Circuit repeated this position in Estate of Trompeter v. Comr., 270 F.3d 767, 773 (9th Cir. 2002), and in Maciel v. Comr., 489 F.3d 1018, 1026 (9th Cir. 2007), to cite just two of the cases demonstrating the vitality of this analysis.

There is no doubt, as Morris and many others assert, that the tax law is woefully complicated. There is no doubt it ought not be so complicated and need not be so complicated, and that at least some of the complexity is attributable to the campaign and other political games played by the legislators entrusted with the fiduciary duty of providing the nation with the best possible tax law. There also is not doubt that the pervasive complexity of the tax law causes taxpayers to make mistakes, even when they are putting forth their best efforts to comply. If a taxpayer makes a computational error, doesn’t realize that a deduction claimed last year isn’t available this year, is unaware of a newly enacted credit limitation, or mis-identifies a window as qualifying for an energy credit, the taxpayer is not committing tax fraud. The taxpayer is negligent, and perhaps there is a question of whether failure to research the tax law, keep up with changes in the tax law, or refer tax return preparation to a professional is immoral, but those acts do not rise to the level of tax fraud.

It is possible, though, that some taxpayers view the complexity of the tax law as increasing the probability that they will not get caught. Those taxpayers, however, are intent on cheating, and simply let the cover of complexity weaken whatever other deterrents exist to discourage tax cheating. Yet tax cheats do not limit themselves to complicated tax laws. Some of the most simple tax laws – such as a per-carton cigarette tax, the use tax, and the real property transfer tax – are the targets of significant numbers of tax evaders. Tax complexity might make it easier for tax cheats to rationalize their behavior, convinced that they need to cheat to keep up with the citizens sufficiently wealthy to purchase tax breaks for themselves. The irony is that most taxpayers convicted of criminal tax fraud or penalized for civil tax fraud either are among the ranks of those active in purchasing tax breaks or are among the large groups of taxpayers benefitting from decades-old widespread tax breaks.

Blaming dishonesty on complexity is totally off the mark. Complexity might enhance the temptation, but it does not create the noncompliant tax evader. The noncompliant tax evader is a reflection of the same cultural deficiency that encourages people to go straight out of the left turn lane, to go through EZPass toll booths without an EZPass device, to file false Medicare and Medicaid claims, and to assert that they were one of the 5,000 people on a public transit bus that crashed.

Robbing Peter to Pay Paul, Tax Style

Philadelphia’s School District is in financial trouble. That’s not news. Tax revenues are down, spending cuts have not eliminated the budget deficit, and steeper cuts could cause the school system to collapse. The mayor has proposed increasing school district real property tax revenues by working a tax increase into the real property assessment reform, a proposal noted in The Bad Tax System That Will Not Die Might Get Another Lease on Life.

Now comes a Philadelphia Inquirer story that describes efforts by some state legislators to divert gaming revenue from wage tax reduction to supplementing the school district’s revenue. The legislators advocating this move are trying to prevent the shuttering of numerous schools while protecting city property owners from real property tax increases. The problem, according to the city administration, is that the city would then face a revenue shortfall unless it increased the wage tax by half a percentage point, which is roughly a 15 percent increase.

Hence the dilemma. There are four choices. Let the school system fall apart. Cut city services significantly. Increase the wage tax by 15 percent. Increase real property taxes on properties that are, and have been, grossly undervalued for at least a decade.

What would you do? What will the legislators do? Do you think they will do what you would do?

Tax Credit = Reverse Tax

Almost a year ago, Pennsylvania State Representative Jesse White announced plans to introduce legislation “that would provide a tax credit for the adoption of a dog or cat.” Late last week, as reported in this article, the attempt to add the credit to the state income tax law failed by a vote of 97-96.

This effort is a textbook example of why it is so difficult to clean up the tax law. Any sort of objection to this credit will bring howls of protest and derision from many of those who like animals and have pets. I say many and not all because I like animals and have had pets, but I’m no fan of cluttering the income tax law with a provision whose goals can and should be accomplished in other ways.

The goal of the legislation is “to encourage adoption and discourage puppy mills and also ease the burden on shelters.” Those are noble goals. The tax law, and the Department of Revenue, are not appropriate vehicles for accomplishing those goals. I have criticized the use of tax incentives to achieve non-tax purposes at the federal level, as discussed in posts such as The Problem with Income Tax Vehicle Credits, Congressional Mis-delegation Endangers Tax Collections, and More Criticism of Non-Tax Tax Credits, When Tax Credits Aren’t Worth the Trouble, The Disadvantages of Tax Incentives, and
Tax Incentives Gone Wild, and I am no less critical of similar approaches at the state level. For example, would the Department of Revenue be responsible to make certain that taxpayers who claim the credit keep the adopted dogs and cats and don’t abandon them or drop them off at a shelter a few months later after filing their tax returns?

