Living as I do in Marin, I pay a lot — a lot — in property taxes. Because I live in a fairly well-managed place, I mostly feel I get a lot of bang for my buck. My town is clean, the roads are maintained, the schools are the best that public schools can offer, the libraries are delightful places, etc. This means that, when I pony up the money, I’m not thrilled about it, but I’m willing. In discussing the North Dakota initiative to abolish property taxes, though, John Steele Gordon makes some excellent points about why property taxes exist and about their fundamental inequity:
If you want a poster child for the enormous inertia of government, you could hardly do better than the property tax. It’s a relic of colonial times that makes no economic or policy sense today and yet remains in just about every jurisdiction in the country.
In the 18th century, property was almost all income producing (only the very rich had houses standing by themselves on town lots, the rest lived on farms or above the store). And in a fairly primitive economy it was the best measure available of a person’s ability to pay taxes.
Today, almost all residential property is income absorbing, not income producing, and residential property is among the worst possible measures of ability to pay taxes. If a man retires or loses his job, his income can drop precipitously. His property tax is unchanged. And if the real estate market tanks, greatly reducing a family’s net worth, the tax again usually remains unchanged.
The property tax is also grossly regressive. People tend to have as much house as they can afford, but only up to a point. How many indoor swimming pools do you want, after all? So while a middle-class family might pay 15 percent or more of their income in property taxes, the zillionaire hedge-fund manager down the road, despite his riding ring, three-hole golf course, and garage for his large collection of antique cars pays less than one percent. David Letterman happens to live in my town. His property taxes (I checked, they’re public record) are about five times mine. His income, I confidently assert, is at least a couple of orders of magnitude greater than mine.
Read the rest here, please.
Steele is absolutely right as a matter of economic principle, whether he’s talking about the way modern property sucks up money, rather than generates wealth; about the fact that it’s regressive; or about the way in which property taxes are a haphazard way to determine wealth and develop healthy communities.
But if we abolish property taxes, how then should a community assess its residents in order to pay for services that the residents support and from which they obtain a benefit? Should towns begin to impose an income tax? I can only imagine the bureaucracy and loopholes that will spring up. Imagine having to pay income tax to the feds, the state, and the city/town! Should towns and cities resort to a fee for service system? Then one ends up with headlines about towns that allow houses to burn down because the owner refused to contribute to the fire fighters’ fund. The alternative is the fiscal equivalent of “herd immunity,” with a few willing people paying for local roads, schools, police and firefighters, etc., while the rest of the community obtains the benefit.
I’ve never thought this issue through, so I have only questions, not answers. I would appreciate your input.