Voters in seven states will consider ballot measures next Tuesday to reform property taxes. While there are genuine problems with how land is assessed in many places, most of the political energy threatens to be wasted on changes that, while popular, would make the situation worse.
It’s hardly surprising that property tax burdens have become a salient political issue when life has become less affordable while property values rose quickly in many places. It’s a real problem when homeowners see their tax bill jump just because the housing market had a good year. The costs to provide public services, and a household’s consumption of public services, do not rise at the same speed as property values.
The most obvious way for governments to adjust is by reducing the tax rate. The rate necessary to raise a given amount of revenue declines as property values increase. Local politicians who routinely raise rates as the local tax base expands invite justified outrage from taxpayers.
Ad hoc rate cuts require capable elected officials who closely monitor tax collections and don’t have grand designs for greater government spending. Such officials are not always in power. So, voters may want a more solid assurance that their tax burden won’t rise too fast.
The best way to do that is a levy limit. That’s a cap on how much revenue a jurisdiction can raise from property taxes in a given time period. Levy limits force elected officials to make decisions to keep burdens light while retaining flexibility to adjust rates and assessments as they see fit.
If easing the tax burden on poorer property owners is the goal, then homestead exemptions and circuit breakers are the wise options. Homestead exemptions are based on the same principle as the standard deduction for the income tax: Wall off a set amount of money from taxation so that people without a lot of money don’t pay as much tax. Circuit breakers ensure that homeowners don’t ever pay above a certain percentage of their annual income in property taxes.
North Carolina’s ballot measure would put a levy limit in the state constitution. That could be good if it is well designed. The ballot measure leaves the details up to the legislature, including the size of the limit.
Unfortunately, the options on the table in the six other states would make property tax regimes worse.
The worst case is arguably Florida, which already has a pro-growth fiscal regime with no income tax, as well as low debt and spending. Next week’s ballot includes a referendum to create a homestead exemption of $250,000 by 2028 and halve the annual assessment cap for non-homestead property. These would probably push local governments to adopt worse forms of taxation to replace lost revenue.
Wyoming’s initiative would exempt 50 percent of a primary residence’s assessment from taxation, which would give a big tax break to people with valuable houses. There is no built-in way for local governments to make up the lost revenue. The measure is opposed by the Wyoming Taxpayers Association, the incumbent conservative governor and the Republican nominee to succeed him.
Oklahoma’s voters will decide whether to cap assessment increases at 1.75 percent annually for homesteads and agricultural land, far too low to accurately reflect property values. Assessment limits can be good for current homeowners, but they distort the housing market because benefits accumulate with the duration of ownership. Neighboring houses with identical market values wind up with vastly different property tax burdens, with a lower tax on the person who has lived there longer and a higher tax on the newer owner. This unfairly penalizes young families buying their first home and discourages the mobility that helps make America’s economy so dynamic.
One argument that has motivated reckless reform efforts is that property tax means people never fully own their homes. But paying property tax doesn’t mean the government owns a homeowner’s property any more than paying income tax means the government owns a worker’s income or remitting sales tax means the government owns a business’s sales.
Property taxes are better than most other kinds of taxes because they’re less directly tied to decisions about working and investing. They are transparent, naturally proportional to consumption of public services, provide stable revenue and cannot be easily evaded.
At the same time, these taxes need to be constrained so that they don’t grow out of control when the housing market booms or compel low-income homeowners to sell. Taking a sledgehammer to property taxes in response to legitimate concerns might win populist plaudits, but voters will regret it in the long run.
The post Property tax rage is justified. These ballot measures are not. appeared first on Washington Post.