The state of Pennsylvania has a history of providing financial support to animal shelters. This is a classic case of good public spending, no matter what the so-called smaller-government and anti-tax advocates claim. Public health and safety is threatened when animals run wild that ought not be running wild, and the establishment of shelters provides a public service. Thus, the public ought to fund the efforts to take those animals off the street. In recent years, however, the anti-spending forces have succeeded in cutting state funding for shelters in half and have proposed to eliminate the funding altogether.

Representative White’s proposal would limit the credit to $7.5 million. It’s unclear what would happen if 25,001 taxpayers claimed the credit. That issue aside, why not simply provide $7.5 million of funding to animal shelters? Surely that is a more efficient use of $7.5 million than dishing out tax credits to taxpayers who may or may not even need the financial support to adopt a dog or cat. Despite the claims of the cut-taxes, cut-spending crowd, the $7.5 million credit increases the state’s budget deficit by the same amount as would $7.5 million in spending. Once again, I make the point that a tax credit is spending in disguise, and yet anti-spending legislators vote for tax credits without blinking.

The proposed credit has several other flaws. Why is it limited to dogs and cats? Is that not discrimination against those who favor other animals? I have a law school classmate friend who rescues birds and who has successfully advocated on behalf of birds that have been mistreated. Is her work no less noble than the work of those trying to save abused, abandoned, and neglected dogs and cats?

The proposed credit suffers from the same misguided notions as does the federal income tax adoption credit. It is inconceivable that anyone would consider the credit the tipping point between adopting and not adopting. Considering that the cost of raising and caring for a child or pet exceeds the credit or proposed credit by orders of magnitude, no one should rely on the credit as the financial wherewithal to taking on the responsibilities of having a child or pet.

The worse aspect of the credit is a defect that it shares with all other credits. The credit is a reverse tax. Setting aside the increased budget deficits generated by tax credits, if revenue is to be maintained when a tax credit is enacted, taxes must be raised across the board to fund the credit. Thus, those who, for whatever reason, cannot or do not adopt a dog or cat, are being taxed, whereas those who receive the credit, even net of the taxes they pay due to the across-the-board tax increase, are not paying additional tax. Thus, the enactment of a funded tax credit is a tax on those who fail to do whatever it is that those who qualify for the credit are doing. And if taxes are not increased to fund the credit, everyone pays through the economic effect of increased budget deficits. Either way, those who do not adopt pets are being taxed or charged. I wonder, once those who support the anti-tax groups because they don’t want to pay more taxes figure out the reverse tax implicit in the tax credits enacted by the supposed anti-tax, anti-spending legislators, will they shift their support to those who take a more sensible approach to taxation and spending?

Tax Incentives Gone Wild

Two separate developments that appeared last week provide even more warnings about the dangers of relying on tax incentives to accomplish goals that are far beyond the scope of a rational tax law. This is not the first time that I’ve addressed this concern, as evidenced by posts such as The Problem with Income Tax Vehicle Credits, Congressional Mis-delegation Endangers Tax Collections, and More Criticism of Non-Tax Tax Credits, When Tax Credits Aren’t Worth the Trouble, and The Disadvantages of Tax Incentives, and I doubt it will be the last.

The first development was the introduction in Congress of a proposed “Qualifying Renewable Chemical Production Tax Credit Act of 2012”. This is truly a bi-partisan effort, as the each of the two members of Congress who introduced the bill belong to one of the two major political parties. The legislation would add a section 45S to the Code equal to 15 cents per pound of eligible content of renewable chemical produced by the taxpayer during the taxable year. Each taxpayer’s credit is limited to its share of a $500 million limitation allocated by the IRS among taxpayers claiming the credit. The definition of eligible content is a long, technical, and exception-ridden description that chemical engineers can understand, though few, if any, tax practitioners or IRS employees would appear to be well versed in terms such as biobased content, renewable chemical, biobased content percentage, biological conversion, thermal conversion, and renewable biomass. I daresay that the legislators who introduced this bill did not write it, and if compelled to hazard a guess, I’d put this language in the hands of lobbyists.

