The current sales tax debate in Minnesota

Mark Dayton's 2013 budget proposal includes numerous changes to the tax code which include closing the loopholes on the corporate tax, giving some property tax relief while at the same time decreasing the overall sales tax.  The way in which he is able to achieve these goals is through increasing the taxes on the top 2% and expanding the current Minnesota sales tax.  His rationale is that property tax , income tax and sales tax should be more like the chairs of a stool in that they are "fair" across the spectrum of taxable revenues.
Dayton's Tax Reform

What is hardly discussed on the govenor's budget and his highly publicized is the reaction to the change in the tax code for the Mom and Pop type companies that might have to add sales taxes to any sale over $100.
Initial Star Tribune Article
Follow Up Article

It has become such a hot button issue that the proposal and the video that the star tribune created is currently the most watched.
Interviews at the Mall of America

So where do we go now?
Considering that sales tax is the largest revenue generator for the state, it would seem that if the increase in a sales tax's breadth makes sense for Minnesota but the public outcry against it might make it politically unfeasible even if it is the optimal solution for Minnesota's tax code.  Ironically this would actually move Minnesota down in the national sales tax from #7 (at 6.875%) to around # 29 (at 5.5%) at the overall rate.  The numbers I do not have is what is the percentage of revenue by tax base that Minnesota currently uses compared to the nation.

And just because I like the economic (not specifically the financial) theory behind why it is so hard to change tax codes, here is a bit on the status quo bias.
Super nerdy Econ Theory on why people hate change

Autism Insurance Regulation

The Minnesota House Commerce and Consumer Protection Finance and Policy Committee passed HF.181, which is legislation that would require insurance companies to cover behavioral therapy for children with Autism Spectrum Disorder (ASD), and referred it to the Health and Human Services Finance committee. ASD is a mental health disorder that affects approximately 1 in 88 children in the United States, and the prevalence has increased rapidly over the past two decades. (Look here for a quick overview of ASD). To date, 31 states have passed legislation that prevents health insurance companies from excluding coverage for Early Intensive Behavioral Intervention (EIBI) and other necessary treatments for children with ASD.

This is an important issue both for families who have children with ASD and for Minnesota as a whole. Although appropriate treatment plans vary by child, early identification and intensive behavioral therapies are the most effective known treatments. Beginning with a landmark study by Lovaas in 1987, many researchers have found that, when implemented early in a child’s life, they help as many as 50% of children with ASD achieve a normal IQ and ability to participate in general education settings, obtain jobs, and lead relatively independent lives. Another 40% of children who receive therapy show significant improvement and require less intensive services and supports later in life.

Some insurers do currently provide coverage for behavioral therapy related to ASD, however many families in Minnesota who have private insurance are denied coverage for their children’s mental health treatment after they receive a diagnosis of ASD. This often shifts the burden of paying for therapy, which costs an average of $40,000 per year for 3 to 6 year olds¹, to state and county governments in the form of increased use of medical assistance programs, and to families in the form of payment for uncovered services.

States also pay for special education services for children with autism. During the 2011-12 school year, approximately 12% of children receiving special education services were receiving services for autism², and the estimated cost of special education services is between $15,000 and $30,000³ per student depending on the severity. Beyond age 22 when individuals age out of the public education system, they may need adult care services, and when families are unable to pay, governments often have to intervene. Adult care services cost an estimated $826,279⁴ per person.

Early intervention can considerably reduce reliance on special education and other costs later in life for individuals with autism. One study found that providing three years of EIBI for a child with autism from ages 3 to 6 would save the state of Texas an estimated $208,500 in special education costs over the next 18 years⁵ through reduction in the number of children requiring services and lower intensity of services required by children who continue to need services.

Aside from the moral basis for providing early intervention to improve later outcomes, cost savings realized through investing in these treatments for children with ASD makes the necessity of access to these treatments clear. The remaining question is: Who pays? States can realize benefits whether they provide services directly, or require insurance companies to pay for treatment, but whether states should have to pay for treatment when individuals have private insurance is another question. Coverage for behavioral treatments for children with autism has large intrinsic externalities, but that’s a poor argument for allowing discriminatory practices.

One of the reasons the insurance industry is heavily regulated is because of acts of bad faith by insurers. In the case of treatment for autism, individuals pay for coverage, and whether a policy covers behavioral therapy for children with autism isn’t generally something people consider when purchasing a health insurance policy when they do not have a child with autism. Imperfect information, high transaction costs, imperfect and an imbalance of power lead to market failure, which makes government intervention appropriate.

