Solution to Tax Trouble is Simple

Why do tax rates always go up? When the economy is cruising along at 100 miles per hour and taxes are flooding the city, county and state treasury, why aren’t tax rates lowered? When homes are selling like hot cakes and the property tax revenue increases 500% on the same house, why aren’t property tax rates lowered?

When revenue from taxes such as the Transient Occupancy Tax that visitors pay cities for the pleasure of renting a hotel room increases 41% in three years, why aren’t the hotel tax rates lowered?

I ask because whenever the economy slows, we have all this pressure to raise the tax rates. So why is that?

It is actually very simple.

Government has learned to spend more revenue in the good times and cry poor in the bad times. During the bad times, you raise tax rates to balance your budget; during the good times, you raise your budgets to spend all that newfound money you have from the previously raised tax rates. Then the cycle repeats itself during the bad times when government again raises rates to pay for increased spending it committed to in the good times.

Here is a fact the tax raisers always want to blur: The amount of actual taxes brought in year after year is always higher than the previous year. The problem is the spending in some years goes even higher.

Government does not have a revenue problem — it has a spending problem.

The distinction, which is purposely blurred by those who want to raise tax rates, is the difference between raising taxes or raising tax rates. For example, let’s look at the Transient Occupancy Tax in Costa Mesa. When it is said that the Transient Occupancy Tax has not been raised in 27 years, those who want to raise taxes are somehow trying to tell the public that the amount of taxes paid has not increased, when in fact it has.

The Transient Occupancy Tax collected by the city of Costa Mesa increased 9.94% from the fiscal year ending in 2004 to fiscal year 2005. It increased again by a whopping 17.75% from fiscal year 2005 to fiscal year 2006, and again increased 9.26% from fiscal year 2006 to fiscal year 2007.

All in all, the Transient Occupancy Tax collected in Costa Mesa went up 41% in three years. This happened without raising the tax rate one iota. Not bad, a tax that was not raised in 27 years increased by 41% in three years.

When a city or state does a budget, it is in for a world of hurt if that budget spends all the excess revenues in good times and expects those good times to continue. They never do. Costa Mesa is projected to spend 6.47% more for fiscal year 2009 than fiscal year 2008. The problem is the projected revenue in out years may not keep pace.

The burning question in Costa Mesa is how we survive when the amount we want to spend is more than we have coming in.

It is easy — spend less.

This may sound ridiculously simple, but that is because it is. Let’s just look at the Finance Department’s report dated July 8, 2008.

The second reason stated that expenses are higher than they could be is due to the many facilities added over the last several years, such as TeWinkle Athletic Field, Volcom Skate Park, expansion of Brentwood Park, renovation of the police facility and development of sports fields at Fairview Development center. Adding new facilities in good years is prudent. Continuing to add them in a slowing economy is not.

Here’s a thought: When the economy slows down, do not add new facilities. The citizens will understand.

The City of Costa Mesa General fund budget has grown 37% in five years; not too bad. Compared to other cities in Orange County, we are in great shape. We get almost half of our general fund budget from sales taxes where other cities get about one-third. Thank you, Henry Segerstrom and family.

There are other ways to increase income in our city, and that is to increase the tax base.

When the economy slows, we must take that time to plan for areas like the Westside, which can be a major improvement for the city and help bring in more future tax revenue without raising the rates.