Not only would this legislation require the IRS to jettison revenue officers so that it could hire chemical engineers, it also would require the IRS to fire even more revenue agents so that it could hire more economists and scientists. Why? In allocating the $500 million spending increase masquerading as a tax credit, the IRS would be required to determine “the number of jobs created and maintained (directly and indirectly) in the United States” by each taxpayer’s credit allocation, “the degree to which the production of the renewable chemical demonstrates reduced dependence on imported feedstocks, petroleum, non-renewable resources, or other fossil fuels,” “the technological innovation involved in the production method of the renewable chemical,” “the energy efficiency and reduction in lifecycle greenhouse gases of the renewable chemical or of the production method of the renewable chemical,” and “whether there is a reasonable expectation of commercial viability.” It is not the role of the IRS to engage in these sorts of determination. Putting aside the question of increased government spending, why not allocate $500 million to the Department of Energy and tell it to administer this program? The answer, of course, is all sorts of nonsense about how the tax law is the better vehicle for accomplishing the purposes of the spending program, but the true answer is that it’s simply a way to spend money without disclosing the expenditure. That might resonate with people who don’t understand that reduced revenue, whether through credits or otherwise, and increased spending have the same effect on the budget deficit. It doesn’t resonate with those of us who can see through the ploy. But, speaking of ploys, it’s an election year, and the introduction of this bill might be nothing more than a sop to some campaign contributors.

The second development was a GAO report, Energy Conservation and Climate Change: Factors to Consider in the Design of the Nonbusiness Energy Property Credit, that explores the possibility of changing the section 25C nonbusiness energy property credit to one that is calculated using performance-based standards rather than simply the cost of the improvement incurred by the taxpayer. In a sentence set in bold and much larger font, the report declares: “Performance-based credits may have significantly higher compliance and administrative costs than cost-based credits.” And on what agency would these higher costs fall? The IRS, of course, which would need to dismiss even more employees tasked with tending to the agency’s primary revenue collection function. The report also explores the use of floors in the computation of the credit, which would make the tax law even more complicated, adding to the misery of taxpayers and the administrative and compliance burdens placed on the IRS.

Considering that the GAO issued the report in response to requests by the Congress, there is a significant possibility that the tax law will become even more complicated, even as the Congress tosses about the phrase “tax simplification.” Rather than listening to the Congress, Americans ought to be watching what the Congress does. And one of the things that it does is to make the tax law more complicated, for reasons that have nothing to do with sound tax policy.

Using the Tax System to Steal Identities

They are persistent, that much must be conceded. I’m referring to people whose intelligence and cleverness could accomplish much to benefit society, but who choose to use their talents to do evil. The other day I received an email with the subject line “RE: Tax Exemption Notification” from a person using the name Isabella Charlotte. I doubt this person exists, and if she does exist, I doubt she is the sender of the email. I doubt that Charlotte is her surname. In the body of the email was a purported IRS logo, and a letter that began, “Sir/Madam, Our records indicate that you are a Non-resident.” Really? Guess what, Isabella Charlotte or whoever you are, I am not a non-resident. I cannot imagine what IRS records would exist showing me to be a non-resident. Of course, at that point I knew the letter was a scam, a product of a twisted and devious mind, but I kept reading.

The letter continued, “As a result you are exempted from United States of America Tax reporting and withholdings. . .” Even if I had not yet concluded that the letter was a scam, that phraseology would seal the deal. It’s not professional tax terminology. The letter then proceeded to request that I “recertify” my status by filling out “form W-4100B2.” Attached to the email was a concocted Form W-8BEN, not a “form W-4100B2.” The letter asked that the form be sent by fax to 1-815-390-1251, but the attached form requested that it be sent to 1-267-427-1363. The attached form actually asked that it be sent “to fax no- 1-267-427-1363 Via Email TO irs.usa@5acapital.com.” The forms, of course, ask for all sorts of identifying information, including social security number, bank name and account number, and so on.

Perhaps I give this “Isabella Charlotte” too much credit for intelligence and cleverness. Consider the sloppiness of this attempt to steal identities. Inconsistent form numbers. Inconsistent fax numbers. Grammatically confusing sentences. Absurd email address. Perhaps “Isabella Charlotte” doctored up a more sophisticated scam in an effort to avoid being linked to the originator of this particular phishing attempt. The clincher is the claim by “Isabella Charlotte” to represent “IRS Public Relations.”

So who is responsible for ridding the planet of this behavior, and curtailing the activities of those who engage in these counterproductive enterprises? Government? Which ones? The private sector? Who pays? The funneling of resources that could be used for more productive endeavors into the prevention of, and punishment for, fraudulent activity is a sad commentary on the failure of the species to make better progress. Sadder still is the probability that somewhere, someone will provide to this “Isabella Charlotte” and others like her the requested information. Again, it comes down to education, combined with careful monitoring of those who lack or lost the capacity to deal with these sorts of scams. And again, who is responsible? And who pays?