¹ Derived from a cost estimate in: Ganz, M. L. (2007). The lifetime distribution of the incremental societal costs of autism. Archives of Pediatrics Adolescent Medicine, 161(4), 343. doi: 10.1001/archpedi.161.4.343. The estimated of behavioral therapy costs from age 3 to 22 was adjusted from 2003 to 2012 dollars using the CPI.

² Derived from student count data from: http://w20.education.state.mn.us/MDEAnalytics/Data.jsp.

³ From The Cost of Autism: Technical Appendix by Michael L. Ganz (2008).

⁴ Derived using Ganz’s (2007) cost estimate for adult care costs between ages 3 and 22, also adjusted to 2012 dollars.

⁵ From: Chasson, G. (2007). Cost comparison of early intensive behavioral intervention and special education for children with autism. Journal of Child and Family Studies, 16(3), 401-413. doi: 10.1007/s10826-006-9094-1

Tax Reform and the Current Fiscal Crisis

Tax Reform and the Current Fiscal Crisis

Insanity: doing the same thing over and over again and expecting different results - Albert Einstein

In his recent State of the Union address, President Obama singled out eliminating the carried interest tax break as one method to reform the tax code, increase revenue, and close the Federal deficit.  The carried interest tax break is one of hundreds of loopholes that exist in the Federal Tax code, and their existence may be the symptom of a greater problem, which is the inequality between capital and income tax rates (20 vs. 39.5 percent.)  In order to achieve the goals laid out in his State of the Union address, President Obama and Congress should focus on eliminating this inequality in order to restore the tax parity enjoyed under President Reagan’s 1986 Tax Reform Act. 

What is the Carried Interest Tax?

…An obscure, complex loophole designed to help private equity managers avoid income tax

The carried interest tax break is not one that I was familiar with prior to hearing Obama’s State of the Union address, so I wanted to learn more about it and how its elimination can help solve the current fiscal crisis.  The Brookings Institute defines carried interest as a “right that entitles the general partner of a private investment fund to a share of the find’s profits,” which is depicted below.

The purpose of a Private Equity Fund is to invest in a company for a limited period of time to then sell for a profit. For example, Private Equity Fund X invests in Widget Company Y over a period of 5 years, and then sells it to Widget Company Z for a profit.  In this structure, each investor from the Private Equity Fund receives a rate of return on any profit generated from the sale.  The General Partner acts as the manager of this fund, and receives an annual management fee of 2 percent of the fund’s assets plus a “carried interest.” The carried interest consists of 20 percent of the fund’s profits that are above the standard rate of return that the other Fund investors receive.  Out of the total profits from the sale of Widget Company Y, 80 percent is divided among all investors, and the remaining 20 percent goes to the Manager.  These profits are taxed as capital gains (20 percent), and the management fee is taxed as income (39.6 percent rate).  Some tax analysts believe that the difference in taxes paid between the management fee and carried interest equates to a tax break. 

Would closing it matter?

…according to Congress, it’s complicated.

Recently, Senator Levin from Michigan introduced a bill to tax carried interest as income rather than capital gains. This bill on its face appears straightforward, but the Congressional Budget Office has some reservations.  The Office completed an analysis of whether carried interest made by the General Manager is a wage or a capital gain, and then compared four alternative methods for closing the loophole.  The challenge they encountered is the complex nature of the loophole, as it is unclear whether or not the General Manager should be classified as an employee of the Private Equity Fund.  The Office suggested implementing a strategy entitled “Tax Imputed Interest on the Implied Loan,” which is about as obscure and complicated as the loophole itself.  Their argument for this alternative is that it will prevent General Managers from classifying themselves as something other than a person subject to income tax, but the “complexities involved make it difficult to implement in practice.” Further, The National Review states that closing the loophole “amounts to nothing,” as the Congressional Joint Committee on Taxation concluded that closing it will save $2 Billion a year, a small fraction of the total $16 Trillion Federal deficit.

Why focus on it, then?

…it’s what made Romney rich!

