Property Tax Reform

In various states around the country, property tax reform seems to be creeping up as an issue. While I'm all for lower taxes, I'm skeptical of exactly how property tax reform might be implemented.

To me, the only fair property tax seems to be one that has the same rate for everyone in a given municipality (unless there is a legimitate reason not to, such as a special sewer district), and the assessments are based as closely as possible to actual market rates, which means if the owner sold it, what would he or she get for it? Any transfer of the property (besides those among family members, because those won't necessarily be at market rates) would automatically trigger a reassessment at the purchase price.

Any deviance from this system seems to me to end up in a complete distortion: some people will have lower rates because they're preferred, while the others will have to carry the burden.

Many people make the claim that they're on a fixed income, and by golly, since they bought the property 40 years ago, the assessment has gone way up and now they cannot afford property taxes. Well, I wouldn't be opposed if the town could put some sort of lien on the property so that when it was sold, the town would receive the extra property tax plus interest. This way, the town wouldn't be out money, and the only reason the homeowner was paying extra taxes is because the value of their house increased so much that the assessment went up, but when they sold the house, they'd presumambly be way ahead. If you buy a car and then the price of gas goes up, people don't expect the gas station to cut you a break. Why should the local government cut you a break?

Many of the property tax reforms floating around limit how much assessments can go up, and they limit the tax rate. California has a 2% maximum increase in assessments and a 1% tax rate. I'm ok with the latter, but the former doesn't seem fair. You can wind up with two identical houses next to each other, but they'll have massively different assessments and therefore property taxes, because when you sell your house in California, it's reassessed.

If you don't reassess houses when they are sold, then you are going to favor people who live in old houses versus people who live in new houses, because new houses built after the law goes into effect will have their initial assessment done at market rates. If you reassess houses when they are sold, then you'll end up favoring long-term homeowners over younger homeowners.

If you want to keep property taxes down, then limit spending. If you limit spending, then property taxes will be kept in check. But if you don't limit spending, but you limit property taxes, then either 1) other taxes will have to be raised, or 2) the municipality will go deeper into debt.

When two people are taxed differently for the exact same wage or exact same property, then you get massive distortions, with certain people benefiting for no reason.

Another thing that bugs me about property tax reform is that it can actually lead to higher spending. If you limit the amount that someone's property taxes can go up each year, but you reassess when the house is sold, this means that newer property owners will pay more due to their higher assessments. But for the older people, when there's an election, why would they vote for someone who wanted to not increase spending fast? Their property taxes can't go up more than x%. Think about it: if we had a guarantee that our taxes wouldn't rise, but someone else's would, do you think we'd vote for many candidates that promised to cut spending?

Property tax reform has to include market rates for assessments and a consistent tax rate. Anything else is just playing favoritism, in which one group gets to benefit at the expense of another.