So: property taxes go up too much, thanks to a great real estate market, and incomes only increase by moderate amounts--what really is the source of the injustice at hand? Is it that taxes go up precisely because of non-liquid wealth (again, you can't "cash in" your house at the bank and have money to pay your bills), and precisely on people who don't have the liquid wealth to pay them (incomes only go up moderately)?
If this is the problem, then there's one obvious solution, but one that would be remarkably hard to implement, politically speaking: don't tax property to pay for schools. Tax income instead. This makes very obvious sense when you think about the especially burdensome nature of property tax on people who are living on fixed incomes, e.g., seniors living on pensions/social security benefits. Property taxes tax many people who don't have the wherewithal to pay those taxes. Why not tax the people who have the money to pay tax, i.e., the people with higher incomes? In other words, if the taxing authority expects "liquid" payment of your property tax bill, why not tax "liquid" wealth: income?
To me it makes a world of sense. Here are (some of) the political difficulties, though, to paying for education with income tax: it's usually states and the feds who collect income tax; it's rare that municipalities and counties (or school districts) do. If the state were to levy an income tax to pay for educating Missouri's students, how would we distribute that money to our school districts? Many people would rebel at the idea that it should be distributed equally, or even according to the needs of the students. Let me be totally blunt here: people who live in affluent districts are used to having the best schools, with beautiful facilities and all the wonderful extras. If the state provided equal, or need-based funding for education from income tax, how would these districts be able to single themselves out as the best? They wouldn't . So very few of the voters from these districts would go for such a scheme.
So what can policymakers do, if income tax isn't an option, to tax in such a way that those without the ability to pay aren't taxed at too high a rate--or more exactly, aren't driven from their homes by their inability to pay their increasing property tax bill?
I'll have to write more in part three, later.
Tuesday, February 19, 2008
Wednesday, February 13, 2008
Property Tax and Justice
"Let justice roll down like a mighty stream," say the lines from the prophet Amos (lines often quoted by Martin Luther King, Jr.). But when you're talking about property tax justice, that's just a little too florid. "Let property tax justice roll down like a mighty stream"--who's going to get behind that? What could be more pedestrian than property tax?
Anyway, here goes the start of a multi-part posting.
Property tax is a tax on wealth. The more wealth you have, the more property tax you pay. That seems fair, doesn't it?
Usually it is fair. Problems arise, though, when the housing market in your area heats up, and then the county assessor decides that you are more wealthy and should pay more tax. Assuming the assessor assesses fairly, he/she is right: you do become more wealthy when the real estate market booms in your neighborhood. But the problem is, it's not the kind of wealth you can cash out and use to pay your property tax bill. In other words, if your assessed valuation goes up 10% every reassessment period, but your income only goes up 2% for the same periods, then, over a number of years, paying your property tax bill is going to become more and more difficult.
In still other words, just because your property wealth increases, that doesn't mean that your income--what you'll use to pay your property tax bill--increases at the same rate. And that's when things start to seem unjust. Property taxes can get so high (based on higher assessments, not on higher rates) that people can be priced out of their homes by their property tax bill.
So how do we set tax policy to address this problem? The Hancock Amendment was one serious attempt to deal with it. But as you can see from my earlier postings, it provides protection to taxpayers on average: in any given reassessment year, about half the taxpayers will pay lower tax, the same tax, or a barely increased tax (increased at the rate of the Consumer Price Index or lower). The other half of the taxpayers will pay a higher tax bill, one that could be raised at a significantly higher rate than the Consumer Price Index. The people in this second half clearly won't feel very protected by the Hancock Amendment.
What to do? I'll have to write about it in the next part(s) of this post. And though I don't claim to have the answers, I think it'll become clear that many of the simple solutions floating around in Jeff City are totally inadequate.
Anyway, here goes the start of a multi-part posting.
Property tax is a tax on wealth. The more wealth you have, the more property tax you pay. That seems fair, doesn't it?
Usually it is fair. Problems arise, though, when the housing market in your area heats up, and then the county assessor decides that you are more wealthy and should pay more tax. Assuming the assessor assesses fairly, he/she is right: you do become more wealthy when the real estate market booms in your neighborhood. But the problem is, it's not the kind of wealth you can cash out and use to pay your property tax bill. In other words, if your assessed valuation goes up 10% every reassessment period, but your income only goes up 2% for the same periods, then, over a number of years, paying your property tax bill is going to become more and more difficult.
In still other words, just because your property wealth increases, that doesn't mean that your income--what you'll use to pay your property tax bill--increases at the same rate. And that's when things start to seem unjust. Property taxes can get so high (based on higher assessments, not on higher rates) that people can be priced out of their homes by their property tax bill.
So how do we set tax policy to address this problem? The Hancock Amendment was one serious attempt to deal with it. But as you can see from my earlier postings, it provides protection to taxpayers on average: in any given reassessment year, about half the taxpayers will pay lower tax, the same tax, or a barely increased tax (increased at the rate of the Consumer Price Index or lower). The other half of the taxpayers will pay a higher tax bill, one that could be raised at a significantly higher rate than the Consumer Price Index. The people in this second half clearly won't feel very protected by the Hancock Amendment.
What to do? I'll have to write about it in the next part(s) of this post. And though I don't claim to have the answers, I think it'll become clear that many of the simple solutions floating around in Jeff City are totally inadequate.
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