[LincolnTalk] Effects of innumeracy? | WAS Correction -- RE: Outraged yet? Lincoln tax bills and tax relief

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[LincolnTalk] Effects of innumeracy? | WAS Correction -- RE: Outraged yet? Lincoln tax bills and tax relief

Dennis Liu

Two things to consider in response:

 

I. COMPARING TAX RATES BETWEEN TOWNS

 

Debra Daugherty wrote:  >Dennis: Nope. Assuming that property tax would be the reason for moving, the relevant quantity is (effective) tax rate and the question of whether you have options elsewhere where you could pay less tax. The (effective) tax rates in our and other towns are relevant as are the values of comparable houses in our and other towns. The percent increase over last year is irrelevant.  BTW, I like the way you inserted the word "only" in front of my percentages as if I implied that. I was allowing people to judge the percentages for themselves.

---------

 

I’ve noticed, unfortunately, that some of my old friends are too busy to pay much attention to matters to apply basic math.  These friends think that, as an example, a tax rate that increases from 1% to 2% is . . . “a small increase!  It’s only a 1% increase!”  But, of course, as most of us know, especially when we give it more than a fleeting moment of thought, when you change a rate of taxation from 1% to 2%, it’s *NOT* a “1%” increase.  It’s a *100%* increase.  (For illustration only, a 1% tax on $100 is $1; a 2% tax is $2; the change from 1% to 2% means $1 to $2; that extra $1 is a 100% increase.)

 

To illustrate the proposed Residential Exemption, I wrote:

  1. Someone with a home valued at $1.2mm would, after applying the $335,300 exemption, be taxed for $864,600 in value, at $22.20/$1,000.  That’s  $19,194.12 in property tax, versus  $16,836.00 in 2019, for an effective increase of “only” 14%.
  2. Someone with a home valued at $2.0mm would, after applying the $335,300 exemption, be taxed for $1,664,600 in value, at $22.20/$1,000.  That’s $36,954.12 in property tax, versus $28,060.00 in 2019, for an effective increase of “only” 32%.
  3. Someone with a home valued at $3.0mm would, after applying the $335,300 exemption, be taxed for $2,664,600 in value, at $22.20/$1,000.  That’s $59,154.12 in property tax, versus $42,090.00 in 2019, for an effective increase of “only” 41%.

And that’s absolutely true – doing the math generates that result (the difference before the Residential Exemption, and after it’s applied).

 

Debra then replied to my example:  >The question of whether or not to move is not really a function of how much your property taxes have increased. It's a function of the tax rate itself and how it compares with those of similar towns that people might want to move to. Using Dennis' three examples (with the hypothetical max exemption of 35%), the tax rates are: (1) 1.6% ($1.2 million home), (2) 1.8% ($2 million home), and (3) 2% ($3 million home).  [emphasis added]

 

And that math is also absolutely true!  Debra is trying to make the very fair point that when home buyers are deciding between Lincoln and Concord/Wayland/Lexington/Sudbury/Weston/etc., one of the factors they will consider is the relative difference in taxation between towns.

 

That argument is also absolutely true!  But here’s where I disagree with Debra.  She provides examples on an unusual basis – as a percentage of home value.  I’ve never seen property tax rates presented in such a manner.  Indeed, if one types into Google “Lexington MA tax rate” or “<town of your choice> tax rate”, The results all spit out the tax rate as a dollar amount per $1,000 of assessed value.  And if you go to the town sites, that’s how they report it. 

 

Question, then:  if one is making the argument that the important factor is how Lincoln’s tax rate compares against similar town, why wouldn’t one show those comparative tax rates?  Why choose to instead to show property tax as a percentage of assessed value – as 1.6% or 1.8% or 2%, and not show anything comparable from the other towns?  Debra further wrote, “BTW, I like the way you inserted the word "only" in front of my percentages as if I implied that. I was allowing people to judge the percentages for themselves.”  Ah, but Debra, I had already provided the actual dollar rate per $1,000 for Lincoln -- $15.36/$1k.  So why did you add only the percentage rate for Lincoln – and no other towns, if you’re making the (again, very fair) argument that it’s the comparison we should be looking at?  In a vacuum, simply saying that Lincoln’s tax rate is 1.6% is not particularly illuminating, no?

