Economics

Property Taxes on the Grow

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According to a new report from the Tax Foundation:

Property tax collections have exploded over the last four years….Adjusted for inflation, property taxes have increased by 12 percent…"It's about 27 percent in nominal terms since 2000." By comparison, property taxes increased by just 2 percent from 1994 to 2000.

……Soaring property taxes around the country have pushed lawmakers to seek reforms. In states such as New York and New Jersey, where property taxes are the highest, legislative sessions beginning next spring will attempt to address taxpayers concerns.

For those eager to listen to people talk about rising property taxes while jogging, study author Gerald Prante has a podcast on his findings .

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  1. Is anybody lowering property tax rates because of the increased value of property? In my area, the various governments all still want their rates raised.

  2. I don’t get all the complaints about high property taxes…why not just move to a place where they are lower?

  3. I thought property taxes were a local problem. What are state legislators going to do? Ask localities to lower property taxes in exchange for cash from the state’s general fund, most likely.

  4. If real estate crashes, this problem will fix itself.

  5. “Is anybody lowering property tax rates because of the increased value of property?”

    Hell no. They have used the housing boom to finance local pork especially schools. Go to any rich suburb and look at the new schools they are building, they are obscene. In Katy, Texas, a bedroom community for Houston, they are spending millions on new high schools with multi million dollar gyms, auditoriums and luxuries that were unthinkable even ten years ago outside a few very expensive private high schools. I don’t think Katy is an atypical example.

  6. I thought property taxes were a local problem.

    I think the thd title is a humorous nod to that point.

    Simpsons ref.

  7. Has anybody informed Ezra Klein about this? He really likes to post about things that increase ‘faster than the inflation rate’.

  8. This is a hard one for libertarians to defend.

    The places with the lowest property taxes are places where, not to put too fine a point on it, life sucks.

    We’re talking about such hell-holes as Louisiana, Mississippi, Arkansas, Alabama, South Carolina.

    It looks like it IS possible to have taxes that are too low.

  9. Property taxes are a tough battle to fight, since most of the money goes to schools, and you don’t dare propose to take something away from da chyyylldruunnnnn. You might as well spit into the ocean as dare suggest that people wait and have children when they can afford to educate them. People don’t wait until they can afford children in any other way, so …

  10. Also from the Tax Foundation, here’s a chart of taxes as a percentage of income.

    It’s pretty evident what the bastards have been doing. Combined Federal, state and local taxation as a % of GDP has been grouped around 30% since the 1970s. “Tax Reform” at one level of government results in increased taxation at another. We try to starve one head of “The Beast”, but the others chow down. I’m tempted to call it Cerberus, but localities have so many special taxing districts that The Hydra seems more apt!

    Our localities get around state limits on property tax levies and debt by holding referenda. If the school district’s attempt to authorize exceeding the limits is defeated, they just keep putting revised versions on the ballot until one succeeds. The administrators favor election dates that will attract the lowest turnout, such as a primary for a local-office-only election.

    Kevin

  11. As a libertarian, I’d defend property taxes above all others on principle, simply because, they are highly localized, and one can easily relocate if one would rather not pay them. They come as close to “taxation only by consent of those taxed” as possible… analogous to condominium maintenance fees.

    Addtionally, being so localized, there is very little “wealth redistribution effect” from property taxes.

    Finally, in an economic sense, they are easy to assess, efficient to collect, difficult to evade and have very little distorting effect in the real-estate market (I have yet to see an underground real-estate economy established to evade taxes).

    I personally believe that property taxes are the closest thing to the ideal tax.

  12. “The places with the lowest property taxes are places where, not to put too fine a point on it, life sucks.”

    You have the causality wrong. Those places have low tax rates because they suck and without low tax rates no one would live there. Better places have high tax rates because they are nice places and people will pay a premium to live there. Those sucky places you mention, won’t get better if they raise their taxes through the roof, they will just get poorer and more sucky.

