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Monday, July 23, 2007

Letter Writers Call for an Economic Summit

In a recent letter to the Post Review editor, Wade Vitalis asked, "Why are our taxes so high?" and offered the solution of reducing taxes by increasing the commercial tax base in the county. Read some related comments.

Tom O’Mara and David Whitney followed by calling for an economic summit because "Chisago County needs commercial development. Its residents need tax relief. A focused effort to make Chisago County grow in sensible ways is needed now." Read the rest of their letter.

Before we jump at this "solution," we need to ponder some factors that certainly should be included in any economic summit, if such were to take place.

O’Mara and Whitney suggest increasing the commercial tax base by two and a half times to create the right mix with the residential tax base.

  • To accomplish their goal, this growth would need to occur while the residential side of the equation remains static.
  • This would require all new employees of this commercial growth to come from the current county population or commuters into the county in order to attain the proposed optimal commercial/residential ratio.

Of course this alleged optimal commercial/residential ratio will not be reached in this manner because it is patently impossible to hold residential development at a stand-still while increasing the commercial/industrial by 2.5 times.

  • Commercial/industrial growth brings residential growth. Thus the commercial and industrial growth would need to be far greater than 2.5 times to attain the "ideal" ratio eventually, decades in the future.
  • Is it even possible to attract this enormous commercial/industrial tax base into the county?
  • There is a high rate of failure for new business ventures.
  • Does the county have a work force that is skilled in these jobs?

The social and economic engineering required to meet this goal of reducing taxes would have significant consequences for the county.

  • The commercial and industrial areas of all governmental jurisdictions would become much more than 2.5 times the current size.
  • The population of the county would increase significantly.
  • It entails an enormous consumption of farm land and wood land. It would change the character of the county. It would stress the ecosystem that environmentalists want to preserve.
  • This would require a tremendous influx of tourists and non-resident customers to patronize these commercial businesses.
  • The industrial and manufacturing products would need non-resident consumers. If the county becomes a significantly greater exporter than importer, then total taxes may decline because non-resident consumers are picking up more of the tax tab.
  • Roads would see increased congestion. Government services (police, fire, zoning, court, human services, schools, EDAs, HRAs) would need to be increased.
  • In other words, the county would become essentially one large city, mostly indistinguishable from the area to our south, which reminds us why we choose to live here. The proposed solution would tend to destroy what we have.
  • Commercial and industrial growth in Wyoming, for example, may reduce taxes in that city, but increase taxes in Taylors Falls. The work force needed for this growth may decide to live in jurisdictions without the ideal economic ratio and exacerbate the very problem that these gentlemen set out to solve. Instead of being a bedroom county for the Twin Cities as now, the county could unintentionally create bedroom communities for favored jurisdictions within the county. The infrastructure necessary for this growth is not equal in all jurisdictions, nor can it be made equal.

The three gentlemen seem to think that commercial and industrial taxes are magically created. Businesses, whether commercial or industrial, do not pay taxes. Business taxes are paid by consumers because business taxes are built into the price of the products. Shifting more of the tax load to business may sound great to the homeowner, but in the end, the consumer still pays all the taxes. Some of what was in the homeowner’s real estate tax column is simply slid into the sales tax column and the excise tax column and other business tax columns, all of which he still pays when he buys products and services. It may feel better, but the homeowner is just fooling himself. A hamburger stand does not pay taxes. The customers do; all of the taxes are built into the price of the hamburgers and the end price is raised. If the business owner does not raise the price to offset tax increases, he makes less profit and/or goes out of business.

The proposed economic summit needs another set of facts. In today’s market, large subsidies are given to many businesses to entice them into town. Gifts of land, tax increment financing, tax abatement and other subsidies are almost expected by companies to set up shop in town. Who ultimately picks up the tab? The local taxpayers do. Yes, even existing businesses contribute taxes to finance these subsidies for new businesses. But who pays the business taxes? The consumers do. Increased business taxes mean increased product costs.

Let’s assume the optimal business/residential ratio actually reduces our real estate taxes by 20%. Is this real estate tax savings worth it? I will choose the status quo any day over the socially and economically engineered proposed solution. The "solution" will bring with it its own set of problems that are bigger than any we have now. The law of unintended negative consequences will kick in. A savings of some hundreds of tax dollars may just destroy our quality of life.

The chief problem with this "solution" is perennial. Any improvement in local, county, regional, or statewide tax structure is viewed as a fountainhead to be tapped by Democrats. They cannot keep their grubby hands off income. Whatever policies will be put in place today to correct a tax problem will be changed to negate the gains that are made. Letting the taxpayers build up their own wealth, reducing government spending, living within the financial means, and promoting a tax environment that keeps business investment capital from exiting to better tax environment states is not in the play book of the Democrats. A savings of some hundreds of dollars will never last long when those who want to redistribute your wealth eye your improved lot.

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