Abolish the Property Tax

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In mainstream political debate, we usually hear a lot about income and sales taxes. However, nobody seems to mention what is probably the worst of them all: the property tax.

Here are some of the biggest problems with it:
1. The way it's calculated is pretty arbitrary. The government will charge you tax depending on how much they *think* your house would sell for in the open market. Obviously, since their numbers are merely estimates, they're not going to be accurate. It makes you wonder how many people are being overcharged every year...

2. It greatly lowers social mobility. If you're living in an apartment, and want to buy a house, you'll have to calculate the estimated property tax in addition to the house payments. Obviously this means that people can't afford as nice of houses as they would be able to sans property tax. Also, even if you're living in an apartment, you're still paying property tax. The landlord has to pay their property tax somehow, so he/she calculates it into the cost of rent. This means that property tax could possibly be considered a regressive tax structure?...

3. The existence of property tax means that you never truly own your house. Even if you've completely paid off the bank, you essentially have to pay rent to the government to stay in your house.

Here are some other issues as well:

4. In towns that become boom towns, property tax results in extreme gentrification. Let's say you paid off your cheap $100K house a decade ago. Then suddenly a flood of retirees and others rapidly increases the towns population, along with house prices. Suddenly your house is "valued" at $300K. You can't afford to pay triple the property taxes you already were, so you're forced to sell your house to someone much wealthier and move out of town.

5. Obviously relying on the property tax caused a lot of problems with the housing bubble crash. This caused a lot of towns to raise their property tax rates. I'd laugh if you honestly think that the rates will go back down when house prices start to go up again...

6. This is more of an issue with how property tax revenue is used rather than with a problem with the tax itself. In most places, local schools are funded by local property taxes. In poorer areas, property values are obviously lower. This means the schools in those areas are poorly funded, which means the poorer kids will tend to get a lower quality education... which only further exacerbates the social mobility problem.

How do you propose that municipal services such as police be paid for? Or should all services be sold as free market goods provided by private vendors, much the same as food is sold in grocery stores and super-markets?

ruveyn

Not all of these points are true. Not all townships adjust their tax levys annually. When it is calculated, it's not arbitrary. Towns are fully aware of the market fluctuations and all residents are given a grievance day if they feel their assessment is not accurate. The biggest portion of most property taxes are the school taxes but, generally speaking, poorer districts make up for this with increased taxes for residents. For example, a house in the burbs worth 200k might net 3k for annual school tax and a house in the city worth 100k might net the same 3k. Another way some cities deal with making up for lost revenues is by charging a city wage tax, but school funding, in general remains relatively constant. The big difference comes from additional resources, or lack thereof.

As far as the lifelong tax arguments go, there really just part of the understood deal. You're never off the hook financially just because you own it outright. It's not like you won't have to possibly replace a roof after you've paid off your mortgage either. Also what ruveyn said.

This is the most important point.

The downside of property tax that I see is not that the homeowner is screwed. I don't think that homeowners are screwed at all, given that property tax is funding police, fire department, road upkeep, schools and trash collection. I think the downside is that people who live in poor towns without much property tax base have bad municipal services. This is especially critical when it comes to schools. Terrible roads are an inconvenience. Terrible schools are a danger.

This is the most important point.

The downside of property tax that I see is not that the homeowner is screwed. I don't think that homeowners are screwed at all, given that property tax is funding police, fire department, road upkeep, schools and trash collection. I think the downside is that people who live in poor towns without much property tax base have bad municipal services. This is especially critical when it comes to schools. Terrible roads are an inconvenience. But schools, police and fire really matter.

(For the record, I would like to see less on individual municipalities and more on state and federal- so that vital services didn't depend on how rich your town is.)

When Jesse Ventura was governor of Minnesota, he changed it so that schools were funded by the state's general fund, rather than local property taxes. Also, municipal sales taxes and income taxes aren't unheard of. Actually, a lot of bigger cities have a city sales tax... So it's not like the world would stop working if we didn't have property taxes.

North Dakota almost had a measure put on their ballots this year that would have completely eliminated property taxes, and had everything be funded by the state.

So, you own a house. Expect the government to act quickly in case your house is set on fire or if there is crime around your neighborghood. You also expect the government to maintain all the road ways, bridges and tunnels that you use in your daily basis to move in and out your house.

But you don't want to pay the government for it! Utopical.

Why do you think sales taxes are better than property taxes?

