Montgomery County and Fairfax County are the economic engines of their respective states. Over the last 25 years, Fairfax has passed Montgomery on nearly every economic measure. But over the last 5 years, Montgomery has fared better. Today we look at one aspect of how the two counties compete: their relative tax rates.
One fact that is not commonly acknowledged is that Montgomery charges lower property tax rates than Fairfax. Here are the rates in effect during Fiscal Year 2009:
While Montgomery’s rates are lower, the gap narrows when residential rates are compared to home values. During the 2005-07 period, Montgomery charged 0.7% of its median home value in taxes while Fairfax charged 0.8%. Few homeowners would notice such a tiny difference.
But the primary reason Montgomery’s property tax rates are lower than those in Fairfax is that Montgomery’s revenue base is much more diverse. For example, Fairfax receives no income tax. Here are a variety of other tax rates for Fiscal Year 2009:
On every other measure, Fairfax residents and businesses pay lower taxes than their counterparts in Montgomery. The biggest gap is in income tax rates, especially at the top. We do not have the comparative tax burden between the two counties, but on the state level Maryland (ranked 4th in the nation by the Tax Foundation) far exceeds Virginia (ranked 18th). There is no way that Montgomery County, a high-tax county in a high-tax state, can compete with Fairfax on the basis of low taxes.
But there is one factor on which Montgomery is intensely competitive with Fairfax: the quality of the public schools. We’ll examine this in more detail in Part Five.
Monday, August 24, 2009
The Economic Engine of Maryland, Part Four
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11 comments:
One important tax you left out is the annual Virginia Car Tax. Yes, it still exists, and it can equal the Maryland county income tax for your vehicles worth over 50,000 which would not be that uncommon in Fairfax and Montgomery. Under Gilmore, they managed to reduce it but never eliminate it. It is an annoying tax that flies under the radar compared to our higher income taxes.
Adam,
Any idea how many wealthy MoCo residents packed up and left after the 2007 Special Session?
No. I understand that the Comptroller's office will be releasing a study of movement related to the 2008 millionaire tax this fall.
Adam,
You have understated the real property tax rate for Montgomery County. Rather than 0.661 per $100, most Montgomery County residents pay closer to 0.915. The difference is in parks, planning, transportation and other special area taxes that most residents pay. This is offset for some by the homestead property tax credit (limits annual assessment increases to 10%).
Also, there is a local 2% gasoline tax surcharge in Fairfax to pay for transportation.
Finally, the sales tax rate is lower in Virginia but it is more broadly applied. Virginians pay a 2.5% sales tax on groceries while Marylanders do not.
The DC office of finance publishes a great comparison of regional tax rates every September.
http://cfo.dc.gov/cfo/cwp/view,a,1324,q,612643.asp
Thanks.
If Delegate Carr is right, we may be even less tax-competitive against Fairfax than I first believed.
Thanks for the link, Al!
While it's hard to find any one snapshot that works in general, particularly since the comparisons are based on hypothetical families and incomes, the data show that taking income, property, sales and use, and auto taxes into account, (with the exception of the poor), MoCo ranks second highest, Fairfax 4th or 5th.
And, as Al points out, there are a host of other taxes and fees embedded throughout the system, to say nothing about costs to public health, the environment, etc., which go unmeasured.
I have never personally met anyone who decided on her domicile, juggling MoCo and Fairfax, based on tax rates. The primary consideration has almost always been schools, the secondary one commutes for the parents. Which is why I found all the talk about progressive taxation in 2007 driving families across the Potomac to be spurious.
Now this obviously does not apply to businesses planning on locating in this region, though subjective factors play a role for them as well. And I do know people who have moved based on state/city tax rates, but they've moved to states with zero income taxes. They weren't interested in the difference of a few thousand dollars a year, but tens of thousands.
And, of course, there is the political climate, with serious differences in anti-discrimination law and ethos between MD and VA.
One more point, which has been discussed informally at the Council over the years --
Virginia does a much better job attracting young single professionals. The Ballston corridor is an example which we would do well to emulate. Once you settle in a neighborhood at the start of your career, you are more likely to remain nearby as you move up professionally. This has always been true in the medical profession, with physicians staying in the areas where they complete their residencies.
I would agree with Dr. Beyer that few people would make a move based on local taxes. However, I would add "crime" to schools and commute as the main reason people make a local move. Single women and parents with young children are especially sensitive to any perceived change in neighborhood safety.
It has been my pleasure to torture Brian Griffiths over at Red Maryland over his facile insistence, without proof, of a high tax-rate elasticity of
demand for housing and business space. In fact, Griffiths thinks you have conceded his point here, Adam; he is now doing a victory lap.
If people were as tax-rate-elastic as some would have it, Brooklyn and
Queens would have moved to Biloxi, Mississippi or perhaps Anchorage a long time ago.
Remember that movie My Cousin Vinny, where Joe Pesci plays the Brooklyn-born newbie lawyer in small-town Alabama with Marisa Tomei as his unforgettable
girlfriend? The less thoughtful Republicans hallucinate that Ayn Rand wrote the script, that the movie was about tax avoidance, that in the sequel Vinnie and his family move to Alabama to conserve taxes and avoid "socialist" Gotham.
Bruce Godfrey (godfreyprofessional@gmail.com/lawgodfrey@gmail.com)
Bruce,
Good to see the crab back in action!
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