 

FWIW, here are the comparable tax rates.  Do keep in mind that one has to be cautious using these rates, since town have different, historical ways of assessing home values.  If Town A typically assesses home values at 90% of market/appraised values, and Town B assess home values at 95% of market/appraised values, then to make a fair apples-to-apples comparison when home buying, one would need to adjust the published rates accordingly.  That’s why, when I was shopping for a home in this area more than two decades ago, I learned that some towns “assessed light” while others “assessed heavy”.  Unfortunately, it’s difficult to get that information without a lot of footwork; I’m sure real estate agents have working knowledge of that, but don’t know if it’s documented anywhere.

II.  IT’S THE RATE OF INCREASE IN THE PROPERTY TAX RATE THAT IS SCARING AWAY PEOPLE

Debra further wrote:  >For reference, here is the FinCom description of the tax:  this is a one-time tax increase to pay for the school, and it will be part of your tax bill for the next 30 years.  It's like a mortgage -- it doesn't keep going up, but we have to pay it annually until it is paid off.   (One detail:  we've borrowed (bonded) $80m of the $88m planned to pay for the $93.9m project.  There will be another very small tax bump in a few years for the remaining $8m)

 

For the avoidance of doubt:  it’s definitely correct that our property tax rates will NOT be going up by 9.5% or 14.5% every consecutive year!  Instead, our property tax will simply be somewhere around 14.5% higher, per FinCom, in each future year than from the baseline 2019 year, other things being equal (i.e., assessment values are steady, and there are no changes to other town budget needs).

 

But my original point remains about the costs of the school building projects scaring home buyers off.  The median house value in Lincoln, per Zillow, is $1,084,900.  Using FinCom’s revised estimate of an increase of 14.5% as where we will end up after all is said and done, that translates into a total annual tax bill of  $17,428.21, which includes an increase over 2019 taxes of $2,207.07.  And, of course, because that’s the median price, half of Lincoln is looking at a tax increase of more – or much more than that.

 

What does that additional $2,207 in taxes every year get you?  That’s $184/month, cash out of pocket.  Which if added to a 30 year mortgage at today’s rates, would get you about $40,000 in additional loan value.  Thus, someone looking to buy in Lincoln is facing an increase in property tax as a result of the new school building that shaves off $40,000 in what they can afford to buy here, all other things being equal.

 

And this is independent of what other towns charge for property tax.  For people interested in Lincoln, the increase in the tax rate alone will mean some folks will no longer be able to afford what they would have wanted to buy in 2019.  (They will then, no doubt, see if they can afford something in a similar, adjacent town, but the effect has already happened.)

 

Will that “scare” people away from Lincoln?  At the margin, yes, certainly.  Will the hoped-for increase in property values resulting from having a nice and new school building offset that?  Quite possibly.  But that’s some time down the line, of course.

 

Off to do other things…

 

--Dennis

 

 

 

 

From: Debra Daugherty <[hidden email]>
Sent: Friday, October 4, 2019 10:02 AM
To: Dennis Liu <[hidden email]>
Cc: Kathryn Anagnostakis <[hidden email]>; Joanna Owen Schmergel via Lincoln <[hidden email]>
Subject: Re: [LincolnTalk] Correction -- RE: Outraged yet? Lincoln tax bills and tax relief

 

Dennis: Nope. Assuming that property tax would be the reason for moving, the relevant quantity is (effective) tax rate and the question of whether you have options elsewhere where you could pay less tax. The (effective) tax rates in our and other towns are relevant as are the values of comparable houses in our and other towns. The percent increase over last year is irrelevant.

 

BTW, I like the way you inserted the word "only" in front of my percentages as if I implied that. I was allowing people to judge the percentages for themselves.

