Friday, August 18, 2017

Initial thoughts on an Ann Arbor income tax

City Staff will make a presentation about a local income tax to a special session of Ann Arbor City Council on Monday, September 11th. My understanding is that idea behind the income tax is two-fold. First, the U of M owns a lot of property in Ann Arbor and does not pay property taxes. So, every time the U buys a new property, it shifts the tax burden onto the remaining property owners in the city. Second, lots of folks commute into Ann Arbor to work. These people use some city services, but don't pay for them because they don't pay property taxes in the city. As per state law, the income tax would be 1% for Ann Arbor residents and 0.5% for people who work in Ann Arbor but don't live there. It would also reduce the city's operating millage, which is 6 mils. This would broaden the city's tax base and reduce the tax burden on property owners.

In some discussions of the proposed city income tax, it's framed as a way to make U of M (or at least its employees) contribute a fair share to the city's fiscal health. It's also framed as a way to make high income folks who work in the city contribute to the city's well-being. Here's my fear about the proposed income tax: it would shift the tax burden from property owners onto workers. I worry specifically about: 1) people who rent in Ann Arbor and work in Ann Arbor; and 2) people who cannot afford to live in Ann Arbor but commute to there for work. It seems immoral to me to shift the tax burden from property owners in Ann Arbor to people who work in Ann Arbor. This assumes that by and large, people who own property in Ann Arbor are generally wealthier than those who rent in Ann Arbor and those who cannot afford to live in Ann Arbor but still work there. If the income tax passes, it will result in a reduction of the city's 6 mil operating millage. Do you think any any landlords would reduce any of their tenants' rent if their property taxes go down? How would one justify this tax to a low wage worker who commutes into Ann Arbor?

I'll admit that this is a pretty hot take and I have not done due diligence. I'm interested in hearing what you think about an income tax in Ann Arbor, gentle reader. Does the ability to tax high income individuals who live outside of the city outweigh the taxes on low wage workers and renters? Perhaps some of my concerns could be ameliorated if workers earning under say $50k were exempt from the income tax.

8 comments:

  1. "Do you think any any landlords would reduce any of their tenants' rent if their property taxes go down?"

    Anyone's best guess what will happen in any particular situation, but in general I have trouble seeing an argument that rents wouldn't be affected by property taxes. I'd expect the impact on owners and renters to be similar.

    "Perhaps some of my concerns could be ameliorated if workers earning under say $50k were exempt from the income tax."

    I can't find much by way of details. You can google around for other Michigan city's income tax forms, and it looks to me like for residents it's more or less federal AGI minus $600 per exemption times the tax rate. (I don't know why the mlive article says "earned income", it seems to cover interest and such too. Though typically not for nonresidents unless the income's from property in the city.) The $600 exemption seems small. It looks like it comes from this: http://www.legislature.mi.gov/(S(sxhkwui04ofzlhqt5edsr5y4))/mileg.aspx?page=getObject&objectName=mcl-141-631. So it's probably an absolute amount that was stupidly set into law in 1964. But if I'm reading it right, that's a minimum, so maybe Ann Arbor could choose more? But maybe giving up revenue from the income tax means you end up with a loss compared to keeping the operating millage, I'm confused on that part.

    Looks like the state rules are from http://www.legislature.mi.gov/(S(sxhkwui04ofzlhqt5edsr5y4))/mileg.aspx?page=GetObject&objectname=mcl-act-284-of-1964

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  2. An income tax gives the city some bizarre and shitty motivations. Add a job and you get money from it whether or not the person with that job lives in town; that seems like it would only encourage the current pattern where AA gets a ton of people commuting in and commuting out. More traffic, more (temporary) demand for parking, fewer motivations to create a truly walkable downtown.

    if the goal is more revenue from commuters just jack up the garage rates for nonresidents. Quadruple 'em for all I care.

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  3. "An income tax gives the city some bizarre and shitty motivations."

