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 http://www.thedickinsonpress.com/event/article/id/56812/   March 31,2012

Letter: Tax reduction could be a boost

Assuming that North Dakota voters are rational people who seek all available information when making a decision as controversial as abolishing property taxes, I wish to offer an economist’s point of view, or refresher, on the impacts of taxation.

Fundamentally, a tax is an incentive designed to change people’s behavior.

Tax increases usually reduce economic activity, while tax reductions boost it. Abolishing property taxes would reduce the effective cost of owning a house, and give people in other states an incentive to move here. An increasing population, and thus tax base, would offset some of the revenue lost from the abolition.

North Dakota is gaining a reputation for job creation, and its economy could in fact absorb many new workers. From the worker’s point of view, the prospect of finding both a good job and a tax-free house adds two important premiums to his or her living standards.

Expanding enterprises and work opportunities, compounded by an oil boom, can turn a property tax reduction into a huge economic boom for the state.

The demand for housing would increase, thereby increasing property values and the wealth of property owners. Business owners would also benefit.

As with any other tax cut, lower property taxes bring about losers as well as winners. Local governments that depend on these taxes to support their schools and firehouses, for example, may experience a significant reduction in revenue. If those localities were unable to attract new residents, they could not compensate for the loss of property tax revenue with new sources of revenue. Some communities that do not expect to welcome many newcomers will be more dependent on the state government or on private-market solutions for the provision of services.

The moral of the story is simple. A tax has redistributive effects, which transfer wealth, often arbitrarily, from one person to another. That’s why politicians get involved. Economists can only alert people to the “multiplier effects” of a reduction in taxes.

The greater concern to communities should not be with the reduction in tax revenue; it should be with the rapid change in the composition of the population, the size of government and the distribution of wealth in our state.

Fernando Quijano, Dickinson

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