car tax – RI Future

April 29, 2016April 30, 2016

Against a lower car tax

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Hopeful discussion of a possible parking tax earlier this week gave way to the realization that Jorge Elorza and Providence City Council are more likely to forego such a measure, and instead lower the car tax. Sigh. . .

I know that many in the progressive community feel the car tax is too high, or that there should be a higher exemption at the lower end of the price spectrum. I strenuously disagree.

This year was my highest earning year– it was the first time as a child or an adult that I wasn’t eligible for the Earned Income Tax Credit. I made a whopping $17,000 and change, which was matched by a somewhat lower return for my partner. In order to sell products at farmers’ markets, Rachel has recently purchased a car– another first for us. So raising the exemption on the car tax benefits us both as people at the marginal end of the income spectrum and now (gasp) as car owners. But just because something benefits us does not mean that it’s right.

There are many costs to life, and I do not begrudge people for the fact that they dislike paying the car tax. I don’t like paying for things that are expensive either. When we discussed owning a car, we were in full awareness that we’d have to pay a very high car tax, and we agreed as a couple that we would register the car in the city and pay that tax, instead of doing what some people do, which is to find a relative and cheat the system by registering it elsewhere. We agreed that if it came a time that we couldn’t afford to pay that tax any more, that was a sign that maybe we shouldn’t own a car. It doesn’t mean that we love paying a huge sum of money for the car tax. It means we’re mature people who recognize that not paying that tax doesn’t make the costs of car ownership go away. Shifting the costs away from us just means that someone else will pay through a loss of an important program somewhere else in the city budget.

I’d love to see the city target more money to lower income people. I grew up in a marginal income single family house, and at thirty, I still struggle economically. There are people even further down the ladder than I am, and some of them have additional burdens I don’t face. We should of course find creative ways to make our tax system less burdensome to people of low incomes. But why is the car tax always people’s chosen medium to accomplish this?

Why not lower property taxes– especially on multifamily housing and apartments, which are currently taxed at a higher rate (property tax rates go down under the proposed budget, but the Projo notes that the actual amount paid will go up due to higher assessments of properties in the city)? Why not get rid of multiple examples of exclusionary zoning, such as the zoning that was added to Ward 1 to make it less friendly to multifamily housing, and the zoning that excludes more than three students living in five and seven bedroom houses? Getting rid of exclusionary zoning would allow more affordable housing development, which would also bring in more taxes for the city.

Why not charge a surface parking tax, and use the money to lower taxes on the lowest rung of housing? We know that the particularities of parking mean that the wealthy owners of parking lots and garages– land speculators who aren’t contributing to the city– have to swallow the cost of a new parking tax. That money could be used to help lower taxes on things we want in our city, like housing or jobs. It could also be used to pay for things we like– better schools or transit.

Why not even lower commercial taxes on businesses below a certain threshold? The city has very high commercial taxes, and that means that we often have vacancies. Having a land tax to bring in revenue from big boxes might allow the city to lower costs on smaller businesses, and maybe even fill some vacant storefronts. Those vacancies are part of what makes it so necessary to own a car in the first place– there are fewer jobs and fewer shopping possibilities within distance of one’s house. What more grotesque example of the primacy of driving in our city could exist than Providence Place Mall turning the JC Penney’s across from the train station into additional parking. What exactly are people parking for, as this city of ours hollows out and loses things to visit day by day?

If the city has money to lower the car tax in the midst of a fiscal crisis, then why does it not have money for other social needs? Why can’t we start paying for better early childhood education? Why can’t we figure out a guaranteed minimum income supplement for local residents? Or add the the stipend low income people get for food stamps? Philadelphia recently worked with the private William Penn Foundation to subsidize bike share for low income residents. Providence is still trying to work out a start for its bike share. It costs $5 monthly for any food stamps recipient in Philadelphia to use unlimited bike share in the city. Every time I pay a full dollar to transfer to another bus for the last leg of a journey, I wish I could flash my food stamps card and get that deal.

The truth is that the reason we don’t put more money to schools, or to food security or public transportation or any other need is that if we called for spending on those things, we’d be laughed out of the room. There’s no money! What are you thinking?! But, of course, we have money to cut the car tax.

At the end of the day, we call this “Elorza’s” proposal, and I do not claim to know the internal politics. Lots of people don’t like the parking tax, all across the city, and all across the political spectrum. And why would they? It sucks to pay for things. Maybe the mayor faces pressure from city councilors, or this is part of a deal for something else. It’s still not a good idea. How can we be raising taxes on housing at exactly the time we’re lowering taxes on driving? But when our city has to put bonds out to do basic repaving work, as in the Taveras admin., that’s a sign that we’re running in the red. Why not let car owners pay the costs of roads, so that we don’t let those costs creep into the things we really want to share as a commons, such as our crumbling schools? People should contact their city council people and say that this is an unacceptable position.

