Hoeven’s Discriminatory Tax Scheme
Last week Dustin Gawrylow wrote a post about North Dakota’s discriminatory tax scheme. I thought his point was pretty much right on but some didn’t.
Our loyal Hoeven apologist claimed that since renters don’t pay property taxes they aren’t paying their share. That begs the question, do renters pay property taxes?
The simple answer is of course they do! Property taxes are an expense to the landlord and are passed along to the renter just like every other expense the landlord has. After all the landlord has to pass along all expenses in order to make a profit. Without a profit there wouldn’t be any reason for that landlord to provide a place to live.
But what’s going to happen when the landlord gets his property tax rebate? Is he going to reduce rents to pass that along? My personal feeling after talking to local slumlords is no. The landlord is going to keep the money for a number of valid business reasons.
It’s a big expense when someone moves out of an apartment. Usually there’s a lot of refurbing that needs to be done to make the unit rentable again. Typically the security deposit only picks up a portion of that expense. The other thing is that if the unit sits empty for a month or two it’s impossible to make that up with a rent increase. My favorite slumlord says that very often when he raises the rent the tenants often start looking and find another place to live.
So it would be a very valid decision to keep the money thinking that you’ll hold off on later rent increases. It’s true that the renters might eventually see some savings, but then it’s right now that they need the money. Why should the wait years to maybe get a break from being overtaxed (which is what a surplus is.)
Another reason for the landlords not to pass along the savings is that they don’t know how long they’ll get this break. The North Dakota legislature approved it for their returns filed in 2008 and 2009. How could you count on getting it in the future. The way the governor is increasing spending the state’s going to run short of money sooner than later. How do you think they’ll make up the revenue? They sure won’t reduce the rate of growth of any state programs.
But then I got to thinking just how many landlords are going to even qualify for the tax break to eventually pass it along? How many landlords live out of state and are ineligible for the tax break? Certainly there will no savings to pass along in this case.
Also this tax scheme has a cap of $1000 whether its for an individual or for a corporation. So if the landlord has more than a few units he might very well not get a very big rebate at all. (One thousand dollars spread around 50 rental units is pretty pathetic). In fact if he has a large house he might not get any break for his rental property.
So the smaller landlord might get a break, but the large ones won’t. It seems to me under those conditions that the competitive situation won’t make the smaller landlord cut his rent. Since the big guys are passing along their full property tax the smaller guy will charge the same amount he would without the tax break.
All in all I think we can safely say that renters pay their share of property taxes and state income taxes but will not get a darned thing out of Hoeven’s tax relief.
This is what happens when the state tries to fix something that it’s not responsible for. We’ve got a real problem with out of control locals spending too much money. Expecting the state to bail them out for their foolishness and meanness (which is what these property tax increases have amounted to) is a flawed idea and it results in discriminatory fixes.