Private Equity Funds have been increasing in value since the 1980’s, and the Economist graph below illustrates their rapid growth over a relatively short period of time.  As someone with multiple investments in Private Equity Funds, Mitt Romney paid an effective tax rate of 14.1 percent on $13.7 million in income according to his 2011 tax return.  Democrats in Congress have used this fact to highlight the importance of closing the carried interest loophole.  However, the complex nature of implementing such reform and its relatively insignificant impact on the Federal deficit makes it hard to justify this method alone as a sound method of tax reform.  Instead, the focus seems drawn along partisan lines and sidesteps a conversation about implementing a truly broad-based approach to tax reform. 

What should Congress do instead?

…end the insanity by doing something different, which is non-partisan tax reform.

The 1986 Tax Reform Act gave parity to capital and income tax rates, but the Tax Code has been amended several times to include hundreds of pages of loopholes and deductions, which have lead us to the current state of affairs.  The Center for Tax Justice makes the argument for its reinstatement with two reasons. First, a lower tax rate on capital gains than income creates opportunities for tax avoidance by classifying income as capital gains.  Second, the inequality creates incentives for tax shelters and complicates the tax system. In order to eliminate this incentive, the Congressional tax debate needs to move from circular arguments that go tit-for-tat over loopholes and deductions to a productive conversation that restores the level of equality written into the 1986 Tax Code.  

Tax Balance at the State Level

All states in the United States levy taxes to raise revenue.  Most states use a combination of income, sales, corporate and property tax to generate most of their revenue.  According to the Minnesota Management & Budget Office, the 2014-2015 biennium budget for Minnesota will raise an estimated 35.168 billion dollars.

http://www.beta.mmb.state.mn.us/doc/budget/report-fba/jan13-detail.pdf

$33.778 billion, or over 96 percent of the total revenue, will come from taxes.  The state estimates $17.436 billion (52%) will come from personal income tax, $1.954 billion (6%) from corporate tax, $10.123 billion (30%) from sales tax, and $1.676 billion (5%) from property tax.  These numbers tell us the state is most dependent on individual income and sales tax for its revenue.

Compared nationally to the other 50 states, Minnesota ranks relatively high in per capita rates: 9th highest in income tax, 7th highest in sales tax, and 6th highest in corporate tax.

http://taxfoundation.org/state-tax-climate/minnesota

http://taxfoundation.org/article/ranking-state-and-local-sales-taxes-1 

http://taxfoundation.org/article/2013-state-business-tax-climate-index

Minnesota's ranking is lower for property tax, coming in at 19th.

http://taxes.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=taxes&cdn=money&tm=9&f=00&su=p284.13.342.ip_p504.6.342.ip_&tt=2&bt=0&bts=0&zu=http%3A//www.taxfoundation.org/taxdata/show/1913.html

Minnesota Governor Mark Dayton recently outlined his new tax proposals.  In his proposal, the governor seeks an additional $2.139 billion in tax revenues.

http://www.beta.mmb.state.mn.us/doc/budget/report-fba/jan13-detail.pdf

The increase in revenue would come almost entirely from a $2.083 billion sales tax increase and a $1.098 billion income tax increase for earners in the top two percent.  The plan also comes with a $1.439 billion rebate for property tax payers.

Last week in class, professor Zhao discussed the benefits of revenue authorities where the federal government relies on income tax, state governments on sales tax, and local governments on property tax.  By using this model it is hard for individuals or businesses to change their behavior to avoid taxes.  This system also makes sense from a services used perspective.  Local governments provide services to their property owners so it makes sense for them to generate revenue through property taxes.  The federal government is in charge of interstate and global commerce so it makes sense they receive their revenue through mostly income taxes.

Minnesota current budget does not do a good job of adhering to the revenue authorities model.  As stated earlier Minnesota only get 30% of its tax revenue through sales tax and gets a larger percent from the income tax.

Governor Dayton has expressed many goals for his new budget: “tax the rich”, “property tax relief” and “long-term fairness.”

http://www.minnpost.com/politics-policy/2013/01/minnesota-budget-how-daytons-team-put-big-plan-together

Something that he hasn’t discussed is changing Minnesota’s tax model to one that more closely resembles the three part revenue authorities.  Whether Dayton discusses this system or not, his budget proposal moves Minnesota in this direction.  Income tax rates won’t change for 98% of Minnesotans and a rebate from property taxes and increased sales tax are good steps for Minnesota to take to get to have a more balanced revenue authority system.