  13. C- I have to disagree with your point about taxation being too low. As a resident of New Orleans, sure property taxes are relatively low, but mostly because the small minority of wealthy folks convinced their friends in our extremely honest local government to shift taxes to regressive areas such as our whopping 9% sales tax. Don’t confuse aligned incentives plus corruption with freedom from taxation.

  14. My city lowered the tax rate due to increases in tax assessments.

  15. As a libertarian I oppose taxes on real property that has revenue generation prohabitions, i.e., if one can’t run a business on the property I find it unconcionable that the government will still tax it away from the owner.

    Generally against taxes on real property anyway and prefer taxes on sales.

  16. “…and one can easily relocate if one would rather not pay them.”

    I don’t think relocation is easy or cheap. It’s a huge burden financially and emotionally. Having relocated many times I’ve found that it affects my job, savings and social life.

    Although home onwnership is a smart investment property taxes amount to rent to the government- you never really own your property. Plus when school vouchers are involved I’m essentially funding education that in many cases (religious schools) I’m vehemently opposed to.

  17. I personally believe that property taxes are the closest thing to the ideal tax.

    Maybe you should think about that. My house is currently assessed at one price. I receive a homestead exemption, so the ad valorem component of my property taxes are applied to a second, smaller number. My house is appraised at over twice the assessed amount. I have lived in my home for 10 years, my neighbor just moved in to his. Our houses are identical but his property taxes are about twice mine because my assessment dates back to the purchase of my house 10 years ago, his to his purchase 10 months ago. Is he currently getting twice as many services as I am?

    Were I to swap houses with him his taxes would stay the same but the tax on what was my house would double. Meanwhile the tax on what is now my house stays the same, but my tax burden doubled. The County would not do anything more for anyone yet would get 33% more property tax revenue. That does not sound particularly ideal.

  18. IIRC, Arlington County, VA (where I own a condo) lowered the rate recently because of massive increases in property values.

  19. That does not sound particularly ideal.

    it also sounds like an attack on a specific unequitable property tax system, rather than an attack on property taxes themselves.

  20. Property taxes can’t be considered all that local, at least in my experience. The two states I’ve owned a house in both have state laws that dictate quite a bit about how they work, so moving to a different city doesn’t really work (not to mention the prohibitive transaction costs involved). California has the infamous Prop 13, and Tennessee had a state law that requires localities to float the percentage rate people are taxed so that as values go up and down, actual revenue stays the same. If a city wants to raise more revenue, they have to actually vote to raise taxes, instead of relying on rising home prices. I find that way of doing things so vastly preferable to California’s it makes my head explode. But Prop 13 only screws the newcomers, so it’s very popular and will never change.

  21. If property tax were essentially connected to the services that governments provide to property owners – police and fire protection, road construction and repair, municipal sewers and water – I’d agree with Russ R. [Please note the Mandatory Libertarian Disclaimer that I’d privatize as much of that as is practical.] Unfortunately, the #1 use for property tax revenue is the publik skools, which is a horrible idea. It distorts the property market, convincing parents who would be better off renting or buying an inexpensive house that they should relocate to a so-called “good school district.” Those locked in by such choices resist the attempt to establish broader educational choice, as they have already ponied up to avoid bad, usually urban, schools. It biases local officials toward promoting development of open land, in order to “expand the tax base.”

    If we removed the burden of education from the PT, and went with a more Georgist model, where the value of the undeveloped urban land, not the improvements made on it, were taxed, I think we’d be better off. (Pittsburgh used to have a version of this.) Another funding source for education would have to be found, if pure privatiztion wasn’t attempted. A state-wide tax would make more sense than a local one if a wide school choice/open enrollment system depended at least in part on state funding.

    Kevin

  22. Fascinating discussion.

    It’s interesting to see a lot of libertarians sticking up for property taxes. It makes sense: every state must have property tax while there are some states like New Hampshire that don’t have either income or sales tax.

    But there’s a paradox for the libertarian here.

    If being a libertarian means anything, it meanst that the government shouldn’t run our lives.