No lower car tax. Not when we face such climate problems on our horizon. Not when there are so many other needs.

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January 5, 2015January 5, 2015

Repealing car tax changes would cost $15.15 million, not $20.5 million

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When Mayor Angel Taveras and Council President Michael Solomon hiked car taxes to balance the Providence budget a few years ago, they did not just hike car taxes on working families. They also cut taxes for cars worth more than about $24,000.

Before the hike, the car tax had a $6000 exemption and a rate of 7.678%. In addition to lowering the exemption to $1000, the city cut the rate to 6%. The net result was a lower effective tax rate on cars worth more than roughly $24,000 and a higher rate on cheaper cars. To his great credit, Solomon now says that this tax cut for expensive cars was unintentional and a mistake. Here is what he told the Progressive Democrats at our mayoral forum:

“Because the exemption was taken away, we thought it was easier for people with a $5000 car to pay $60 per thousand than $77 per thousand.* In hindsight, we probably would have been better off raising the exemption level. So we kind of did it backwards…Ultimately, what we had in mind was taking care of people who had cars under five or six thousand. We thought, by lowering the rate from $77 to $60,* that that would save them some money.”

When I first met Mayor-elect Jorge Elorza, months before he announced his campaign, he told me how concerned he was about how the Taveras-Solomon car tax hike hurts working families. It is a message he repeated time and time again on the campaign trail. But the City of Providence does not have very much money, so the price of a repeal matters.

That is why the fiscal analysis the Providence City Council quietly released right before Christmas matters so much. It pegged the price of a repeal at $20.5 million. As policymakers struggling with the next budget try to squeeze in some sort of repeal, that is the cold, inflexible number they will be facing. But it should not be.

When I first saw that figure, I was surprised, since the car tax hike had only netted the city $14.2 million in the first place. Digging deeper into the report, the reason for the discrepancy became clear. The $20.5 million figure assumed the city was going to maintain the lower rate, which led to the tax break for expensive cars.

I wrote to the author of the report, Nick Freeman, and he happily provided me the cost of a clean repeal of the car tax changes—$15.15 million.

So when budget writers try to find the cash to return to the old car tax system and provide some relief for Providence’s working families, that is the number they should be aiming for, not $20.5 million. It makes a tough lift quite a bit more realistic.

And if they cannot find the money, they should provide some quick relief by repealing the rate cut to fund an increase in the exemption. It would be free. It would be fair. And it would ease the financial squeeze so many in our city suffer under.

*Confusingly, car tax rates are typically reported as dollars per thousand, so when people talk about a $60 rate, they mean 6%.

November 9, 2014

Providence should pass a parking tax

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Cities with less parking do better economically and environmentally, so getting Jorge Elorza firmly behind a parking tax should be one of our top concerns.

When asked whether he would support a parking tax during his administration, Jorge Elorza blew a dog whistle for potential supporters and opponents, saying in effect “not now.” On balance, Elorza’s reply makes me confident that the mayor-elect’s administration will institute a parking tax if Providence voters push him on the issue. A parking tax is one of the most important economic development and transportation initiatives that the mayor could take on, and progressives should ready themselves to ask for its passage.

I feel comfortable trumpeting the impending passage of a parking tax because of the particular caveats Elorza had with passing one. He at first said “we can’t adopt it right now”, but then added this:

The larger reality is that our citizens are already over taxed, and we can’t consider adding anything new to that burden. Over the long term, if we can manage to lower some of the other taxes – property tax, the car tax, etc. – I would consider a parking tax, because it’s much more progressive tax. First, it requires visitors to the city to share a portion of the tax burden, unlike the property and car taxes, which only impact residents. It also incentivizes other forms of transportation and ride sharing. (my emphasis)

Why do I think such a seeming non-answer is hopeful? Because the caveats are built into the proposal itself. Proponents of a parking tax ask that the city tax parking, and use 100% of the revenue to reduce other taxes. A parking tax means a tax cut on your house or apartment. We should take this as a yes and start pushing Elorza to keep his promise. Yours truly much prefers a lowered property tax to a lowered car tax for obvious reasons, but even a lowered car tax in return for a parking tax wouldn’t be a non-starter.

Pittsburgh currently has the highest parking tax in the country, at 40% of value, and it brings in more revenue than income taxes for the city (I would favor a parking tax arrangement that also taxes “free” parking–see article here–but getting commercial lots to pay a tax would be a start). Allowing Providence to tax parking could create the right balance that would both favor development and create a fairer environment for ordinary people.

