Friday, December 8, 2006

Property Taxes. Deal or No Deal?

On the popular TV game show, Deal or No Deal, host Howie Mandel asks the contestant a very important question, "Deal or No Deal?"

The contestant must choose between taking an unknown amount of money in his or her suitcase, or a known amount of money offered by the 'banker'.

What does this have to do with property taxes?

Taxes pay for government. Whether federal, state or local government, we pay for them all with our taxes.

For local government we have been taxing property for centuries. Long before the Industrial Revolution, long before there was a United States, we taxed property. The value in those earlier times was determined by the revenue produced by the property - more revenue, more value, more taxes. In fact one could say that the property tax in those early days was really an income tax.

Things are very different today. The market place determines the value of property. People who own property of equal value must pay equal taxes. No matter how wealthy they are, no matter when they purchased the property, the taxes will be equal if properties are of equal value. (To insure that new owners don't pay unfairly low taxes based on previous values we revalue property every three years.)

Most of us accept that this is a fair way to distribute taxes among tax payers as long as assessments are accurate and up to date. If it's fair, it begs the question:

Would you choose to pay your state or federal taxes based on the value of your house? "Deal or No Deal?"

"Hold on" you say, "no way. Pay state taxes on my revalued property? It wouldn't be fair!".

If it's not fair to pay state taxes that way, what makes it fair to pay for local government that way?

It isn't fair, at least not the way we do it today. Revaluations are indeed necessary to insure that new owners pay their fair share but those revaluations make it harder to hold on to a home, even forcing some existing owners to sell.

Maybe we should do away with property taxes altogether and have a local income tax.

Income taxes would be much more fair than property taxes. But they have serious drawback; they're very unreliable.

Today, when a town sets a tax rate, it is guranteed to produce the revenue required by the tax levy. This is a good thing, and very important for prudent management of our towns and cities.

On the other hand, if towns depended on income tax and sales tax revenues, and the economy stumbles, towns would face the same problems that the state currently faces, deficits and expensive borrowing. Clearly not a good thing.

The challenge is to retain the benefit of taxing property and, at the same time, discard the unfair treatment of our existing long time owners who are forced to pay taxes on homes they could never afford to buy at present day prices, while still assuring that new owners pay their fair share.

It can be done. We have just such a proposal on our web site at R.I.G.H.T.

I welcome your comments.