    When taxes distort incentives, they have people behaving in ways that they wouldn’t if it weren’t for the taxes. That gives government more power than it ought to have in a free, pluralistic society.

    But for any amount of revenue (“X”), the way to distort incentives the least is to have many different types of taxes-all at the lowest rate possible.

    Here’s the paradoxical part. As libertarians, we know that once a new tax is introduced, it’s relatively trivial to raise the rate. This is even more the case when the tax is “hidden” such as withheld payroll taxes and especially VAT.

    So our preferred policy solution is squashed by the pathologies of implementation.

    Can anyone see an answer? Or is Tiebout choice-just move to your favorite destination-the best we can hope for? (Note: The efficiency of Tiebout depends on strongly localized decision making. If all policy is at the imposed at federal level, why bother moving?)

  23. For the schools, how about eliminating the property tax and replacing it with a bookie tax?

    Insert: “eliminate the lottery and privatize it” up there someplace.

    Now, with a sales tax on lottery tickets, at the same rate as gum and pot, your property would be safe.

    Also, drop the cigarette and gas taxes down to the gum and pot rate too.

  24. The places with the lowest property taxes are places where, not to put too fine a point on it, life sucks.

    Places with low property taxes are generally places with low property values and poor people.

    They could raise the taxes to 100%, and they would still have low values and poor people.

    High property taxes, like high taxes of any kind, are a luxury that can only be afforded by wealthy societies.

  25. “Plus when school vouchers are involved I’m essentially funding education that in many cases (religious schools) I’m vehemently opposed to.”

    Stupendous – I think most school voucher advocates (myself included) state that we just want to see our tax contributions put to where we want to see our kids educated. Between local, state, federal taxes, and including the years I’ve never had a kid, yet funded a wasteful publik skool education, there is wnough to go around.

  26. Don’t be so elitist, c.

    Life surely doesn’t “suck” for everyone in all those places. Plus is hard to deem low taxes, low cost of living to a “sucky” place.

  27. In this area, over half local property taxes go towards K-12 education. The local Boards of Education are not, by any metric, efficient. The rest of local property taxes finance pretty mundane stuff… far less exotic than state or federal funding. These are things like road maintenance, trash service, police, local parks, enforcement of local codes and ordinances, etc. In many jurisdictions, services like trash removal are provided by private contractors via government contract.

    Local governments also have an ever increasing number of unfunded state and federal mandates. I would wager more local tax relief could be granted… but both state and federal officials enjoy shifting the burden downwards.

  28. Ironchef,

    Thanks for the heads up. I still do not understand the geographical bigotry of elitists like c.

    Reminds me of the music experts behind the cash registers at the record stores.

  29. swillfredo:

    In my neck of the woods, people kick about the property tax assessments, but we do things differently here. The city is divided into quadrants. Besides reassessments based on the actual sale prices of properties, every year the assessors re-assess a quandrant, so that the city is entirely reassessed every 4 years. People predictably complain about their reassessments when they get their property tax bill in the year their quandrant gets revalued, but they also brag on how smart they were to buy in that neighborhood if there’s a huge jump in the market value. We all know how much refinancing homes has let the owners access that increase in equity for good or ill purposes.

    One good thing about rolling reassessment is that owners don’t get sucker-punched by huge increases in their property’s value when the municipality eventually does a general reassessment. The appeal process doesn’t get as overloaded, either, since in any given year the only potential complainants are a quarter of owners plus anybody who bought a property.

    Most important, don’t get fooled by tax rates. The tax levy is the important figure. If your county/city/township, etc. is going to raise $X million, it doesn’t matter if they assess at full market value with a low rate, or at some % of FMV and a higher rate. They are still taking the same $X million out of the private economy to spend in the public sector. Assessment policy only determines whether the incidence of the tax is more or less fair, not whether the locality is spending enough or too much.

    Kevin

  30. Hey, “c”…..reconcile the following:

    “Virginia Beach home assessments jump again, 22 percent”

    “In 2005, housing property-tax assessments jumped 21.7 percent. In 2004, it was an increase of 11.7 percent on average.”

