The New York Times reports on a proposition being voted on today in North Dakota to abolish the property tax in that state.
Thanks to the oil boom, North Dakota is awash in state revenues, but it is not clear at all that the measure will pass, with many disparate organizations, such as the Chamber of Commerce and the public-service unions, opposed. It should pass. The property tax is an economic obscenity.
If you want a poster child for the enormous inertia of government, you could hardly do better than the property tax. It’s a relic of colonial times that makes no economic or policy sense today and yet remains in just about every jurisdiction in the country.
In the 18th century, property was almost all income producing (only the very rich had houses standing by themselves on town lots, the rest lived on farms or above the store). And in a fairly primitive economy it was the best measure available of a person’s ability to pay taxes.
Today, almost all residential property is income absorbing, not income producing, and residential property is among the worst possible measures of ability to pay taxes. If a man retires or loses his job, his income can drop precipitously. His property tax is unchanged. And if the real estate market tanks, greatly reducing a family’s net worth, the tax again usually remains unchanged.
The property tax is also grossly regressive. People tend to have as much house as they can afford, but only up to a point. How many indoor swimming pools do you want, after all? So while a middle-class family might pay 15 percent or more of their income in property taxes, the zillionaire hedge-fund manager down the road, despite his riding ring, three-hole golf course, and garage for his large collection of antique cars pays less than one percent. David Letterman happens to live in my town. His property taxes (I checked, they’re public record) are about five times mine. His income, I confidently assert, is at least a couple of orders of magnitude greater than mine.
The property tax is highly subjective, difficult and expensive to assess, and inconvenient to pay. It violates every single one of Adam Smith’s rules for good tax policy. And it has all sorts of adverse effects beyond tax policy, such as encouraging suburban sprawl and forcing people to move out of homes they love but can’t afford to maintain.
If the nation is truly entering an era of deep reform, property taxes should be high on the list of things to abolish. They are nothing less than grotesque.
"It’s a relic of colonial times that makes no economic or policy sense today…." n nSo many things are relics of colonial times. When the right likes them, they invoke the Founding Fathers; when the right doesn't like them, they call them relics.
In California, property taxes are not a relic, but totally insane. Thanks to so-called Proposition 13. An owner of a property worth $1,000,000 can pay less taxes than one who owns a $100,000 property. I do not like high taxes, but before anything else about taxes, they should be equitable – low AND equitable.. When they are not equitable, a revolution (an armed one if necessary) is justified. (Remember our Revolution). Since these taxes pay for police and fire protection and road maintenance, I firmly believe that churches (and synagogues) who like police and fire protection and paved roads should pay their fair share, which they do NOT now do.
Proposition 13 if I recall was passed to stop the madness of forcing people from their homes because property values had sky-rocketed. The thought was that if you bought your home – you shouldn't be forced out because the area had developed. n nAs far as churches and synagogues – these pay for a lot more than police and fire protection and road maintenance. The ability to tax is the ability to destroy. How about this: require extensive book-keeping, including the increase in mental health of members, the facts about how incomes tend to go up (thereby increasing taxes to government, and other benefits) and then if the benefits outweigh the loss of property taxes, then the city can give the church or synagogue money back. n nA long time ago, it was decided that we wouldn't tax non-profit institutions. If we want to change it – we should have a complete debate. Should we tax all the value of the Universities? How about hospitals? How about military bases? The list goes on. n nThis is only an issue because taxes are insane – and they are insane because the government is involved in WAY too much stuff, not just police, fire, and road maintenance, but zoning, litter control, beach control, *** control, *** control, *** control, etc. n
Well, the real eye opener in the NYT article is the panic of the public unions, politicians and entrenched interests in the current local governing system. n nAbolition of the property tax may not be the best policy, but it certainly forces a re-examination of how we organize ourselves at the local level. n nFor instance, why do we all unquestioningly assume that it should be local government's job to employ a police force? Might there be a more efficient and better way of doing this without taxing everyone's real property and threatening to sell it if they don't pay? Could a police force be funded differently or by others who stand to benefit? Are we actually over-policed in some ways? Think about how absurd it is that police now wind up spending an inordinate amount of time clocking cars with radar guns to enforce speed limits. Is this really the best use of their time? Probably not, but the local government frankly needs the revenue from all those speeding tickets in order to afford the salaries of the police they are paying to give out those tickets (among other things). In fact, while we may be over-policed when it comes to traffic and speed limits, we are under-policed when it comes to actual security and crime prevention. This is not a knock on the police, but as the proverb goes, "When every second counts, the police are only minutes away." Increasingly businesses and even individuals hire their own, private security because the taxpayer funded police simply cannot do the job adequately. n nWhat about public education? In my county, almost 60% of the property taxes go towards the public school system in some fashion. And yet private schools remain enormously popular despite their cost because they do a better job of educating kids than the public schools. Washington, D.C. has one of the very highest expenditures in the nation per pupil but the school system is an undeniable, abject failure. So much so that parents went to extraordinary lengths just for the lottery chance of being able to get a voucher that would enable their kids to go to the same type of schools to which President Obama sends his kids. (Obama later killed this voucher program courtesy of the teachers' union). Might there be a better way to educate local children then the enormously wasteful public school systems? n nBut none of this will be contemplated so long as local govts can rely upon steady revenues from the property taxes. It's business as usual and worse. So maybe abolishing the property tax is not the solution but it sure does get people thinking.
For what it's worth, I find many of JSG's arguments against property taxes reinforce my comfort with including property taxes, along with income and consumption taxes, as a balanced approach providing the resources that governments, at all levels, need to provide services and otherwise fund their operations. n nYes, I know we could argue for days about the value of some of those services and how our taxes are not well spent but that's beside the point. On the narrow issue of abolishing property taxes because they are "grotesque" and a "relic of colonial times that makes no economic or policy sense today," I disagree. n nSo let's say your hedge fund manager neighbor's income is 100X yours and that he pays 100X more federal income tax. But his house and grounds are only worth 5X which is the value protected by the fire department. How much more trash does his house generate? How much more wear and tear on the county roads or how many more books does he (or his live-in help) borrow from the library? So why should he pay 100X more for those local services? Where is it written that every tax should be as progressive as our Federal Income Tax? n nAnd the fellow who might lose his job and whose income tax then goes to zero. Does he not still benefit from the local schools where the next generation of teachers, doctors and auto mechanics are being educated and does he not still benefit from the police, fire and trash collection as everyone else? n nAnyway, that's what I think.
It would be a good idea to exempt homeowners and small businesses from property taxes, but not large corporations. Otherwise large corporations will end up with huge landholdings and sit on them for centuries, which is what has gone wrong with Prop. 13 in California.