As a type of de facto carbon tax, a parking tax works much better than, say, the gas tax, because if the mechanism that discourages driving works to actually reduce vehicle miles traveled, the result will be an economic situation that favors less driving even more. When drivers reduce their vehicle use, gasoline tax revenues are reduced, and programs like public transportation budgets suffer. Raise the tax to get more revenue, and driving is reduced yet again. But drivers who shun the parking tax by driving less will leave lot owners with less revenue, not transit agencies. The owners of lots, who previously may have calculated that it was worth developing nothing and taking a fee each day from commuters, might get a different idea. On the other hand, if drivers continue to park, the city collects revenues which can be put into property tax reductions. This, too, would encourage infill. So we have a positive feedback loop.

A parking tax dodges some of the objections people could have to a land tax. Residents with big yards don’t need to worry that the city is going to try to punitively charge them for green space*. And a parking tax would favor smaller businesses that often struggle to compete with big boxes, but which produce more benefit with less cost to cities. Big business need not even worry so much, since catching up would simply mean following the set of incentives the city is offering. Got parking you’re not using? Build another store on it, or lease it out to developers for housing.

The parking tax, unlike the car excise tax, has the advantage of taxing non-residents as well as residents, making it a more progressive way of pricing the cost of automobiles to society. This set up also answers a critique I’ve heard of the car tax, which is that some people may find themselves unable to give up a car due to long exurban commutes out of the city. A parking tax would inherently tax those who work in the urban core the most, meaning that city residents who normally drive from nearby neighborhoods to their jobs in the core out of convenience would likely be the first to change their habits and use other methods to get to work, while those who live on the South Side but work out in the boonies at a Walmart would be unaffected. Since a parking tax would raise the effective cost of driving to the core while lowering the cost of living there, many residents would experience the parking tax as a break-even tax or even a tax reduction.

A parking tax, by lowering property taxes, would encourage infill. Currently, the city frequently awards tax stabilization agreements (TSAs) to downtown developers to help ameliorate the city’s huge parking crisis and get new building stock. TSAs have a built-in logic that makes economic sense, but residents nonetheless have good reason to feel annoyed at them. With very high property and commercial taxes (Providence has the highest commercial taxes of any city in the country, in fact), it just doesn’t make sense to develop parts of Downcity without some reduction in cost, so TSAs get something where the city might have gotten nothing. But instituting a parking tax will help to lower these overall tax burdens in a more equitable way. Now, not just those with connections to City Council, but also renters or homeowners in every neighborhood of the city, will see a reduction in their taxes.

The parking tax should also please progressives because it asks for as much as it gives back. TSAs fundamentally lower taxes for certain people without any immediate short-term plan for revenue. In a city facing yet another fiscal shortfall in the coming year, that’s a problem. Raising revenue for the city from a parking tax while giving that revenue back would be a more balanced approach.

The immediate challenge for the parking tax will be getting a City Council resolution in favor of its passage. Based on my best advice from talking to a variety of city and state officials, I understand that the legislature would have to give Providence authorization to institute a parking tax. I know there are some who have said they’re interested in helping with this effort, but first City Council has to move forward.