 

For reference, here is the FinCom description of the tax:

 

this is a one-time tax increase to pay for the school, and it will be part of your tax bill for the next 30 years.  It's like a mortgage -- it doesn't keep going up, but we have to pay it annually until it is paid off.   (One detail:  we've borrowed (bonded) $80m of the $88m planned to pay for the $93.9m project.  There will be another very small tax bump in a few years for the remaining $8m)

 

On Thu, Oct 3, 2019 at 11:26 PM Dennis Liu <[hidden email]> wrote:

Debra wrote:  >The question of whether or not to move is not really a function of how much your property taxes have increased. It's a function of the tax rate itself and how it compares with those of similar towns that people might want to move to. Using Dennis' three examples (with the hypothetical max exemption of 35%), the tax rates are: (1) 1.6% ($1.2 million home), (2) 1.8% ($2 million home), and (3) 2% ($3 million home).  [emphasis added]

 

To be fair to those who are considering the implications of the tax hike and potentially moving:  Debra, the percentage amounts that you provided are perhaps a bit . . . misleading?  Not sure what the right adjective would be.

 

Working your math backwards, it appears that you used my prior three examples of homes at three different value points and the potential incremental additional taxes that would result from adoption of the Residential Exemption.  You arrived at your percentages of 1.6%, 1.8% and 2% by calculating the projected total amount taxed as a percentage of the home value.  Your math is correct! 

 

But that’s not how people typically view property tax rates, right (instead, using $x/$1,000 to compare between municipalities)? 

 

More egregiously, the percentages you cite are for the percentage of home value that owners have to pay (every year) – but the whole point is about the *increase* in the rate of taxation

 

If we’re discussing whether the tax hike is sufficient incentive for some folks to move out of Lincoln (or decide to not move to Lincoln), we’re talking about not only our total tax amount, but also about the rate of increase in those taxes being paid every year as a result of the $90mm+ new school building.

 

As contained in the link that Richard provided (https://www.lincolnsquirrel.com/fincom-releases-tax-hike-figures-for-school-project/ ), the town FinCom provided that “Lincoln property owners will see a tax increase of 14.5%”.  And that’s before the Residential Exemption kicks in, which, if it does, 40% of the town would pay much more.

 

I’ll add that this is an increase that will have to be paid every single year going forward until such time as the bond is paid off.

 

Thus, to fairly describe the actual fiscal decisions faced by people considering moving out of Lincoln, I’ll submit that it’s more fair to characterize this as “residents facing a tax increase of 14.5%” rather than stating that residents are paying only “1.6%... 1.8% and 2%”.

 

Vty,

 

--Dennis

 

 

 

 

From: Debra Daugherty <[hidden email]>
Sent: Thursday, October 3, 2019 11:34 AM
To: Kathryn Anagnostakis <[hidden email]>
Cc: Dennis Liu <[hidden email]>; Joanna Owen Schmergel via Lincoln <[hidden email]>
Subject: Re: [LincolnTalk] Correction -- RE: Outraged yet? Lincoln tax bills and tax relief

 

The question of whether or not to move is not really a function of how much your property taxes have increased. It's a function of the tax rate itself and how it compares with those of similar towns that people might want to move to. Using Dennis' three examples (with the hypothetical max exemption of 35%), the tax rates are: (1) 1.6% ($1.2 million home), (2) 1.8% ($2 million home), and (3) 2% ($3 million home).

 

 

 

 

 

On Thu, Oct 3, 2019 at 10:49 AM Kathryn Anagnostakis <[hidden email]> wrote:

To Dennis' point - who decides at which point someone is rich enough or lives in a property worth enough to be considered wealthy enough to pay the extra tax?  Some would argue that there are many people living in Lincoln, in houses worth $1M who do not have the income to pay the extra tax.  In fact, I think that was argued often in the fight leading up to the school vote.  

 

So someone has to arbitrarily decide who's rich enough.  I think we can all agree that Bezos and Buffet are rich enough but why do the Liu's get lumped in there with them? 

 

On Thu, Oct 3, 2019 at 9:39 AM Dennis Liu <[hidden email]> wrote:

Sasha Golden wrote:

 

>This does, however, ignore the reason for progressive taxation -- that an equal tax rate does not affect all families equally because it does not reflect tax as a percentage of family income. Someone making $100k who pays an extra $1k in tax effectively pays an additional 1% of their income. Someone making $1M effectively pays 0.1% more -- a far lower impact on household cash flow.

