Lowering Taxes

Tearing down a perfectly good industrial building seems like a crazy idea. Unless you’re the one answering to the tax man.

You know, try as I might, I still have a hard time seeing the logic behind many of the tax strategies by which the government picks our pockets.

Not the fundamental premise, mind you, that I understand quite clearly: we are the government, we know what’s best for you, give us your money. And the corollary: we’re here, we’re hungry, and if you don’t feed us we can hurt you.

As a result of that implied threat, we often end up with taxation policies that have less to do with the public good than with government inertia.

Consider commercial property taxes, for example, especially as the recession (or depression or whatever the heck it turns out to be) gets well and truly underway.

A friend has lost a long time tenant to the economic downturn, and in spite of extensive and strenuous efforts he’s been unable to find anyone else to move into his fairly new factory.

As he discovered when he had it evaluated before listing it for sale, nobody in today’s market is going to pay much more for an empty factory than the value of the land on which it sits. So, like other people in similar situations, he is going to have the building torn down because the tax on empty land is only a fraction of what it is on empty buildings. Given the bleak economic outlook, he says he just can’t afford to do otherwise.

He knows the economy will turn around eventually and there will be businesses needing affordable premises. But instead of being able to move into his building or one like it, they will have to have new facilities built.

That has some advantages, especially because new construction will create temporary jobs. But building and financing costs will, in turn, limit the companies’ growth and expansion and reduce the number of long term jobs they might otherwise have created had they been able to find more affordable, ready to occupy premises. And that will slow the recovery for sure.

Too bad, so sad, say the politicians he consulted. If I tear it down, he pointed out, you lose affordable industrial infrastructure vital for a quick turnaround – and future tax revenues as well. Yes, but we can always raise taxes elsewhere to compensate, they said.

Of course you can, but that doesn’t make it right. What is the point of tearing down perfectly good buildings because they can’t afford unrealistically high levies on empty structures – especially in an already ailing economy where many businesses are being seriously injured?

If you make no income you pay no income taxes. Yet if you make no income from an empty building, you are still nailed with the majority of the property taxes you would have to pay if it housed a thriving business. I mean really, how nuts is that?

How about this as a more rational approach: if we had a sensible commercial property tax policy, where payments reflected the economic realities and actual rents, and government was forced to modify itself to suit cash flow instead of the other way around, reductions in government revenues would have to be met with reductions in expenditures.

Instead of operating in an artificially created financial Never-Never Land where juggling tax policy ensures the money will keep on rolling in from somewhere, no matter what, politicians would then have to make fiscal decisions based on what the taxpayers can afford in the real world.

They would no longer be allowed to flog a dead horse just because they have a whip.

As published in Business London, Volume 10: Issue 4 January 2009