Detroit needs to lower taxes if there's any hope of a comeback (sales, 2014)

[magellan]

Latest discussions have brought to light (to me) that Detroit's property and city income taxes are not only onerous, they're downright unbelievable.

Current millage rate = 67 mills. For those unfamiliar, in Michigan that basically breaks down to 3.35% per year of your market value
Current city income tax rate, resident = 2.45%
Current city income tax rate, non-resident = 1.225%
Corporate income tax rate = 2%

So if you make $60,000/year and own a $200,000 home or condo in Detroit, you pay about $6700/year in property taxes and $1470 a year in city income tax (on top of Michigan income tax and Federal income tax).

Who wants to pay $8170 a year in taxes every year for miniscule services and declining property values, raise your hand? That's $700 a month. You can lease a Jaguar for less than that.

It's estimated that 40% of households in Detroit are delinquent on taxes. I can see why.

Other cities in comparison:

Chicago: 1.79% property tax, no income tax (very high sales tax)
Houston: Appx 1.8% property tax, no state or city income tax
Denver: Appx .6% property tax, no city income tax, high sales tax and a transit tax

I think what Detroit needs to do is institute a gradual reduction of property and income taxes. 10% right now on property taxes (go to 57 mills) and then down another 5 basis points every five years until they get down around 40 mills. That way it doesn't hit the city coffers all at once, but will possibly encourage enough growth to offset the lower rate and put it in the range of other comparable cities.

I also think you'd be more willing to buy property in Detroit if you knew your future property tax rates were actually going to go down. You might have a few sales that would slow just before the next drop, but it would be a blip mainly and pick right up after the step down.

Lower the city income tax to 2%. Drop the non-resident income tax rate. That will encourage even people who don't live in Detroit to possibly work in Detroit or open a business.

I don't always buy into supply side economics, but 67 mills is just a non-starter for anyone with plenty of other places to live.

Thoughts?

[animatedmartian]

Duggan has said that he would lower property tax assessments to a more fair level this year, saying that some areas may see a 20% cut in property tax assessments (mostly on the west side of the city) while most stable areas will see at least a 5% cut.

Detroit to slash property tax assessments by 5% to 20%, mayor's office says | Detroit Free Press | freep.com

But yea, there's still a lot of areas of the tax code that could use simplifying or removing. I think the income tax could definitely be lower.

[Retroit]

Excellent thread, magellan. You are absolutely correct. Despite what people of a certain political persuasion say, you can boost revenues by lowering taxes. I remember reading about this being done in Italy, where taxes were so outrageously high that tax evasion reached the state of a fine art. When they lowered taxes, people realized they could actually afford to pay them. Imagine that.

[magellan]

Originally Posted by animatedmartian

Duggan has said that he would lower property tax assessments to a more fair level this year, saying that some areas may see a 20% cut in property tax assessments (mostly on the west side of the city) while most stable areas will see at least a 5% cut.

Detroit to slash property tax assessments by 5% to 20%, mayor's office says | Detroit Free Press | freep.com

But yea, there's still a lot of areas of the tax code that could use simplifying or removing. I think the income tax could definitely be lower.

Lowering assessments is fine and fair if it's warranted (if property values are going down), but that doesn't draw people into the city (or keep people there unless they absolutely CAN'T leave). They need to lower rates.

[magellan]

Originally Posted by Retroit

Excellent thread, magellan. You are absolutely correct. Despite what people of a certain political persuasion say, you can boost revenues by lowering taxes. I remember reading about this being done in Italy, where taxes were so outrageously high that tax evasion reached the state of a fine art. When they lowered taxes, people realized they could actually afford to pay them. Imagine that.

There may be a painful period between when the rates are lowered and growth begins to take hold, but seems like now during reorganization is as good a time as any.

[Retroit]

I don't think it will be painful. Residents will pay when they don't feel they are being gouged. And this will increase revenues, so no pain for city management.

It would be a delight to see conservative principles put in place that will turn the city around from its road to liberalist destruction.

[magellan]

Originally Posted by Retroit

I don't think it will be painful. Residents will pay when they don't feel they are being gouged. And this will increase revenues, so no pain for city management.

It would be a delight to see conservative principles put in place that will turn the city around from its road to liberalist destruction.

There may be some pain, and legally there may be some restrictions against lowering short-term revenue outlooks to below what expenses will be (the city is probably legally liable to pay pensions payments or something). But as I said, under bankruptcy you're allowed a lot more leeway for expenses.

And as you said, a lot more people may be able to pay their taxes if the rates are lowered. Or even if 25% of those who would be delinquent can now pay, you're headed in the right direction.

I'd run for mayor of Detroit and work on all this but I don't think I'd have much street cred.

But at the end of the day, you won't see large scale investment in neighborhoods of Detroit under the current tax structure. Never, ever. People in New York might pay those rates, but that's to live in one of the most commercially viable cities on the planet, with ever increasing property values.

[Tekkie]

Magellan, you pretty much hit the nail on the head. Taxes need to be scaled back significantly in the city of Detroit. I feel like they're still in place from a time when they did actually provide decent services. For what you're paying in taxes, you aren't getting much back in the form of public services. I pay a little more in sales tax and income tax here in Denver, and I do so knowing that I get some very good returns on the investment. We have a state-of-the-art public transit system and great city services relatively speaking.

[detwahDJ]

Originally Posted by Tekkie

Magellan, you pretty much hit the nail on the head. Taxes need to be scaled back significantly in the city of Detroit. I feel like they're still in place from a time when they did actually provide decent services. For what you're paying in taxes, you aren't getting much back in the form of public services. I pay a little more in sales tax and income tax here in Denver, and I do so knowing that I get some very good returns on the investment. We have a state-of-the-art public transit system and great city services relatively speaking.

We still need a return of medium-wage manufacturing jobs more than anything, that's why people settled here in the first place. Jobs and jobs programs. Taxes, yeah, and other cost-of-living concerns like auto insurance more affordable.

[Tekkie]

Originally Posted by detwahDJ

We still need a return of medium-wage manufacturing jobs more than anything, that's why people settled here in the first place. Jobs and jobs programs. Taxes, yeah, and other cost-of-living concerns like auto insurance more affordable.

My monthly auto insurance bill went down nearly $40 since moving from a suburb of Detroit to living in the city of Denver. It's definitely outrageous there, and it doesn't seem like you really escape it even if living in the suburbs.

Detroit needs to find a new niche. Manufacturing might be part of it, but it's going to need to diversify more.