    Who's "the city" in that statement--city staff? Council members? Residents? Voters? I'm not sure "the city" responds to incentives in that way. I doubt our current zoning maximizes property tax income, for example.

    "if the goal is more revenue from commuters just jack up the garage rates for nonresidents. Quadruple 'em for all I care."

    I wonder at what point it'd become profitable to buy land and sell parking to compete with DDA structures? The lack of private lots suggests current DDA parking rates are below market. (Or maybe they're just hard to get permission to build, I dunno.)

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  4. A more detailed analysis would be needed to really understand the impact, but I thought some data on income and commuting patterns might be appreciated. Data comes from OnTheMap (https://onthemap.ces.census.gov/) I wish the income ranges were better (lowest bracket is $15k or less, and highest is $40K or more), but that's a limitation of the data source. Also, data are from 2014, as that's the most recent year available, and there is a known issue in this data source for undercounting people who don't stay in the same job for a long period of time. But hey - data!

    Ann Arbor is a net importer of jobs. In 2014 there were 111,092 people who worked in jobs physically located in Ann Arbor, compared to 42,327 employed people who live in Ann Arbor (and work anywhere).

    Of those 42k people, 57.3% of them both live and work in Ann Arbor (23,661 people).

    78.7% of people who work in Ann Arbor lived outside of Ann Arbor. 48% of them earn more than $3333 per month ($40k/year), 29% earn $1251 to $3333 per month, and 23% earn $1250 per month or less ($15k per year). 28% of 29 or younger, 53% are 30-54, and 19% are 55 or older.

    For people who both live and work in Ann Arbor, 52% of them earn more than $3333, 27% earn $1251 to $3333 per month, and 21% earn $1250 per month or less. 26% of 29 or younger, 51% are 30-54, and 21% are 55 or older.

    So people who live and work in Ann Arbor are older and make more money than people who commute in from outside of Ann Arbor. People who live in Ann Arbor and leave for work make even more money, with 55% in the top bracket and only 20% in the bottom bracket.

    Of people who work in Ann Arbor, 21% of them live in Ann Arbor, and 28% (31,192) of them live elsewhere in Washtenaw County, followed by 15% from Wayne County, 7.9% from Oakland County, and 6.9% from Livingston County. The most popular home cities are 2.1% Ypsilanti (2,353 people), 1.4% Livonia, 1.3% Detroit, 1.2% Saline, 0.9% Westland, and then it trails off.

    Detroit was the number one destination for people who work in Ann Arbor and live elsewhere, with 2.9% of people commuting for work in Detroit, followed by a long tail.

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    1. Regarding "raise the parking rate", presumably that wasn't a serious suggestion (meaning you don't think it would really happen, not that you aren't really in favor of it). Regardless, a big portion of the parkers are using university parking. There's no way the U would raise parking rates and donate it to the city, they would have employees with pitchforks and torches.

      regarding renters vs landlords...presumably, rent increases would slow, although I doubt many rents would actually drop. This won't happen if Ann Arbor's rental market is not efficient; I am skeptical, there are many landlords and many renters.

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  5. Re: "I wonder at what point it'd become profitable to buy land and sell parking to compete with DDA structures? The lack of private lots suggests current DDA parking rates are below market. (Or maybe they're just hard to get permission to build, I dunno.)"

    I don't think there's any property in the downtown zoned with parking as an allowable use -- so the permission I believe you'd need would be an exceptional use permit, granted by the planning commission. It is, I believe, one of those rare instances where the planning commission has the final say. But I could be wrong about that. I'm more focused these days on stuff like why the Missouri River levels vary so much on a daily basis.

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  6. I'd be happy with paying a city income tax as long as it only applies to people like my husband and myself, who make enough to afford it. And if our rent increases slowed down a bit as a result of the shift, we might come out even. But the tax should absolutely only be applied to people in the top income brackets.

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