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Taxation: A Data-Oriented Approach

Computer Access Technologies - Taxation: A data-oriented approach

Most states have individual income taxes, property taxes, and sales taxes. But some states don't have individual income taxes, just very high property taxes. Other states have no sales taxes, but high individual income taxes and property taxes. Why do states structure their property taxes the way they do? Below, we offer one explanation:

States and local communities enact different tax systems based on different social efficiency goals. In other words, taxation has an impact on individual decisions, in regard to how much to work, save, and risk; and so it follows that the way a community chooses to levy taxes will reflect its own desired outcomes…for example, If a bedroom community would like to thwart additional growth and development in order to remain secluded and private, they may set property taxes at a level that will work to discourage new risk yet provide enough revenue to support community initiatives and infrastructure…on the other hand, if a community would like to promote growth and home-ownership, they may opt to set property taxes low…Problems can arise, however, when the community members’ goals and desires are misaligned. When community members are polarized, fighting erupts, economic growth comes to a standstill and the community becomes stagnant.

Regardless of the tax system, the biggest problem with each is that the social consequence of the tax burden is impossible to determine without actually first levying the tax…Each time a new tax is levied, a new social experiment begins.

As a result, it appears that determining the appropriate level of taxation relies upon the community’s ability to accurately estimate the aggregate behavioral responses of the individuals impacted by the change in tax rate and find a happy balance between both the social benefits gained and lost by levying new taxes…the best tax policies are determined within individual communities, work to maximize the tax base, minimize adverse reactions of those impacted and contribute to the funding of community priorities.

Some ways CAT can help municipalities mine the data necessary to first, figure out how to maximize the tax base and second use that data to assist in helping the community visualize long term impacts, thereby minimizing adverse reactions to those impacted. Open source data mining and electronic surveys are just two examples of how data can be collected to determine the best tax structure for the community. Perhaps applying a little more focus toward the data could help legislators begin to better meet the needs of their citizens.