Tuesday, June 23, 2009

Unintended Consequences of Tax Policy

So Florida changed the basis on property taxes for non-residents versus residents. Non-residents have a noticeable increase. Off the top of my head I don't remember specifics. But let's just say that the average snowbird would pay twice as much per year if staying an Indiana resident ($2,000 and maintaining a Florida condo).

In flocks (sorry) these snow birds have decided to stop migrating (at least where residency is concerned) and set up permanent residency in Florida.

So they changed to Florida residents to have lower property taxes. They have also cited avoiding the 2% Indiana inheritance tax, and paying state income tax (which was true before but not enough to motivate change). Probably 60% of Indiana snow birds I know made this change in the past 2 years.

Most have no idea of the implications to their estate plans.

Some with complex issues may find the legal fees for this change will consume their tax savings for the next decade.

Government officials have no idea how much they can influence behavior with tax policy. For an academic who wants to make a difference outside their institution here is a great topic (think Freakonomics).

What if they changed the disincentives for corporations to pay dividends thereby making earnings more transparent? You can't give someone a check for amortized goodwill, or writing down debt the way Citigroup did last quarter.