Saturday, May 5, 2012

My Property Taxes Did What??

The use of property values to pay for the tax levy has one fundamental quality that differentiates it from all other forms of taxation: it always produces the requested revenue.  Regardless of the total value of a community or the amount of the tax levy, there is a tax rate that will generate the determined amount, always. Income taxes or sales taxes can never generate a specified amount of revenue by their vary nature.

There is very little disagreement about what property taxes should be used for; public schools, fire protection, police protection, road maintenance, libraries, parks etc.  However, there is a subtle effect of a tax on property which is rarely considered, most likely because this tax has been in use for so long that it is assumed it must be the right thing to do. But is it?  

Consider;  after every revaluation, in any city, thousands of property owners will actually pay a significant portion of their tax increase solely to lower the taxes of other property owners.  Is this also a legitimate purpose for one’s property tax dollars, to lower taxes for other property owners, often as not, owners of the more expensive properties?  

The best way to appreciate this phenomenon is to observe what happens when a community does not increase its tax levy and has a revaluation in the same year. The following example uses Barrington tax data for the revaluation year 2009 (but similar results can be seen with any town data). Taxes were recalculated after reducing the 2009 tax levy to the 2008 level.

Despite no tax levy increase, 33% of property owners would have received tax bills with an average increase of 41%!  The extra $2,900,927 paid by these unlucky people would have in essence, been paid to the 67% of property owners whose taxes fell due to the revaluation. Nearly $3,000,000 paid by one group to another with no benefit to the community which neither requested nor received additional funds. Can this be called a fair tax distribution?   

However, if towns don’t revalue, a new owner can buy a property and be taxed on an old, most often lower assessment - that too is clearly unfair yet it happened year after year. Revaluations correct this unfairness, but in the process create their own injustice for all existing owners, as the above example demonstrates. 

This is a dilemma that can’t be corrected with more accurate assessments or lower budgets, both of which are important in their own right.  

The challenge is to acknowledge this defect and to devise a tax system that addresses it.  The proposed “Property Owners Tax” (1) provides the needed revenue, (2) taxes new owners fairly every year, not every third year, and (3) taxes existing owners fairly and rationally every year.

It can be done. Please visit to learn more.