The Problem With Property Taxes
Alright, anyone who has read any of my posts on politics knows that I am a huge fan of drastically cutting the size and power of government. I don't really want to discuss that here. What I want to discuss is that even I will concede that government needs X number of dollars and so there has to be some way to bring in that money. Most local governments get a majority of their revenue from property taxes. I believe that the property tax is the most immoral tax imposed by our society. I would prefer almost any other tax, although in my ideal world, taxes would come mostly in the form of use fees/taxes that directly tax those who use a particular government service, and limits the burden on those who don't.
Full disclosure: I am heavily invested in a property tax appraisal company. It is my most profitable investment to date and the one company I draw a salary from in addition to my cut of the profits. I am engaged in its day to day operations. The bottom line is that if property taxes ended, I would lose a shitload of money- happily. I am not a particularly large property owner. My house is modest, I have a few acres of land here and there but I have never bought into the hype of real estate being the golden goose of investment. As far as taxes go, the financial burden I experience from property taxes is insignificant. So from a personal finance standpoint I have a lot to lose and little to gain from the elimination of the property tax.
Now for my problems with the property tax-
1. It is an extremely subjective tax. The tax is based on the predicted sale value of a home, so people like me go out to your house and try to guess what it is worth. We try to be as fair as possible, but the real estate market is messy and the value of a home is often based on things much more nuanced than solid numbers like square footage and cost to rebuild. Even a highly skilled and experienced appraiser is doing good if they can consistently estimate the value in a range of 90%-110% of the actual sale value. With the current market, it is even harder.
As a result, it is extremely easy to justify a wide range of values for the same home. A person can challenge the value, but unless measurements are wrong or there is really good evidence, they will usually get very little relief- unless they are willing to hire a lawyer. This leads to wealthy people who own a lot of property paying substantially lower property taxes on the true value of their property than your average citizen. You aren't going to hire a lawyer to save you a few hundred dollars a year in taxes. The wealthy will hire a lawyer to save them tens of thousands in property taxes. The county can't afford to go to court, so when a lawyer threatens to sue, the county will usually lower the valuation of the property. When a large property owner buys a house, they almost always pay lower taxes on it than the people they bought it from.
When an auditor decides to stand up against the wealthy and tax them fairly, they are generally unelected the following election. A few thousand dollars makes a huge difference in an auditor race where the number of yard signs is the primary determinate of who wins the race.
2. The property tax discourages the poor and middle class from purchasing property.
The wealthy have no problem paying their property tax bill. It is relatively small compared to their wealth, and usually they have the means available to make the property earn money if they need to. Large tracts of land are valued substantially less per acre than small tracts. A 1000 acre tract might be valued at $1500/acre, a 1 acre tract is often valued $15000+ per acre. So a middle class person that wants to pick up an extra acre or two not only has to save up the money, but they also need to come up with the extra property tax. This makes it very difficult for someone with limited income to build up significant real estate investments, and is also the main reason that there are very few family farms anymore. In a society that is based on the idea of individual ownership, I think we should have a system that doesn't penalize the middle class or poor that try to own some land. I think it is healthier for our economy and our society for a large number of people to be land owners, rather than a handful of wealthy owners.
3. Property taxes continually go up forcing people to move.
I have a huge problem with people being forced to sell their homes and move because they can no longer afford their taxes. I have seen wealthy communities increase property values and intentionally increase property taxes to force the undesirables from their community. It is simply wrong. This especially happens around lakes and other highly desirable areas. People with houses that they have owned for years are forced to sell, or they default on their taxes and it is confiscated. Generally, when they sell the house they get a very low value from it because the purchaser knows the seller doesn't have many options. I would have less of a problem if property taxes were fixed after the purchase of a home and the owner knew what they would be forever, and could therefore plan for it. When your property taxes become more than your original mortgage payment, that is a problem. And it happens, I have seen it, and one time is one time too many. I think that once a person pays off their mortgage, they should own their home and never have to worry about making another payment in order to live there. I don't understand why that is so controversial, seems like a straightforward ideal to me. Local governments do sometimes have a homestead exemption for people over 65, but it amounts to a whopping 15% cut in their tax burden.
4. CAUV laws are routinely abused.
CAUV is basically discounts on property taxes for farms. Farmers pay substantially less per $1000 value than non-farmers. This is meant to preserve farms and encourage large tracts of land to be used for farm production. However, the way the laws are, large land owners might have a handful of tracts being farmed, but ALL of their property is on the program, even if it isn't being farmed. So they might own a couple hundred acres that is rented out to a farmer, and several hundred more that is woodland and used for recreational purposes. They pay the drastically reduced farm rate on 100% of their land. The person who owns an acre or two does not qualify for the special rate even if 100% of it is farmed.
Anyway, I have to go, but the bottom line is that the property tax is the most unfair tax we have. I hate it even more than I hate the progressive income tax (and you all know how much I hate that one). Usually on tax issues I don't side with the poor. In general, I think they should pay the same percentage of their income as I do. But I also think that everyone should pay the same percentage on land if they have to pay anything at all. It isn't right that those with more money get reduced tax rates compared to those with little land. However, with property taxes are based on the assessed value of the property, that will always be the case. If you changed it to a flat $ per acre regardless of value, you would save a ton of money not paying me, and everyone would pay the same rate. Or you can ditch the system entirely and make up for it with a different kind of tax.