 

Sasha, not quite sure of how you’re doing your math?

 

Property taxes, which are arguably “flat taxes”, are indeed progressive.  AND *income tax*, to which your statement seems to be referring, is even more progressive.

 

Of course, your statement is true, as basic arithmetic – someone who has an income of $100k and pays an extra $1k in tax does pay more as a percentage of their income than someone paying $1k on $1mm of income.  But that’s *not* what we’re discussing, right?

 

Property tax is an ad valorem (wealth) tax on the value of, well, one’s property.  So, to paraphrase your example, someone who pays the Lincoln property tax rate of $15.36/$1,000 on a home worth $100,000 would pay $1,536 in property tax.  While someone with a home worth $1,000,000 would pay $15,360.  The “wealthier” person pays, literally, 10x the amount of property tax.  Is that not “progressive”?

 

BTW, the same would be true if we were discussing income tax; to simplify, someone paying income tax (federal or state) on $100,000 worth of income is paying far less in taxes than someone paying it on $1mm worth of income.  It’s definitely progressive.  As to whether it is progressive *enough* is another subject altogether, but one cannot fairly say that income taxes are not progressive in nature.

 

Vty,

 

--Dennis

 

 

 

From: Lincoln <[hidden email]> On Behalf Of Seth Rosen
Sent: Thursday, October 3, 2019 9:04 AM
To: Sasha Golden <[hidden email]>
Cc: Joanna Owen Schmergel via Lincoln <[hidden email]>
Subject: Re: [LincolnTalk] Correction -- RE: Outraged yet? Lincoln tax bills and tax relief

 

Hi Sasha, it's important to remember that unlike all of the other mechanisms currently in place, a "residential exemption" is not means tested.  Your family income is not a factor in determining whether or not you benefit.  

 

You could have a $30M net worth, a $1M annual income, live in a house that's assessed below the line of demarcation, and still get a tax break at the expense of your neighbor.

 

Seth

 

 

On Oct 3, 2019, at 8:16 AM, Sasha Golden <[hidden email]> wrote:

This does, however, ignore the reason for progressive taxation -- that an equal tax rate does not affect all families equally because it does not reflect tax as a percentage of family income. Someone making $100k who pays an extra $1k in tax effectively pays an additional 1% of their income. Someone making $1M effectively pays 0.1% more -- a far lower impact on household cash flow.

 

On Thu, Oct 3, 2019 at 7:38 AM Richard Panetta <[hidden email]> wrote:

I would be in the 60% and do not like forcing others to pay more because they can.

 

 I agree with Dennis, right now the rate is flat so everyone pays the same %. This would put the burden on the people who can pay more, but just because they can does not mean we should force them too. I know this is a very popular idea lately with the State trying to force millionaires to pay more in income taxes but if we are to treat everyone as equals it should be done economically as well as socially in my opinion. 

 

Like any tax, if someone wants to volunteer to pay more than they always can. 

 

 

 

On Wed, Oct 2, 2019 at 10:55 PM Sara Mattes <[hidden email]> wrote:

Dennis,

You seem to bury the fact that 60% of the town, in your analysis, would have a TAX DECREASE under this scenario.

Sara

 

On Oct 2, 2019, at 10:48 PM, Dennis Liu <[hidden email]> wrote:

 

All, thanks to a private note from a fellow resident that pointed out an error in my original math (for which I am immensely grateful), here’s a small correction.  My original point remains, I believe, in that enacting the proposed Residential Exemption would be an ex-post-facto tax increase on a large percentage of the homeowners in town, without a town-wide vote on the matter.

 

I wrote below:  >The PDF from that June Forum that the Committee held breaks out what the proposed tax increase on the “rich” 40% would look like.  That $15.36/$1,000 rate goes up to $16.50, $17.26, $18.09 or $22.20 per $1,000, depending on what the Selectmen feel  is an appropriate amount to *redistribute* from the “rich” 40% to the “poor” 60% in Lincoln.  One should note that these proposed tax increases represent an increase in the rate of taxation of 17.6%, 23.0%, 28.9%, or a staggering  58.2% over 2019 tax rates.

