Property Tax Reform

Property Tax Reform

Property values have skyrocketed in recent years, rising almost 27 percent faster than inflation since 2020, which yields dramatically higher property taxes in jurisdictions that fail to adjust millages (rates) downward. In just two years, the average sales price of a US home soared from $371,100 to $525,100. Legitimate taxpayer discontent over high property taxes is fueling a movement to significantly curtail or even eliminate the property tax in states like Colorado, Connecticut, Florida, Georgia, Indiana, Iowa, Kansas, Maryland, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, North Dakota, Pennsylvania, South Dakota, Texas, and Wyoming.

Using data from Indiana, one study explored wholesale replacement of the property tax with an income or sales tax, finding that gross state product would decline by 2.8 percent when an income tax replaced the property tax and by 2.7 percent under a shift to a sales tax. Household disposable incomes would decline by about 3.5 percent under either shift.[11]

According to the Tax Foundation:

• Many of the policy solutions offered, like assessment limits and tax swaps, create more problems than they solve, distorting property markets and undermining long-term housing affordability.
• Despite its unpopularity, the property tax is relatively economically efficient, and shifting to any alternative tax would harm economic growth.
• Well-designed levy limits can provide homeowners with much-needed relief from soaring property tax bills without the harms associated with other policy responses, and narrowly tailored circuit breakers can help ensure that low-income families are not priced out of their homes.
• The property tax is a tax worth saving—and therefore worth reforming. Policymakers should work to constrain the runaway growth of property tax liability witnessed in some parts of the country but should not overcompensate by eliminating or dramatically curtailing an economically efficient tax.

Property taxes are the primary tool for financing local governments and the single largest source of state and local revenue in the US, helping fund schools, roads, police, and other services. The property tax plays an important role in public finance and is more efficient, pro-growth, aligned with benefits received, more stable than other state and local tax revenue sources and generally better suited to municipal finance than any of the alternatives.

A Better Solution?

The Tax Foundation offers a better solution.  A better path forward would focus on sound tax policy solutions like narrowly tailored circuit breakers to help ensure that low-income families are not priced out of their homes and well-designed property tax levy limits that provide homeowners with much-needed relief from soaring property tax bills without the harms associated with other policy responses. Property tax levy (or revenue) limits are concerned with the actual amount of revenue raised by a taxing authority, imposing rollbacks or reductions to ensure that collections do not increase in aggregate above a given amount.

As the most effective, neutral, and responsible tool for states looking for property tax relief, well-designed property tax levy limits:

• Constrain the growth of property taxes without distorting housing markets, undercutting economic growth, or shifting burdens onto new homeowners.
• Prevent unlegislated tax increases that result from appreciation in property values, without anyone—local officials or taxpayers—ever casting a vote to raise taxes.
• Keep property tax burdens in check without cutting the vital linkage between related assessed values (market value) and property owners’ tax liabilities (taxation).

According to the Tax Foundation, lawmakers can constrain the growth of property taxes without creating new problems. But the details matter.

The basic case for property taxes rests on the following premises, which are well-supported by the economic literature:

1. Property taxes do less economic harm than alternative ways to raise the same amount of revenue, making them more economically efficient than the alternatives.
2. Property taxes have less of an effect on decision-making, including location decisions, than most other taxes, making them less distortionary than the alternatives.
3. Property taxes roughly align with the benefits that property owners receive from local services, making them more equitable than the alternatives.
4. Property taxes are highly transparent and correlate strongly with services that enhance the value and utility of property, making them unusually sensitive to local preferences on the size and scope of government.

The Challenge

The challenge is to address taxpayers’ legitimate grievances about out-of-control property tax bills and doing so without upending a system of taxation that is more efficient, fair, and pro-growth, and better suited to municipal finance than any of the alternatives. https://taxfoundation.org/research/all/state/property-tax-relief-reform-options/

The Strategy for Property Tax Reform

 

The information contained herein is general in nature and is not intended and should not be construed as legal, accounting, or tax advice or opinion provided by Ashmore Consulting LLC to the reader. The reader is also cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact Ashmore Consulting LLC or another tax professional prior to taking any action based upon this information. Ashmore Consulting LLC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.