State Budget Deficits

State governments, unlike the federal government, have to balance their budgets according to law. A tough task in normal times, but after the Great Recession it became much more difficult for many states as economies around the nation suffered. Here is a list of the state’s entire projected deficit for the fiscal year of 2012.It also orders the states in terms of the projected deficit as a percent of 2011 total spending. For 2012, there are only six states that are not projected to have a budget shortfall: Alaska, Arkansas, Montana, North Dakota, West Virginia and Wyoming. 

The state budget crisis got to such critical levels that a task force was created to examine the problem of fiscal sustainability more closely in six states: California, Illinois, New Jersey, New York, Texas and Virginia. The report found there are six major threats hindering the states abilities to balance their budgets, and fiscal stability. 

(1) Medicaid spending growth- Escalating health care costs and increasing enrollments will cause state Medicaid spending growth (at recent rates) to surpass revenue growth by a considerable margin, at least $22 billion annually within five years.

(2) Federal deficit reductions- As the Federal government tries to remedy its own budget crisis, fewer government dollars in terms of grants or other federal spending might decrease, putting states in a fiscally unstable situation. Federal grants accounted for 32 percent of state’s revenues in 2009. 

(3) Underfunded retirement promises- Pension funds for state and local government workers are underfunded by $1 trillion dollars (or up to $3 trillion if more conservative investment assumptions are used. Health care liabilities are also underfunded by over $1 trillion dollars across the nation. 

(4) Decreasing tax bases and Volatile tax revenues- Income taxes have become increasingly volatile, especially since the economic crisis. Sales tax bases are eroding due to untaxed transactions; gasoline taxes are also eroding causing less money for transportation infrastructure.

(5) Local Government fiscal stress- The weak economy and reductions in intergovernmental transfers have put a lot of pressure on local governments. As a result spending on education, law enforcement and welfare programs have decreased. This threatens the overall economic and social status of the states. 

(6) State budget laws and practices- Lack of transparency and reporting have made it difficult for the public to gauge the critical nature of the budget situation. Using borrowed funds or other temporary ‘one-shot’ measures to balance the budget are not uncommon. These practices make fiscal stability extremely difficult. 

A summary of the main report may be found here. Links to the individual state reports and the full main report may be found in the previous link.

State budget crises have led to some serious consequences for the states’ residents. At least 46 states have decreased services provided, including some to the most vulnerable families, while more than 30 states have raised taxes to some degree and some quite significantly. During the recent economic downturn, when residents expected and needed services and benefits from states, they were unable to sufficiently provide them. Raising taxes to help balance the budget also puts the economic recovery at risk. 

Many states have to make some difficult decisions when trying to balance the annual budgets. In Texas, the state government cut $5.4 billion dollars in spending on education statewide. Part of the cuts involve having to lay off 25,000 public education workers, including 11,000 teachers. These cuts are occurring while student enrollment is increasing, by more than 80,000 per year. Texas is facing a two-year budget shortfall of $27 billion.

California last election passed new regulations raising the income tax rates for the wealthy, 10.3% for those earning over $250,000 and 13.3% for those earning over $1 million. The increases are expected to lower the budget shortfall, a projected $16 billion in 2012, down to $1.9 billion by the end of summer in 2013. But the tax hikes might cause an exodus of the wealthy from the state, who do not wish to pay the higher tax. The wealthy already feel they carry enough of the burden. The top 2 percent of earners, those over $450,000, pay 46 percent of the state’s taxes. Those earning over $1 million account for 25 percent of the entire state’s taxes.

This link shows all 50 states, estimated budget shortfalls, tax change percentages, and cuts to various programs. Minnesota from Jan 2010-March 2011: personal income tax increased 17%, corporate income tax increased 30.6%, and sales taxes increased 3.6%. 

The states unlike the Federal government cannot borrow large sums of money to balance their budget. This creates a difficult situation, especially after an economic downturn, where states scramble to find revenues or cut spending in order to avoid a shortfall. Citizens want states to have balanced budgets, but they might not always agree with the path taken to get to a balanced budget especially if services are cut or taxes are raised. Today many states are put in the seemingly impossible position of determining how to reduce deficits and without cutting too many services to residents or raising taxes too high.

The Next Move

My wife and I are trying to figure out our next move. We moved to Minneapolis so that I could attend the Humphrey School, but I will earn my degree this spring and then we will likely move. A lot of cities are on the table, including our last home of Colorado Springs: a city with dry air, sunshine, mountains, and complicated political problems. Those problems, in many ways, find their roots in Colorado's state and local government finance laws. 

