Periodically, stories appear in the news about rising property tax bills, propelled by rising real-estate valuations, pushing people out of their homes. Once such story appeared in The New York Times in February and it was typical in lamenting the consequences to some particular low- or middle-class family while somehow assigning the blame to “rich” people who bid up home prices, or to “capitalism”, or to “the market” which facilitates their “greed”. In other words, it was typical in missing the point.
This letter was submitted as a rebuttal to such willful ignorance. It was not published.
19 February 2006
Contrary to popular claims, the cause of soaring property taxes (“As Property Values Rise, Homeowners Feel Pinch“, Real Estate, 19 Feb) is not rapidly rising property values. The cause of soaring property taxes is rapidly rising government expenditures.
As a teenager during the late seventies I watched from the sidelines in New Hampshire as first California and then Massachusetts implemented sledge-hammer “tax reform” in response to the same kinds of problems that are happening now in other places: people being taxed out of their homes as hyper-inflated housing markets drove valuations upward at unprecedented rates. Twenty years later I lived with the bizarre consequences of one such reform as a new property owner in California.
But because I was watching from New Hampshire, it took me quite a while to figure out what all the fuss was about. In New Hampshire, even now, property tax rates are set at the local level and local government expenditures are carefully controlled by local citizens, most often through that quirky remnant of direct democracy, the Town Meeting. Hence, rising property values are rarely a problem: as property valuations rise, tax rates fall to match, keeping overall revenue (and tax bills) at the relatively constant level that the citizens have authorized their governments to collect and to spend. If and when tax bills rise, it is because the citizens have specifically authorized government to spend more; the real-estate market has nothing to do with it.
The only way rising property values lead to rising tax bills is if the government chooses to treat the tax rate as an inevitable force of nature rather than as the financial throttle which matches total valuation to total revenue; that is, if government chooses to use rising valuations as an excuse to collect and spend more than they could otherwise have done.
There is nothing more needed to control rising property tax bills than for the citizens to demand fiscal discipline and responsibility from their governments.
(C) Copyright 2006, Augustus P. Lowell