Sneaking Suspicions
Archives--May 23-29, 2004

This page includes posts from May 23-29, 2004 in the usual reverse order. Each posting on the home page is perma-linked to these archive pages.

May 29, 2004
The immutable laws of supply and demand hit the beach

On this weekend sixteen years ago my wife and I rented a nice little mobile home outside Rehoboth Beach for about two weeks. Besides the obvious allure of bringing our very young daughters for early season sun and fun, helped by my in-laws who readily joined us, we had another reason for coming to the beach during Memorial Day week.

We were trying to find a place to rent year-round.

It wasn't easy. There were very few options, with most property owners looking to make far more money with seasonal rentals. The typical beach area rents at the time were either tied (and steeply priced) to the summer season, or they were rentable for a deep discount, but only from September through May.

With a few days to go we finally found a great place just on the bayside, at a fairly expensive year-round rate at the time. I didn't care so much about the cost, because I didn't think we'd ever have another chance to live at a waterfront location.

We moved down that June, stayed in the townhouse while we built our existing home, sold our place in Wilmington, and lived happily ever after. Mostly.

Since then, the growth in housing stock in Delaware's beach areas has grown tremendously. There are thousands more homes in the Lewes/Rehoboth Beach/Dewey Beach communities than when we moved down in 1988. Hundreds of these homes are owned by investors seeking rental income, especially during the summer season.

Inevitably, something had to give. The laws of supply and demand are immutable, even when they're covered with sand:

This season the market looks radically different at the Delaware shore. Summer 2004 is shaping up to be one of the most attractive rental environments for vacationers in recent memory, thanks to a building boom that has doubled inventories, agents said.

With the traditional start of the summer season today, there is still a large selection of rentals available, from affordable condominiums to a six-bedroom oceanfront home with a private pool that goes for $11,000 to $13,000 a week.

What's more, it's likely to stay soft through the summer, rental agents said.

"I've never seen a market like it," said Jim Waggoner, who has been in the real estate business for 30 years and is director of resort rentals with Long & Foster in Bethany Beach.

For us locals, the soft conditions are really obvious. By this time in previous years there would be a tiny number of "For Rent" signs still visible, because during the winter most of the places would be snapped up. Not anymore.

We're also hearing from our local investor friends, who aren't exactly agonizing about their competition, but are quietly finding ways to keep the cash flow going with reduced expectations.

As the real estate folks say around here, they're not making any more land close to the beach. As boomers prepare for retirement, there will be continuing pressure to fill in beach areas like Rehoboth with ever-more housing.

For those seeking to offset their cost of maintaining a second home here by renting it out, however, there are just too many folks acting on the same idea to expect that their profits will be unlimited.

On the other hand, the people who are looking to follow in our footsteps, by renting year-round on the way to permanently relocating here, should have a much easier time than we had.

May 28, 2004
The social compact of the gas tax

With the sharp increase in gasoline prices, I've altered my tank-filling habits. I no longer wait for the E-light to blare at me. Instead, once the gauge says the tank's half-full I go out during lunch hour in Dover and take advantage of the price differential that still exists between the state capital and the beach area filling stations near my home 40 miles away.

If past experience is any guide that price difference will only increase this summer, beginning with this holiday weekend.

I'm sure other folks are changing their habits about gasoline in reaction to the price jump. I'm also beginning to wonder if the social compact of the gas tax will also be given a second look, now that several influential folks are beginning to talk about a stiff jump in the federal levy.

What left out of these preliminary discussions, or at least minimized, is a reminder about the current deal limiting what's done with the tax. Almost all fuel taxes are earmarked to support a single government program, namely the support of the nation's transportation network. The public doesn't really fuss too much about the current combined state/federal gas tax rates, which in many states can be one-sixth or more of the total price per gallon. I believe that one of the primary reasons there's no significant bitching and moaning about these taxes is that everyone can readily see how this money is spent.

They're riding on it.

If there's to be no more earmarking of fuel tax limiting its uses to transportation, as seems to be the case with most of the new proposals, I doubt that general acceptance will remain the norm.

Stuart Buck highlighted a related aspect of the potential impact of a gas tax increase, in a post well-worth reading.

May 27, 2004
Surprise me. Please.

Our friends in Sussex County government here in Delaware are awash in cash, and have been for a while now.

There are a few reasons, mostly having to do with a real estate boom and the increased tax revenue from the realty transfer tax the county collects.

It certainly has nothing to do with the county's basic property tax, where no general reassessment has been done since 1974.

In other words, something like half the county population wasn't even alive the last time Sussex tried to figure out how much each piece of land in its roughly 1000 square miles was really worth.