That is the system New Hampshire had for many decades and I believe still does. What is not assessed on the house is paid for at the super-market with a sales tax.

ruveyn

China currently does not have property taxes. It has caused two bad problems -- a housing bubble worse than the US and a shortage of housing. Basically, all the people with cash buy up all the property and hold onto it. They either do not develop the land or they build lavish apartments only to charge ridiculous rates, which few can afford. Some buy condos and refuse to allow anyone to live in it because the wear and tear diminishes their investment! This policy has resulted in well-built ghost towns.

As a lifelong apartment dweller, I am tired of the US government subsidizing property owners to the extent it currently does. Would you eliminate the morgage deduction on your federal taxes to reduce your local property taxes? Probably not. That means the revenue would be replaced by something more regressive like a VAT. That takes money away from everyone no matter where you live. I also dispute the assumption a reduction in property taxes will lead to lower rents. I really don't mind justifying the cost of rent going to property taxes because then I can rationalize that I'm paying for local services rather than just making my landlord rich.

Whoops. I got it backward. New Hampshire has no income tax. Everything is supported out of property tax and some limited sales taxes.

ruveyn

The evil of property taxes is not that they exist, but rather that governmental bodies do not utilize the revenue properly.

Municipal entities love to spend money...they forget there is only so much the residents are willing to give them to spend. When things get tight, they either try to raise tax rates or get someone to come in and reassess land and homes at a much higher value (a common practice in recent years) so they can assess higher tax bills.

Municipalities really are the "coal face" of politics. While federal and provincial government are much larger entities, the reality of our daily lives relies much more upon the services provided at the municipal level (streets, water, sewers, transit, etc.)

What's really at issue here is not whether or not municipalities need tax revenue to function, but rather what form those taxes will take. In terms of economic productivity, I would posit that income taxation is the least effective form of taxation, consumption taxes (sales tax) is the most effective form, and that property taxes lie somewhere in the middle.

A significant disadvantage of moving away from property taxes is that other forms of taxation will not properly reflect the demand for services.

I reside in one municipality, I work in a different municipality and much of my consumer spending takes place in neither of these municipalities. If property taxes were to be replaced by income and consumption taxes, then the city where I work would gain very little revenue from my spending, and none at all from my employer (who is not a private, profit making enterprise). But I am, nonetheless, a consumer of local services by reason of my presence in the city (the police department protects me, I walk on the streets, etc.) By taxing the property where I live, and the property in which I work, both municipalities benefit.

I think that there is a very strong argument to be made for redirecting some tax points from consumption taxes (GST in Canada) to municipalities, to reflect the demand for services of consumers, and to redistribute some of the burden away from rate payers on commercial zones (who generally pay the highest marginal property tax rates). But an outright abolishment of property taxes is, I think, unworkable.

The main gripe I have with property taxes is the giant violation of property rights. The existence of property rights means that you can never be the sole owner of your property; it ultimately belongs to the government.
Sales taxes are still regressive (and annoying), don't get me wrong. However, VAT doesn't violate your property rights, and you won't be kicked out of your house if you don't pay it. Personally I think a flat income tax would be better, but that's for another thread...

I don't see how a lack of property tax would cause a housing bubble... That, and a housing bubble + shortage of housing doesn't make much sense. The US housing bubble was caused by easy credit, which has nothing to do with taxes.

As for not developing and/or only building expensive apartments, the same thing is happening in my town. Guess what? We also had our property tax rates jacked up to 18% after the housing crash. Both my town and China are just cases of people making stupid investments, and their asses will be financially kicked for it.
In the case of China, the people who built these lavish housing complexes are going to have to rent/sell them for a lot cheaper than they had planned to in order to minimize their losses. Where I live, some idiot built all these tiny, cramped condos all smashed together with no yards (after the housing market started going down). He tried selling them for over $300,000 each, but nobody would buy them, so he had to start auctioning them off, and got a lot less than he was hoping for... The exact same thing will happen with the Chinese property investors.

Sorry, I guess I went off on a tangent there. Anyway...

If your town has a decent amount of competition with property managers, rates will go down. That's because they'll have some leeway in making their prices more competitive sans property tax. If you have a monopoly though? You're screwed anyway with or without property tax.

Plus there are such things as municipal income taxes (my town has one), so VAT isn't the only possible way to transfer tax collection...

if you want democratically allocated public services [as opposed to strictly private ones] then the fundage has to come from somewhere. i suggest that all professional [read: financially renumerative] sports be taxed to the gills.
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just my 2-cents' worth, adjusted for inflation

But blabby, don't sport events that occur in stadiums have an entrance fee? (durr, ticket) And usually doesn't said stadium belongs to the municipal or the state jurisdiction? =/ (Yeah, i'm thinking mostly based on my canadian experience. =.=)