The Laws

In 1982 the Gallagher Amendment was passed which limited residential property tax contributions to a maximum of 45% of total property tax revenue. While non-residential rates remained relatively stable, the residential tax rate is adjusted every two years to maintain this balance. One overall effect is that residential properties have been paying progressively lower rates (Overview of Gallagher and TABOR).   

This was followed in 1992 by the Tax Payer's Bill of Rights, or TABOR, which has severely restricted the state's ability to be responsive to fiscal crises (Bell Policy Center Overview). TABOR is extremely controversial in Colorado and was originally created to limit the growth of government. Popular provisions of TABOR include the mandate that taxes cannot be raised without a popular vote, while less-loved provisions include the "ratchet-down" effect that limites government spending to last year's total, adjusted for inflation and population growth (The Independent's Opinion). This functionally means that in a recession public spending decreases, forming a new cap for government spending. Once the economy recovers, unless the tax payers approve of the government keeping and using revenue above this cap, all excess funds must be refunded to the tax payers.

Concerned about declining educational quality, in 2000 Colorado voters approved Amendment 23 that increased per-pupal spending to at least 1% over inflation for ten years and then at inflation, at a minimum, after that (Center for Budget and Policy Priorities' [CBPP] Overview of Colorado Laws). The problem, according to CBPP, is that revenue for education doesn't necessarily increase.

Amendment C was passed in 2005 giving the state a five year reprieve from some of the demands of TABOR and ultimately removing the ratchet-down effect for the state (Bell Policy Center on Amendment C). Cities do not necessarily have the same freedom. 

The Effects

One side effect of this body of laws is that local governments have become much more dependent on sales tax to finance government operations. In 2009, sales and use taxes accounted for 49.89% of the city's total budget. Property tax accounted for 9.74% of the total budget (Colorado Springs' 2009 Revenue Summary). While this is consistant with the general trend of cities relying more heavily on sales tax, tying the city's revenue to sales is especially dangerous in a recession.

I wonder if the dependence on sales tax distorts land use decisions in favor of development that will produce the most sales tax for this government. This could lead to inflated inter- and intra-city competition for retail properties, and a situation where retail doesn't just follow roof tops but instead subsidizes them. The need for sales tax begins to direct land use decisions, not out of a vision for a community, but rather out of an acute need for revenue. In my opinion, this also distracts attention from other pressing issues like the quality and sustainability of the built environment.

Many have also written about the effects of TABOR on education, including the Colorado Springs Gazette, quoting Colorado Springs School District 11's CFO as stating that the district has lost $35 million in the last six years as a result of TABOR (Recent Colorado Springs Gazette Article). Other more visible concerns were broadcast nationally by This American Life in March 2012 when it did a story on shrinking government and the privatization of city services (This American Life). That story addressed issues that I saw when I lived in Colorado Springs, including turning off and partially privatizing street lights. 

A Counter Example

In contrast to the approach of Colorado Springs, the St Paul Port Authority (SPPA) is aware of many of these issues and is arguing for a balanced tax base for the city. Their strategy relies on promoting and preserving industrial development for a number of reasons, including the fact that for every dollar of tax paid by industrial properties, those same properties consume only about 60 to 70 cents in city expenditures. Conversely, residential properties require $1.06 to $1.15 of expendatures for every dollar paid in tax (SPPA Report).  Since a large percentage of the city is industrial properties, this approach seems to abide by the Benefit Principle, which states that fiscal responsibilities should be carried on the same level that their benefits accrue. 

Back to the Move

These issues are relevant because they help to establish the political climate of a community and they focus major political battles on a single issue. But my deeper fear is that they also distract from Colorado Springs having a vision for its future when most of its political capital is spent on survival. 

My wife and I loved the climate, mountains, and people in Colorado. But I'm not always optimistic about the state of local government finance and we're not sure that's where we want to call our next home. Then again, it might be. 

Privilege and Public Choice Theory

Public choice is dead. Long live public choice.

Arguably, at a time when public choice theory is manifesting as never before in the United States, its father, Nobel prize-winning economist James Buchanan passed away at the age of 93 in January. According to the Economist in, “The voice of public choice” Buchanan was one of a small group of economists who wondered if the state was up to the task of correcting market failures. His question centered on whether the political actors who comprised the state could act for the collective or, rather, would incentives and self-interest prevail and to what end from an equity and efficiency perspective.