    “Last year, the council slashed the rate by 17 cents per $100 of assessed value {to $1.02 per $100}”

    “Council members said they plan to lower the tax rate again this year”

    “Do you think for a moment council members will stand for a tax increase?” Baxter asked. “It would be political suicide.”

    “Money Magazine Best Places to Live 2006 Virginia Beach, VA Best big cities rank: 6”

    http://content.hamptonroads.com/story.cfm?story=100343&ran=158902

    http://money.cnn.com/magazines/moneymag/bplive/2006/snapshots/PL5182000.html

  31. it also sounds like an attack on a specific unequitable property tax system, rather than an attack on property taxes themselves.

    The two are inextricably linked, at least the ad valorem component. I happily pay for goods and services such as trash pickup and the availability of sheriff’s and fire departments, but if taxes are going to be even remotely efficient they should reflect the actual cost of providing the service, not be tied to such a volatile component of the economy as housing prices.

  32. Schools do provide you a service, swill, whether or not you use them. Also, housing prices are not all that volatile, are they?

  33. swillfredo:

    User fees that replace property taxes are a good thing. Unfortunately, UF’s aren’t deductible against the Federal Income Tax, or mitigated by the state homestead exemption the way PT is. Still, our local idiots have actually added new municipal fees on top of property taxes, under the theory that raising the levy faster than the growth in assessed value will require them to raise the rate, which will cause alarm bells to go off in the minds of the voters – as well it should!

    You’d think that the increased fees would annoy the electorate just as much, but this is a “blue county,” and the dolts stand for it.

    gaweedo:

    Some of us think the publik skools do at least as much harm as good.

    Kevin

  34. Guy, sorry about the “geographical bigotry.”

    Why don’t you go and look up murder rates ranked by state? Or public health ranked by state?

  35. Homer,

    First of all, I would like to say that Virginia is not among the states that I singled out; I chose states mainly from the Deep South. Although I do appreciate the argument-from-anecdote.

    But I think you make an even more important point. There are nice places to live in almost every state in the union. (Sorry, South Dakota!)

    No one lives in a state as a whole. If someone lives in New York State, they could live in Plattsburgh or Manhattan.

    But many of the relevant differences in public policy come from the state level.

    Insofar as we think that quality-of-life is politically tractable-Minnesota’s weather will always suck-then state-level policy decisions matter.

  36. Here’s an interesting compromise on paying for schools: the community (i.e. taxpayers) pays for the infrastructure (buildings and grounds, buses, etc.) and the parents who have kids in the schools pay for the operating costs (teachers, books, bus drivers, sports).

  37. Also, housing prices are not all that volatile, are they?

    Not volatile in the sense that there are wild swings in the price, but volatile in the sense that they are not a great proxy for the price of the services that property taxes purchase. Taking into account that there are substantial regional variations, the real, per-capita cost of providing these goods and services has not increased remotely as fast as housing prices in the southeast.

    In the Tampa area advocates for increasing property taxes and impact fees use a growing population as an excuse to increase property taxes, you know?for the kids. But this argument ignores the fact that everybody that comes here brings a new tax base with them. Administered effectively there should be economies of scale in the capital costs of public education; a broader population should not necessitate an increase in each household’s tax burden (unless there is an unusually large influx of Mormons).

    [Public] Schools do provide you a service, swill, whether or not you use them.

    My children do use them, but how do they provide my childless neighbors a service?

  38. c,

    So your idea of sucking is in the opposite proportion of Socialism that is codified at the State level?

    Love your seclection of authoritative sources for your ‘evidence’, might as well just ask Ezra about the health care stuff.

    I prefer using per-capita percentage of black representatives in public office. New York really sucks on that scale.

  39. My children do use them, but how do they provide my childless neighbors a service?

    Well, they can’t break into the neighbor’s house if they are in school now can they?

    [rimshot]

    Leftist hysteria, I got a million of ’em!

