Should North Dakota abolish property taxes?

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.

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  • MorowbieJukes

    One never really owns their property as long as it is taxed, one merely rents it from the state.  Notice what happens when one stops paying the ‘rent’.
     
    Roads should be financed exclusively through use taxes, in this case the gasoline tax.  This financing scheme should also apply to those other public ‘goods’ that everyone pays for but relatively few use.
     
    Let the public libraries sell subscriptions. In a world where books are now de facto free I do not see their point.  Libraries are another relic of a bygone era.  The same with parks – charge admission.
     
    The problem with all of these ‘free’ public goods is that they are not free and cost quite a bit more than if they were financed privately and only by those that use them.  I read one study that concluded that any good or service delivered by a government entity costs on average 6 times what the private sector could deliver it for.  I’m skeptical of this study because this factor of six seems way too low.
     

  • Old Buckeye

    I’ve lived in two cities (in Ohio) that levied income taxes. They were both nice places to live. So, like you, Book, I felt I was getting some return on my dollar. But I agree with MJ that many public goods could more effectively be supported by private financing–or they would go away from lack of support. And that would be ok with me too. People who have motivation and desire will fill a void if it merits being filled. Look at how many of the libraries MJ mentions were built in the first place: Andrew Carnegie funded them. Wikipedia says of him: Carnegie believed in giving to the “industrious and ambitious; not those who need everything done for them, but those who, being most anxious and able to help themselves, deserve and will be benefited by help from others.” I think there are others who would do the same.

  • 94Corvette

    It is always interesting to me to see how our forefathers coped with the property taxing schemes used through the years.  It used to be that you were taxed by the width of your home; hence the narrow houses you see.  Houses were also taxed by the number of exterior doors, so you had ‘walk-through’ windows.  When they taxed by the numbers of room in a home, and counted closets as rooms, the use of armoires flourished.  I’ve heard it said that property tax is the only tax you pay on income not yet realized.  

    I am a firm believer in the ‘Fair Tax’ which is based on consumption.  All other taxes are designed to encourage or discourage behaviors. 

  • lee

    I don’t agree with Mowrie and Buckeye, but I don’t have any answers, or proposals. I know in California, and in Marin as well as many other counties, there are HUGE upfront permitting costs of construction in which fees are paid to the Fire, Water, Sanitary, and school districts, to the county and municipallities for street and whatever else. Everyone has a paw out for a slice of the pie. In Marin, this can run up to over $40,000 per door for a multi-unit residence, and over $50,000 up to as much as $100,000 for a single dwelling residence. This is NOT including the actual building permit for the Building Department. For certain types of construction there is a “public art” fee that has to go towards an approved “artist” or, in lieu of installing art, shelling out twice the amount to the Parks and Rec Department. Then, of course, there is the strong arm tactic of the Quimby Act, which takes land, or money or both, from anyone developing. (These costs have all sorts of ramifications that can be explored at another time, but one is that it essentially shuts out all but MAJOR devlopers, or the incredibly wealthy, from building.)     Anyhow, each time there is any construction, all those services and agencies get a big chunk o’ change. Of course, since the chunk o’ change is soooooooo big, construction is not as, uh, prevalent as it might be, if it didn’t feel so much like working with the Mafia. Anyhow, the construction is assessed according to the perceived “impact” it will have on services. So, if the School District figures that the construction will add thirty more kids to the district, the assessment includes the anticpated cost of adding an additin classroom. If the Fire District determines that they need to buy one more truck and one more ambulance in order to cover the development, then that cost is figured into the assessment. Which is how it can come to close to $40,000 per door for a multi-unit dwelling in Marin (which has a crazy patchwork of agencies and districts; in the City, the fees come in at closer to $9,000 per door.) Property tax is crazy. In California, you have Mello-Roos to try and by-pass Prop 13, which has anyone in a Mello-Roos district not really “owning” their own property. You have trusts owning higher end properties in order to lock in Prop 13 rates for eternity on that property.  (Here in South Carolina, I pay “property tax” on my car in order to license it–and I wound up paying almost $100 MORE for tags here than in CA for the same (and now OLDER car, with more miles!) Conservatives love/d Prop 13, but it has created a mess.  

  • lee

    My point is, services have to be paid for, paying on an “as-use” basis doesn’t work very well, and would likely freeze out poorer people. (And not every poor person is a free-loader who relies on welfare and government handouts.) As a once out-of-work person who was not eligible for unemployment, and who could neither afford a computer, nor internet, I relied on the FREE computer/infernet access offered by the library and the EED to get a job.

    While I do not have children, I have learned that good schools help improve property values, and was not terribly upset that almost 60% of California property taxes go to the schools. (How those schools and teachers unions WASTE that money is another story.) Fire protection? Sure, I am glad to pay for, but if it is on a subscription basis, I’d rather not. I would really want my neighbors to be getting fire protection, too, because it protects my home also.

    What is “fair” in terms of property taxes or income taxes? Wish I could come up with a simple answer…

  • jj

    There should, it seems to me, be some sort of use-based fee, with a couple of obvious exceptions: we all get something out of the county courthouse, I suppose; we all have access to the cops, we all have access to the fire department.  If your house hasn’t burned down recently and you haven’t utilized their services, still: they represent a form of insurance.  Same with the county jail, and while I’ve never spent any time there myself I recognize there’s a use for the place.  In my personal case I’m subject to the sour stomachs of town cops, state cops, county cops, sheriffs, tribal cops, ICE cops, and National Park Service cops – which it seems to me is about five cop shops more than any population outside of a maximum security prison needs.  It’s idiotic, but okay.
     
    So the stuff that we all have a use for, fine.  I can get behind that.  But since I’m no more free to go use the public school for my own purposes – like a prayer meeting – than anybody else who ever had the high privilege of paying for one, (despite that I own the goddam thing); never had a kid anywhere near a public school; never darkened the door of a public school a day in my life myself; I’m at something of a loss to know why the hell I’m paying for them.  (It isn’t as though they do a job worth paying for, either.)  I have come to the conclusion that the schools should be supported by the people who actually use them, and leave the rest of us alone.  Get – put succinctly – your kid the hell out of my wallet.  You didn’t ask my permission to have them, I have no input into their existence – why the hell do you expect me to pay for them?  I do not, in fact, derive a benefit from putting other people’s kids on a bus, for which I pay; riding them around, feeding them lunch, breakfast, or both; or exposing them to, (for example), English “teachers” who are in the real world rather less than half as literate as am I.
     
    I also note, just in passing, that of my own real estate taxes, somehow or other the cops, the courts, the city hall, the roads, the fire department, the library, the (in our case) airport and harbor all manage to maintain themselves and get by on 16% of what I pay.  Whereas the feckless, witless, worthless, useless, brainless schools seem to require 84% of what I pay to accomplish the piss-poor job that they do.  And – they seem to need more every year.
     
    This eludes me.  And I’m sick of it.  I think if you’re going to utilize the school, you pay for it.  If not – you don’t.  I’ll cheerfully pay a bill that’s 15% of what I currently pay for the stuff I actually do – or could – get some use from – but I’m sick of the lion’s share of what I pay going into a black hole.  And it’s a goddam snotty black hole when you have the temerity to question them, too, I note.
     
    I suspect that’s what you’ll encounter with this question.  I imagine we’re all willing to pay for those things for which we have a purpose – but the schools?  They’re on too many people’s “lousy” and “not worth it” lists.  You have a kid you want to send to school – fine.  You pay for it: it’s your kid.  Not mine, not anybody else’s.