 

While the math is technically true in that statement, it’s misleading/incorrect in that at the highest level, it is a 58.2% increase in the *marginal* rate, without taking into account the exemption itself.  That makes the increase in the *effective* rate somewhat less painful.  At the 35% exemption level as illustrated by the Committee, the adjusted tax rate becomes $22.20 / $1,000, increased from $14.03/$1,000 in 2019.  But that needs to take into account the exempted value of $335,400 (at the highest level in the Committee’s plan).

 

Since the exempt amount is selected by the Selectman and becomes a fixed dollar amount, one cannot calculate an increase in the *effective* rate that would apply across the board, since individual homes have different values.  But here are three examples, keeping in mind that the current increase from 2019 to 2020, without the Residential Exemption, is already at 9.5%:

 

  1. Someone with a home valued at $1.2mm would, after applying the $335,300 exemption, be taxed for $864,600 in value, at $22.20/$1,000.  That’s  $19,194.12 in property tax, versus  $16,836.00 in 2019, for an effective increase of “only” 14%.
  2. Someone with a home valued at $2.0mm would, after applying the $335,300 exemption, be taxed for $1,664,600 in value, at $22.20/$1,000.  That’s $36,954.12 in property tax, versus $28,060.00 in 2019, for an effective increase of “only” 32%.
  3. Someone with a home valued at $3.0mm would, after applying the $335,300 exemption, be taxed for $2,664,600 in value, at $22.20/$1,000.  That’s $59,154.12 in property tax, versus $42,090.00 in 2019, for an effective increase of “only” 41%.

 

Thus, for 40% of the town, how much higher your property tax will increase depends on the value of your home, 9.5%, 14%, 32%, 41%, or more, at the highest exemption level (of course, the Selectmen could chose a lower exemption level if they chose to enact this ex-post-facto tax increase, so your property taxes could go up by something less…. But still go up.)

 

Vty,

 

--Dennis

 

From: Dennis Liu <[hidden email]
Sent: Wednesday, October 2, 2019 7:40 PM
To: 'Listserv Listserv' <[hidden email]>
Subject: Outraged yet? Lincoln tax bills and tax relief

 

Dear fellow Lincolnites:

 

When the new school proposal was being discussed, some folks here were Cassandras – warning that the increase in the tax rate would result in much higher property taxes.  Heck, even the *proponents* of the new school construction were agreeing that tax rates were going to go up significantly.  Several folks even sent emails around on this very point, offering calculations and calculators for residents to see what their personal property tax impact would be.

 

So if you read any of those (more than a few) warnings, should you really be “surprised” at how much your taxes went up?

 

Looking at our property tax bill today, the rate went from $14.03/$1,000 in 2019 to $15.36/$1,000 in 2020.  THAT IS A 9.5% INCREASE IN YOUR TAX RATE.

 

The median house value in Lincoln, per Zillow, is $1,084,900.  Which translates into a tax increase of $1,443 for 2020 (and at least that much each year going forward).  And, of course, because that’s the median price, half of Lincoln is looking at a tax increase of more – or much more than that.

 

But since this was heavily discussed and debated before the school vote, we shouldn’t be surprised, right?

 

Well, I don’t recall any discussion about implementing the “residential exemption” option that Jennifer Glass just sent around this afternoon, as part of the work of the Property Tax Study Committee (the “Committee”).

 

This never came up in Lincoln Talk, and – please, someone correct me if I’m wrong – this came up with the Committee only in late spring 2019, months AFTER the school vote, as part of the Committee’s Public Forum (I had to dig out that date and document).

 

One should read the summary that Jennifer provided (pasted below).  In a nutshell, the Board of Selectman can vote to INCREASE TAXES YET AGAIN, on the “rich” people in town, to benefit the “poor” people in town.  All without a town vote.  As a result of the increase in property taxes resulting for the school building vote.

 

Put another way – town residents were offered an opportunity to vote, yay or nay, on a very expensive new school project, with a tax increase calculation so that, at least, they could see how much their wallets would get hit for it.