It is this political economic perspective of public choice theory paired with Peggy McIntosh’s “White Privilege: Unpacking the Invisible Knapsack” that I am struggling to reconcile as we consider the assumptions under and institutions through which resources are secured and allocated through a public finance lens. As more eloquently stated by Buchanan, this question of “how to obtain a combination of efficiency and justice under majority rule” was one that he identified at heart of his work and that of his contemporaries in “Public Choice: Politics Without Romance”.

However, I am not confident that this question has been adequately answered, in theory or in practice.  In Buchanan and Tullock’s "The Calculus of Consent" they differentiate between two levels of collective action where the public choice construct operates: day-to-day politics and constitutional politics. Ultimately, they argue that varying levels of collective action (i.e. majorities, supermajorites, etc.) should be required dependent on the reach of the proposed policy change.  In varying the level of collective will required, government can provide imperfect, but sufficient protections for minorities while achieving a reasonable level of efficiency—or Pareto optimum. Buchanan rightly argues that whether one believes in market failures or government failures, both are subject to forces of self-interest and critiques on the rationality of actors.

This is where McIntosh’s work on white privilege enters and, arguably, plays a significant role.  In regards to the market and government, in both instances, minority groups lack significant bargaining power and, often times, sufficient information to shape possible choices or make rational ones. McIntosh outlines this reality through microcosmic choices and situations in daily life where the privilege of being a member of the cultural majority—white (and male) enhances the perception of choice and free will.  Buchanan is a member of this class, as are most of those actors in power in our private markets and government and this reality has implications on the assumptions embedded in his work.

In questioning this, it is not my intention to imply that those in the cultural majority are actively seeking to institute policy or finance measures that would oppress or undermine cultural minorities.  Rather, my concern is that unless those in the majority are sufficiently meta-cognitive, how choice—whether it is generated by the market or government—is created will always be imperfect and, frequently, discriminatory—resulting in the paradox of “choicelessness”.  Increasing the membership of minority groups in leadership positions will go a long way to mediating this reality, but in the interim, it is incumbent upon the those in leadership and the cultural majority to actively work to consider their own positionality and the assumptions associated with it, as well as engage a broad base of individuals to better understand all policy implications, and create meaningful choices.  It is my hope that as we all use our degrees to work in the public interest, we will be mindful of our own privilege and work to ensure that all members of our community have real choice.  

Property Tax as a Local Tax Revenue Stream

            From our class discussion and guest speakers, it has become increasingly apparent that property taxes play both an influential role in setting local budgets and as a critical source of local tax revenue for many municipalities. Property tax is a necessary evil, as it helps pay for essential and beneficial services such as education, health, safety, and routine infrastructure maintenance. In certain geographic regions, people are even willing to pay substantially higher property taxes in order to gain access to elite public schools and a superior quality of life relative to their surrounding communities. 

Quantitative research conducted by Urban Institute and Brookings Institution’s Tax Policy Center revealed, in the U.S. as a whole, approximately 75 percent of local revenue was from property tax, in 2010. This percentage fluctuated up and down based on geographic region and time. For instance, in Alabama, property tax accounts for 44 percent of local tax revenues and, in 1977, 85 percent of local revenues were from property tax. 

Unfortunately for homeowners, property taxes are a readily augmentable revenue stream for local politicians and budget analysts, especially when there is an urgent need to balance the budget – which is often a legal requirement at the local level. Since the onset of the Great Recession, there has been an increase in property taxes as a share of total tax revenue, from 72.2 percent in 2007 to 75.1 percent in 2010. 

But politicians and analysts beware, as dependency on one revenue source can be overly burdensome to homeowners, property owners or real estate investors. For example, localities with minimal commercial and industrial properties (due to exclusionary zoning) must rely almost solely on residential property taxes for revenue; consequentially, their revenue is more at risk to the ebb and flow of the housing market. In keeping with the ethos of sound personal investing, revenue diversification should be part of a locality's long-term tax strategy.

In highly suburbanized New Jersey, homeowners suffer from some of the highest property tax burdens in the country with the average homeowner paying $7,870.28 a year. From my perspective, contributing to this situation is a combination of irresponsible government spending; high service costs due to the prevalence of organized labor in the Northeast; and the lack of zoning diversity within its over 566 municipalities. Further magnifying this situation is the fact that NJ is highly segregated in terms of socio-economic status. 

In order to adequately prepare for the rise and fall of economic tides and ensure tax affordability for property owners, local governments should collaborate with one another to share services and work toward diversifying their tax base.