I've been a long-time advocate for instituting a general reassessment with a scheduled update process, so that this kind of fundamental error in tax policy is not repeated.

Last February the News-Journal newspaper issued an editorial taking the same position, for which I was grateful. Today's editorial page in that paper repeats their stance.

At the end of today's piece, the writer suggests the following:

The timing is right for the counties, Gov. Minner and the General Assembly to make property values equitable statewide.

I really doubt that the political folks will agree on that point. After all, this is an even-numbered year divisible by four, and the Governor and most of the legislature are up for re-election. Doing the right thing sometimes takes far more courage than some folks can muster.

Nonetheless, I'm perfectly willing to be surprised.


May 26, 2004
Thank you, Mayor Daley

As reported by Fran Spielman in the Chicago Sun-Times today [hat tip—Drudge Report], Mayor Daley said that Senator Kerry’s snide remark about the President’s recent bike accident was out of line:

According to the Drudge Report, Kerry was having a conversation with reporters that he apparently believed was off the record when he reportedly asked, "Did the training wheels fall off?"

Daley, who ripped the skin off his kneecap during a bicycle accident a few years ago, said the joke was disrespectful. "When someone falls . . . you should not wish ill upon anyone. It's not right. . . . You just don't do that. Let's have some respect for one another."


It’s nice to see someone in my party take a mature approach to political and public relations. Based on what’s been reported in the media over the last couple years, I was beginning to lose hope.

There are plenty of substantive grounds for the political parties to have a real debate as to which candidate is best-suited to lead the country in the next four years.

On the other hand, there’s just something so September 10 about that training-wheel comment.

Somehow I don’t think the President or Vice-President Cheney will make the same mistake in the coming months.

Kerry would be well-advised to agree with Chicago’s mayor, issue an open apology, and move on.

The longer Kerry waits to put this episode effectively behind him, however, the easier it will be for other folks to notice the difference, and act on it.

May 25, 2004
No marriage penalty here, unless you want one, and if you can marry here in the first place

The Boston Globe published a short essay by Virginia Postrel about the potential tax revenue impacts of a “marriage penalty” income tax boost if gay marriages were generally recognized. 

The federal income tax system includes this “penalty” as an unintended consequence of combining couples’ income with a progressive tax rate. As Postrel points out, there’s no such result under Massachusetts law because that state zaps everyone at a flat 5.3 per cent. Therefore, gay and lesbian couples who can now legally marry at a Cape Cod wedding chapel don’t have to worry about contributing more toward the coffers of Taxachusetts as a result of taking the vows.

Things are a little different here in Delaware, and similar in other respects.

First, the state version of the Defense of Marriage Act makes any such marriages void.

Second, even if these unions were valid in Delaware, there’s a choice to be made about filing status under Delaware’s fairly progressive income tax system. Married couples can file a joint return, separate returns, or “combined separate,” as it’s called here.

The joint approach is the same as the Federal code. On the other hand, filing combined separate permits couples to split their deductions and credits according to their proportionate share of income.

Generally speaking, if there’s a low-income or non-earning spouse, it pays to file jointly. For roughly equal middle-range incomes, combined separate is often far better, until both spouses generate taxable income above $60,000, where Delaware’s top rate kicks in. Beyond that level there's not much point to filing combined separate.

The state’s current legislative stance toward same-gender marriage has not deterred those who decide to make the trip to Toronto or other places where they can legally marry. Tom and Wayne live a few doors down in my neighborhood, and last year did exactly that.

They’ve been together for at least as long as my wife and I. Yesterday we celebrated our own 24th wedding anniversary.

In both cases, however, I’m absolutely sure that the absence or presence of a marriage penalty for income taxes played no role in the decision to join together.

May 23, 2004
In which I appreciate Max Sawicky’s honest approach to policy arguments, with a few minor quibbles.

Here’s how the blogosphere works:

I write a post complaining about the way that New Jersey Democrats are selling their governor’s combined tax rebate/tax increase to radio and Internet audiences.

Jeff Jarvis sees my essay and expands on it, making a political assessment of Kerry’s presidential chances based on what he sees as the likely New Jersey backlash against this idea.

Glenn Reynolds notes the Jarvis piece, and also kindly refers to my post for additional information.

Max Sawicky takes umbrage, and fires away. He also graciously sends me an email telling me about it.

I won’t address most of Sawicky’s response directed at Jarvis, but I thought I’d expand a bit on some comments I left at Sawicky’s site earlier today.