 

Now, less than a year later, some of those same town residents are facing the possibility of being forced to pay EVEN MORE in taxes than was promised – all without a further vote by the town.  Just a simple majority vote by the Selectman.

 

Is no one else outraged by this?  Or are people simply falling in line with the promises made by certain presidential candidates – you can have free this and free that, all without paying a penny, simply because the “rich” will pay for it?  We’ll just tax “the rich”, and you will benefit, so vote for me!  (All of this without explaining how the math would work, since even seizing ALL of the wealth of the “rich”, as these candidates have called out, would not generate enough funding for their pet projects.)

 

The PDF from that June Forum that the Committee held breaks out what the proposed tax increase on the “rich” 40% would look like.  That $15.36/$1,000 rate goes up to $16.50, $17.26, $18.09 or $22.20 per $1,000, depending on what the Selectmen feel  is an appropriate amount to *redistribute* from the “rich” 40% to the “poor” 60% in Lincoln.  One should note that these proposed tax increases represent an increase in the rate of taxation of 17.6%, 23.0%, 28.9%, or a staggering  58.2% over 2019 tax rates.

 

When you voted in the town meeting on the new school building, did you think that your taxes might go up by 58.2%?

 

Do you think it’s right and fair that Lincoln could, choose to impose an ex post facto tax increase on 40% of the town?  Without another town-wide vote?  

 

Do you think that, since all of the tax increase figures were *known* prior to the school building vote, that any possibility of enacting the “residential exemption” option should have been highlighted before the school vote?  

 

Am I the only person that’s outraged that this is even on the table?

 

Vty,

 

--Dennis 

 

 

From: Lincoln <[hidden email]On Behalf Of Jennifer Glass via Lincoln
Sent: Wednesday, October 2, 2019 4:35 PM
To: LincolnTalk <[hidden email]>
Subject: [LincolnTalk] So you’ve seen your latest property tax bill...

 

Property Tax Study Committee 

Public Forum #2: Tuesday, October 15th, 7:00 - 8:30pm

Donaldson Room, Town Offices

 

Recognizing that the bond for the school project could have a disproportionately large financial impact on some Lincoln residents, the Property Tax Study Committee was appointed by the Board of Selectmen last January (https://www.lincolntown.org/1084/Property-Tax-Study-Committee). Its charge is to:

  • Understand, to the extent practicable, the scope and types of community needs.
  • Research and understand the implications of tax programs that are currently supported by state law, or are under consideration.
  • Seek input from the community to understand the appetite for such programs in the context of other town priorities.
  • Understand how private fundraising efforts could best be utilized to help those with demonstrated financial need.

The Committee has focused on two possible tax programs:

  1. Residential Exemption
  2. A local extension of the state Circuit Breaker program

Below is the article about these options that was published in the September edition of the Board of Selectmen’s newsletter. (To read the entire newsletter, click:  BOS News)

 

Please join us on October 15th to learn more, ask questions, and provide feedback!

 

Jennifer Glass, for the Committee

 

Property Tax Study Committee

<image001.png>

The Study Committee held its first public forum on June 18th. Using Lincoln’s vision statement as a framework, the Committee shared information about Lincoln’s demographics, available information about economic need, and the current utilization of existing tax abatement programs.  

The Committee also introduced two additional programs the Town could consider pursuing:

  1. Residential Exemption
    • A local option property tax exemption that is set at 0% - 35% of the Town’s average residential property value. The chosen % gets translated into a fixed amount that is deducted from every eligible residential assessment before the tax rate is applied.
    • The exemption applies only to owner-occupied properties.
    • The tax rate is then increased to make the program revenue-neutral.
    • All residential taxpayers (including owners of rental properties) pay the increased tax rate to keep the total tax levy the same; commercial properties are excluded.
    • The effect is to reduce taxes on eligible properties with valuations below a break-even point; it raises taxes on properties above the break-even point (roughly 60% of properties would be below and about 40% would be above the break-even point).
    • There are no age or income requirements.
    • May be enacted by a vote of the Selectmen; no additional approval requirements.

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