Real estate already taxed to death

Robert B. Kvavik |

7/20/2008 - 7/20/08

Transfer taxes have been used since the beginning of our Republic. The first Congress imposed a transfer tax to build the U.S. Navy. Abraham Lincoln proposed a transfer tax to help finance the Civil War. Thirty-five states today plus Washington, D.C., impose a tax on the transfer of real property located in the state.

What transfer taxes have in common is that they almost never generate the resources needed for the purpose they were intended (except in fast growing communities) and they divide the community.

The proposed Santa Fe tax will go nowhere near solving the affordable housing problem the community faces. In 15 states, that impose transfer taxes, the revenue is less than $20 per capita. Ironically, a transfer tax inflates the cost of housing, making it less affordable for every one.

Today in Santa Fe, it promises to further slow an already slow real estate market. The city should tax production, income, or value added — rather than transfers.

Real estate is already taxed to death. In addition to property taxes, a new house includes a second tax that is paid as sales tax on materials.

Realtors, builders and laborers must report the sale of a house and their labor as ordinary income, which is taxed at varying rates. In addition there are sewer and water acreage and capacity fees as well as inspection fees. Where does this stop?

Taxing real estate is not going to solve the city's affordable housing problem. Cutting overhead and raising revenue through means other than taxation is where the city ought to spend its effort. And then allocate the savings toward affordable housing.

Here are some ideas for consideration. I work for the University of Minnesota. Through wind power and solar energy, we have almost no energy costs for the Morris Campus. We have saved millions of dollars through a procurement strategy involving both the purchasing and distribution of materials used by the university. Instead of replacing light bulbs one by one as they burn out, we replace all the bulbs in a building on a periodic basis, radically reducing labor costs.

Almost everything can be done online using no paper and radically reducing intermediary non-value added bureaucratic steps.

We no longer have hard-copy billing processes and utility use is measured digitally. In addition, we have put in place expense management strategies using technology and simplified policies to reduce overhead.

In my opinion, a transfer tax will provide the city with chump change in comparison to the mayor and city council tackling harder but far more profitable issues of reducing overhead and government productivity.

Robert B. Kvavik is professor of political science and vice president for planning
at the University of Minnesota. He has been a resident of Santa Fe since 2002.