I wonder how much more prosperous the economies of every nation could be if this sort of behavior could be stamped out. Whatever is being done isn’t enough, because the practice continues. It will stop when it becomes a fruitless exercise. That hasn’t happened yet. Why?

Obstacles to Property Tax Reform

Consider the situation in which two homeowners find themselves. Each lives in the same real property tax jurisdiction. Each owns a home worth $300,000. One pays real estate taxes of $1,500. The other pays real estate taxes of $3,500. Why the difference? A variety of factors contribute to the inequity. Appraisals are inconsistent. Appraisals are done at different times. Appraisals are not updated. The tax is computed using an arbitrary fraction of presumed value.

This sort of situation is the poster child for the Philadelphia real property tax system, although similar problems surely afflict localities across the nation. I’ve been writing about the Philadelphia real property tax dilemma since my first post, An Unconstitutional Tax Assessment System, and I have continued with a series of posts, Property Tax Assessments: Really That Difficult?, Real Property Tax Assessment System: Broken and Begging for Repair, Philadelphia Real Property Taxes: Pay Up or Lose It, How to Fix a Broken Tax System: Speed It Up? , Revising the Board of Revision of Taxes, How Can Asking Questions Improve Tax and Spending Policies?, This Just Taxes My Brain, Tax Bureaucrats Lose Work, Keep Pay, Testing Tax Bureaucrats Just Part of the Solution, A Citizen Vote on Taxes, Freezing Real Property Tax Reassessments: A Nice Idea, The Tax Price of a Flawed Tax System, Can Bad Tax Administration Doom the Tax?, Taxes and Priorities, R.I.P., BRT, A Tax Agency Rises from the Dead, and Tax Law as Subterfuge: Best Use Valuation v. Current Market Valuation, How to Kill a Bad Tax System That Will Not Die?, and The Bad Tax System That Will Not Die Might Get Another Lease on Life.

Fixing the problem should be simple. Appraise properties at current market value, and divide current revenue by total valuation to obtain the rate. One difficulty, as noted in The Bad Tax System That Will Not Die Might Get Another Lease on Life, is the temptation to increase revenues in the process of fixing valuations. The two processes should be kept separate. Another major problem, as discussed in a recent Philadelphia Daily News article, is the reaction of property owners who suspect that an appraisal set at market value will cause their real property taxes to increase. Though some property owners who have that worry might be worrying needlessly, there is no doubt that a substantial number of properties in fact are undervalued, and their owners will face higher taxes.

One taxpayer quoted by the article claims that her property taxes will increase to $5,500 a year. How does she know that? Does she have both the new appraisal and the new rate? No, because the new rate continues to be the subject of debate among the city’s leaders. This person also claimed, “I feel like I love the city and it doesn’t love me back.” How is a city supposed to show love? By selecting random individuals for tax breaks in the form of under-market valuations? By giving tax breaks to those who claim to “feel like I love the city?” How does one identify individuals who qualify? If the test were a matter of finding people willing to speak those words, the real property tax base and its revenues would plummet. Should the fact that someone has benefitted from years of inequitably low taxes, in comparison to property owners paying at higher effective rates, matter?

There are in place a variety of arrangements that property owners can use to blunt the impact of real property tax increased caused by the restoration of equity to the system. Some taxpayers qualify for programs designed to assist those who are economically disadvantaged in terms of income and those who qualify for certain benefits for the elderly. There also is a law that permits property owners to defer tax payment if their assessments increase by more than 15 percent. The deferred payments, plus interest, are due when the property is sold. In addition, the city is considering phasing in the tax increase, though no mention is made of phasing in the tax decrease for the taxpayers who have been relatively over-paying during the past several decades. The city also is trying to persuade the state legislature to enact a $15,000 across-the-board homestead exemption.

Coalitions of taxpayers are urging the city to delay switching to assessments based on actual value. One risk of doing so is a $41 million revenue loss triggered by a state tax board decision that opens the door to more appeals by taxpayers whose properties are over-valued. Ultimately, the question is how much longer should some taxpayers in the city, who have been paying disproportionately higher real property taxes, continue to subsidize taxpayers who have been paying disproportionately lower real property taxes? This question, it must be understood, overlooks the tougher question of how to ameliorate the effect of years of this unjustifiable subsidization, because the practical answer to that question is simply that it won’t happen. For that, the subsidized property owners have something for which to be thankful and a reason to appreciate the fact that things could be much worse.