Sawicky makes a cogent policy argument in favor of the tax increase on wealthier New Jersey taxpayers:

If you relied on [Jarvis], you would never know the use for this pitiless tax increase: to reduce property taxes. New Jersey property taxes are the highest in the nation. Moreover, New Jersey's effective tax rate on the poor is third highest in the country (see p. 5). New Jersey has a regressive tax system: lower income persons pay a much higher share of their income in taxes than the wealthy. So what is in question here is a modest shift in tax burden.

That kind of argument is why I like reading Sawicky. He doesn’t sugarcoat his policy preferences with weasel words or the kind of malarkey that fills the advertisements I so dislike. Kudos to Max!

Unfortunately, my friend Max was off a bit when he made a few remarks about yours truly. Here are relevant quotes from Sawicky’s post, interspersed with my responses.

Jarvis also links to my friend Fritz Schranck, who says the tax relief part is o.k. but the increase is not. How else to pay for the relief? The California Plan?

Gee, Max. I would think a proportionate cut in government spending might also support a rebate program. And in all my readings of your material, I can't say that you are an uncritical supporter of evermore government spending. Unfortunately, spending cuts to support tax rebates don't seem to go over well in the New Jersey General Assembly, no matter which party’s in charge.

On the correspondence between the NJ increase and Federal tax cuts, I would say there is little doubt that the New Jersey rich will still be ahead of the game with their Federal tax cuts, net of the NJ increase. This could be proven with a tax microsimulation model, but I would be loathe to ask anyone with such a model to do so, since they would take me for an idiot for wondering what the answer would be.

Sawicky is probably right about most of the folks affected by the proposed tax increase. I just questioned whether anyone could prove it as to each taxpayer, since that’s how the Democrats were arguing for their bill.

To me the real problem is that their argument about where the rebate money will come from relies upon appeals to blatant envy, a dubious moral argument with no logical stopping point. Sawicky doesn’t really challenge this aspect of my commentary.

Nonetheless, Sawicky then slides off into Delaware-bashing, a tactic with which I’m all too familiar:

My only explanation is that Fritz wrote this on his boat in choppy waters, after working his way deep into the cooler. Fun fact: state taxes as a share of income, New Jersey ranks 39th. Delaware ranks 4th.

Now this isn't quite fair. Can I help it if the dumb-ass Tax Foundation doesn't aggregate state and local taxes? I surmise the disparity is that Delaware doesn't have much local government, and New Jersey is lousy with local government. Delaware is a local government. Lucky they get to be a state, two senators and all. Po' D.C. One non-voting Member of Congress. (Population of DE: 817,491; DC: 563,384). I'll leave Fritz the burden of restoring his state's honor. He'll have to dig up total state-plus-local revenue relative to income.

Burden accepted.

In about two seconds I found a graphic at the Tax Foundation that shows the combined state/local tax burden for each state. New Jersey ranks 15th, at 10.2%, while Delaware ranks 48th, at 8.0% (US Average 10.1%).

Maybe the Tax Foundation isn’t so dumb-ass after all—and maybe facts like these, highlighted by individual circumstances, also help explain why so many Jersey residents are moving to Delaware.

Sawicky’s surmise about local/state share in Delaware is correct. Most government costs are state-based, and local taxes are low, for a total mix that is generally mid-to-low impact for most folks. For example, roughly 75% of education costs are borne by Delaware, 25% by local districts.

Delaware certainly has its troubles in education, but not the kind seen in other states relating to local funding disparities, including, for example, New Jersey.

To give you an idea about low local tax rates are around here, about two-thirds of the total $800 or so we pay in property taxes is for schools.

Jersey residents often tell me their property tax bill dropped 90% or so by moving here, and it was a major factor in deciding to move. I know that the plural of anecdote is not data, but the actual data noted by the Tax Foundation seems to support the stories I’ve been told repeatedly.

I also empathize with Sawicky’s point about representation for D.C. residents, even though I live in an admittedly tiny state. Last January I supported the suggestion that the voting rights of D.C. residents be shifted back to Maryland, in much the same way that the former part of the District south of the Potomac was returned to Virginia.

Two final quick points:

  • I did have a single beer yesterday, but that was about 24 hours after I wrote that post, and after we'd gone boating, not during. Thanks for caring, Max!

  • The point of my New Jersey post was against the dishonest language used in the ads for it, not so much about the idea itself. If someone could make a principled argument about tax incidence in New Jersey to push for this redistribution (and one can, such as Sawicky does in his post), then make that argument. Just don't insult me with B.S.

And, of course, I fully expect to hear similar B.S. in GOP ads. I don't have to like it, though, no matter who's spewing it.


Contact Information:

Fritz Schranck
P.O. Box 88
Nassau, DE  19969


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© Frederick H. Schranck 2002-2004