I’m going to be working with City Council to build support for a parking tax in the coming year, and I hope that RI Future readers will join individually and as organizations to call on Council and the mayor-elect to pass it.

~~~~

*I don’t contend that this is something that really happens under a land tax, as, in fact, land taxes often effectively act as parking taxes, but what I would say is that this clarifies the issue in voters’ minds.

August 15, 2014August 16, 2014

The many alternatives to lowering the car tax

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As some of you may be aware, I very much disagree with the RI Progressive Democrats decision to push for a return to the way that car taxes were assessed in Providence. I previously had the ear of some of the mayoral campaigns, and have been attempting in my own small way to push them on this issue, but have found them to be unreceptive.

As I’ve attempted on my own blog to bring attention to this issue, it’s become clear to me that in order to win, there has to be a list of viable alternatives to lowering the car tax that accomplish the equity goals outlined by RIPDA without resorting to a subsidy for driving.

First, some background. The car tax in Providence is based on state DMV assessments of the value of one’s car. In the past, the state offered a $6,000 deduction for the value of one’s car, meaning that tax was only assessed on cars above that value. More recently, the deduction was withdrawn, and Providence residents currently enjoy only a $1,000 deduction. This also went alongside a small reduction in the percentage of taxation, overall. I made a spreadsheet that explains how this breaks down:

As RIPDA members point out, the change in the way that taxes are assessed results in people who own cheaper cars having to pay more tax than they did previously. Around the middle of the spectrum the change has little effect, and at the upper end people can expect to pay somewhat less tax. An important figure left out of this conversation is that 25% of Providence doesn’t drive at all and this group, much like the non-driving population of most places in the U.S., is overwhelmingly low income. Changing the way that this tax is assessed will not help those who do not drive. It’s also important to keep in mind that the tax on cars is not really intended as an income redistribution tax, although in other cases I would very much agree with having a progressive system of income redistribution. The purpose of a car tax is to have drivers pay the costs of driving, which even in the current system, they don’t.

The cost of driving is never fully allowed to touch drivers in the U.S., as opposed to in many countries that actually do take care to have better distribution of wealth, like the social democracies of Europe. Yet, when costs are assessed to drivers, it impacts whether and how much they choose to drive. For instance, people who work at jobs that offer an equal free parking or transit benefit are more likely to drive to work alone than those who get neither benefit, demonstrating that the existence of a free subsidy to driving even outweighs an equal subsidy to not do so. Forgiving even the small portion of costs that the car tax makes drivers pay ensures that more people will choose to drive in Providence.

Still, be damned whether this brushes over the 25% that are most likely to be poor! Be damned the environment! Some of you out there just want to know what’s in it for you if you’re hanging in that middle zone of people who can afford a car but hate paying the car taxes.

One option for supporters of reducing the car tax to consider is putting the money from the deduction to RIPTA. The first $6,000 of car value at 6% ~~is equal to $360 per car~~. If 75% of Providence households continue to own just one car, that’s like ~~$50 million~~ in revenue for RIPTA, which could be targeted only to city bus service in lower income areas. This could mean better shelters, more frequent service, upgraded facilities, or other conveniences. RIPTA could offer a set number of free RIPTA cards to lower income families, or could put the money aside to help pay for the school-aged RIPTA cards it issues. With improved RIPTA service, it’s very possible that some households would choose to give up their cars, and so any assessment of this plan has to assume that there’s going to be multivariable math going on. However, this at least is a win-win situation: either people pay the fee to own a car, and help create better transit service, or they choose to give up their car, also reducing our transportation expenses.

A second option is to focus on bike infrastructure. Despite the visibility of white, upper-class people in spandex on fancy titanium bikes, studies consistently show that those who ride bikes for transportation are more likely to be lower income. Putting quality bike infrastructure in lower income neighborhoods would provide a low cost way for people to get exercise and transport themselves to-and-from work or school, and would really cut away from the need to have a car to transport children. There’s a real equity problem with the way that many cities allocate bike infrastructure, and putting a preference in place for low income neighborhoods to get the first and best of the pack would be a really equity gain.

One problem that exists with the car tax is that it comes as a sudden shock to some people, who may not expect it. I’ve been talking for some time about the need to have a parking tax in the city, and I think that one way we can lower the car tax while keeping the cost of driving the same or greater would be to take some part of the car tax and put it into a per-space tax on parking lots. This would help to incentivize development and infill, lowering the need to drive by reducing job and housing sprawl. It would allow the costs of driving to be paid more incrementally, in a way that’s predictable to users. It could help the city reduce property taxes, particularly on rental properties, which pay a higher tax and are more likely to house lower income people. A parking tax could really help put us on better footing.

For a lot of reasons, I’m not sure I would support using the funding for non-transportation uses. As I said, because drivers do not pay even close to the full amount of the costs their vehicles contribute to road construction and maintenance, there’s no way to wish away the expenses that exist in city government for these expenditures. This is part of the reason that lowering the car tax is so problematic in the first place: it may be that it helps to make driving cheaper for some in a temporary way, but as costs mount it also means that some other kind of tax has to go up, or that some other service has to suffer. So, while funding schools out of taxes on cars sounds morally sound to me, I’m not sure the costs would add up long-term. The city would need to take money from schools to pay for roads, and it might just end up being a wash. I also worry about what might happen politically to a city that funds schools through car charges. We should view a tax that puts the real costs of car ownership on the shoulders of drivers as a good thing, but if we find that important social goods in our society are funded by the continuation of more car ownership, that might give us a perverse reason to avoid fixing our transportation situation. This is, for instance, the conversation that already exists, where drivers accuse bicyclists or transit riders of “freeloading” on the system for not paying gas taxes, even though these users obviously pay generously from general tax funds for roads, and contribute a great deal less to the roads’ maintenance costs.

In any case, it may be defensible to try to ease the burdens of lower-middle class drivers, but we should structure any change in a way that helps to support the needs of non-drivers as well, and which helps to foster a better transportation system.

Reducing the car tax isn’t the way to do that.

Correction: The author acknowledges an error in the amount of revenue from this tax. While $360 is 6% of $6,000, there is still a $1,000 deductible for car value in place. This means the difference in tax is between the $1,000 deductible and a $6,000 one, not between a $6,000 deductible and zero. The difference in tax for a $6,000 car is $283. The revenue, assuming no change in driver behavior, is around $40 million, not $50 million.