Posted 9:44 PM by steve

Maybe I'm nitpicking, looking on a Sunday night for something or someone to take issue with, but I have to jump to the defense of those who rightfully complain about high property taxes, only to be criticized for doing so.....

Where to start, where to start? Well, in no particular order, how about with the fact that property tax assessments are subjective. Income taxes and sales taxes are based on objective, easily determinable values. Not so with property taxes which very much are in the eye of the beholder... who in this case works for the county, whose salary (indirectly) depends on how high they set assessments. Notice how counties whose elected officials complain the most about not having enough money to fund all the 'needed' spending jurisdictions are often the ones that experience high increases in assessments? Chicken? Egg? I'm not sure. Coincidence? No. Furthermore, property tax assessments are based on what are called 'comparables' - the tax on one house is based on the recent selling price of other 'similar' houses. The problem is that no house is iidentical to another. Not even in the most standardized of developments are two houses exactly alike. In many areas, finding comparables is a pipe dream. Fro proof, look at the process real estate agents go through to convince the homeowner that they are capable of determining the value of a house - they examine other houses in the area in hopes of establishing a comparable value - yet an awful lot of houses get underpriced (evidenced by bids coming in over listing) or overpriced (evidenced by the need to lower one's asking price). At least the process of setting a price for sale is self-correcting. But assessments - for the purpose of determining just how many thousands of dollars will be assessed in annual taxes are based on these 'comparables' that exist only in the mind of some county bureaucrat. Fair? Not a chance.

Property tax defenders like that property taxes fund much of local government needs - schools, fire and police, sanitation and the like. But rising property taxes are like a built in, and unjustified, raise for local government - just because property values increase does not mean that local government needs have gone up at anywhere near the same pace. If it takes (hypothetically) 10 police officers to protect 1,000 houses, one doesn't, and shouldn't, require more officers if home values go up. Nor, if home values go up, does it mean that those 10 police officers should all get a big raise. Yet, every year, increases in property tax assessments is matched by increases in county spending demands.

Let's continue with pointing out that increases in property taxes represent taxes on unrealized gains. You're not taxed on other investments you make prior to selling that investment, nor in general are individuals taxed on income prior to their receiving it; why should one's home be the exception to the rule? As for Bill's suggestion that we all go and borrow money to pay our taxes, what kind of terrible investment advice is that? Who in their right mind tells people to go out and borrow money - even at today's relatively low rates - to pay for recurring expenses? I don't borrow money to pay for my food, nor my clothes (when I buy any, that is), nor my gas bill, nor my satellite bill...

While economists can (and will) make an argument to the contrary, homeowners are not receiving more value from their years-earlier home purchases. When I bought my house 12 years ago, I bought four bedrooms. I still have four bedrooms. The value to me of those four bedrooms is the same - a place for my family to sleep. Just because someone across the street is putting up a mansion (really!) doesn't make my 12-year-old purchase any more intrinsically valuable... at least not to me... and at least not until I sell.

Property taxes discourage home ownership. Every homebuyer (at least the ones I know of) immediately checks out the property taxes on prospective purchases. Next to the mortgage itself, property taxes are one of, if not the largest home related expenditure people will make each year (this assertion is based on a focus group of one... me). Higher property taxes cause home buyers to buy less house than they would otherwise buy. Given the benefits of home ownership - it improves the economy, it leads to lower crime rates, it makes people more protective of the environment (no statistics on this one, but it seems a reasonable assertion to make), society should do more to encourage people to buy houses, not less.

Property taxes also promote neighborhood -vs- neighborhood fights, as well as, in certain neighborhoods, intra-neighborhood fights. One part of the county ends up resenting another. Neighbors check out each other's assessments, seeing how much each house has gone up. They check out the increase in value based on home improvements, additions, pools and the like. Should society be doing things that turn neighbors into petty envious informers to the county assessment offices? After all, there's nothing like getting a big boost in one's assessment and wondering who among one's neighbors finked to build community spirit!

Property taxes are also a form of comsumption tax - they are a tax on spending (in this case, spending on a house). I dislike consumption taxes - society has already taxed you on the income you've earned, to be taxed a second time when you spend your money is philosophically wrong (separate, and long, argument on this, but it's the way I feel). And they are a recurring consumption tax. A sales tax you pay only once, property taxes are the sales taxes that you keep on paying... and paying... and paying.

Property taxes are also progressive, in that they tend to be highest on those who make the most money (thus having the more expensive houses and being hit with the bigger tax bills). I dislike progressive taxation schemes - taxing someone at a higher rate because they are successful is philosophically wrong (separate, and long, argument on this also, but it too is the way I feel). While everybody who owns property is taxed at the same rate, it is demanded that the well-off pay more. Yet their kids get the same education expenditures from the county. They (I think) get less per-house police and fire coverage than in lower-valued areas. They just are asked to pay more.... and to smile while doing so.

It's wrong, all wrong. Get rid of it.

UPDATE: Bill responds (same link) by, for the most part, trashing my arguments. I was all set to respond but my wife has ordered to put down the keyboard and step away from the desk. So, rebuttal to rebuttal will have to wait until morning. Or until she's sleeping. This ain't over yet.

UPDATE II: Bill's response (in italics) consists of:

"tax assessments do not rise at anywhere near the same pace as values...". True, but my point is the same: assessments go up, so does local government spending. The easiest way for local government to fund additional 'needed' spending is by raising property tax assessment standards - especially since there is a disconnect between value and assessment.

gains on home sales are largely untaxed, so it's fair to hit them with property taxes on their unrealized gain in value. But it's a federal and state decision to exempt gains on home sales while property taxes are pretty much a local matter. I don't know why one has to do with the other... after all, if there was no exclusion, would that be an argument for getting rid of property taxes?

He thinks it perfectly fine to borrow money for the purpose of paying property taxes, equating it somewhat with a margin investment loan.. That is an interesting concept, the idea of treating the potential gain in your home's value as an investment it is worth borrowing at low rates to finance. For a lot of people, borrowing to finance investments works out fine. Borrowing at 5% to make 10% sounds great and for those people who can make it work, all the power to them. But, in my opinion, for most people, it is a terrible idea. And the idea of borrowing money each and every year for the purpose of paying property taxes doesn't make sense - a mortgage company won't issue a loan to a buyer who can't fund property taxes out of their income. Since they're not in the business of turning down business, shouldn't we take a cue from them?