  40. “Money Magazine Best Places to Live 2006 Virginia Beach, VA Best big cities rank: 6”

    What were they smoking? Stuck in L.A. level traffic while surrounded by a couple hundred thousand of Pat Robertson’s most devoted followers? I think not.

  41. El, where are you from?

  42. North Carolina. My sister and her husband lived in Virginia Beach for two years. They were happy to leave, I was happy not to have to visit.

  43. Guy,

    First of all, what’s wrong with the FBI uniform Crime Report? Is the FBI also part of the socialist conspiracy?

    I hate socialism more than the next guy. My idea of sucking is not in relative proportion to the codified redistribution.

    As for socialist hell-holes in the US: there are tons of them. Can I interest you in some nice property in the South Bronx? How about the Anacostia section of DC?

    Still, I admit that I’m mixing my personal preferences with some policy insights.

    Here are my biases:

    I like living around educated people. (If everyone around you thinks that evolution is a myth and the Earth is 6,000 years old and God Hates Fags, you’re likely to go nuts. Trust me.)

    I like having interesting stuff to do. Good cinemas, art museums, lectures, record shops, galleries, restaurants, the theater, that sort of thing.

    I don’t think that should make me a socialist.

    But a lot of the places where I would prefer to live are filled with liberals.

    BTW, Gillespie talks about this stuff here.

  44. not be tied to such a volatile component of the economy as housing prices.

    maybe they are charging based on the benefit to you, the property owner, rather than based on the cost to them. i know that when private industry sets prices in this way, science correspondent Ron Bailey’s heart leaps with joy. sauce for the goose, etc., etc.

  45. “I like living around educated people. (If everyone around you thinks that evolution is a myth and the Earth is 6,000 years old and God Hates Fags, you’re likely to go nuts. Trust me.)”

    As opposed to living around people who think that the local nuclear plant is going to melt a whole all the way to China, that organic foods are really healthier than the ones at the supermarket, that sea levels are going to rise 20 feet before the year 2000, the Soviet Union was just a misguided experiment that was no worse than the imperialists who opposed it, Castro is a great leader because there is universal healthcare in Cuba, gun ownership and poverty are the root causes of all crime and so fourth. I think I might take the people who believe in God.

  46. John, like Eric Cartman, really hates hippies.

  47. I like living around educated people. (If everyone around you thinks that evolution is a myth and the Earth is 6,000 years old and God Hates Fags, you’re likely to go nuts. Trust me.)”. . .As opposed to living around people who think that the local nuclear plant is going to melt a whole all the way to China

    You think those are the only two choices, John? Poor baby. No wonder you’re so uptight.

    By the way, I grew up in southeastern Virginia, and Virginia Beach sucks. I have no idea what Money magazine was thinking.

  48. c,

    How about the Anacostia section of DC?

    I can see that from my window if I peek past Reagan National Airport.

  49. If real estate crashes, this problem will fix itself.

    Don’t be too sure. High property tax collections resulted in lots of new mouths being attached to the government tit. Unattaching them is much more difficult.

  50. “Is anybody lowering property tax rates because of the increased value of property?”

    My city does that every two years; well, they lower the property tax rate. The total bill actually goes up at more-or-less the rate of inflation.

  51. My city does that every two years; well, they lower the property tax rate. The total bill actually goes up at more-or-less the rate of inflation.

    That’s a decent approach.

  52. Ironchef-

    “I think most school voucher advocates (myself included) state that we just want to see our tax contributions put to where we want to see our kids educated”

    I hear what you’re saying but I consider public education to be a service that is focused on the group not the individual.

    I want my contributions put towards giving everyone a basic education- it benefits me to live in a society where everyone can read, write and do arithmetic; hopefully at a highschool level when they graduate.

    Even if you have kids your taxes are put towards educating all children not just your kids.

    I’m certainly not saying I think our public schools are run properly- I have friends that are teachers, fun to have drinks with not really the people I’d want educating my children.

    If vouchers become the norm I’d like the option of deciding where my money goes- whether I have kids or not.

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