Wednesday, May 5, 2010

Why We Hate Property Taxes

Because Rhode Island has among the highest property taxes in the nation we expect that spending cuts will fix our high taxes.
Not so fast.

An overlooked but vital aspect of the property tax problem is that there are two principles of fairness regarding property taxes that are mutually exclusive.

#1 A person who buys a $1 million dollar home should pay a fair tax on a million dollar home.

#2 The taxes people pay should reflect the budget needs of their town; e.g. if a town eliminates tax increases, property owners should not expect tax increases.

These basic principles can not co-exist because of REVALUATIONS.

Existing owners' property taxes can reflect the tax levy (Principle #2) but only when there is no revaluation. Buyers of properties of (usually) increasing value however, are taxed too little on assessed values thus ignoring Principle #1.

To correct this inequity for new owners, we revalue every three years. As a result, existing owners will pay taxes unrelated to tax levies.

In fact a town could even declare a moratorium on tax increases yet over 50% of existing property owners would pay higher taxes due to revaluation, violating Principle #2.

The typical reaction to high taxes is to look for spending cuts but as I've explained, the results would disappoint the majority of tax payers . This does not bode well for peace, harmony and enthusiastic citizen participation and cooperation.