A Sound Property Tax Solution
H. William Batt., Ph.D.
Center for the Study of Economics, Albany and Philadelphia

The property tax burdens households because their incomes are stable while the value of homes increases as a tax base. Most solutions fail to understand why those increases come about. I explained earlier that property value typically has both a land value and an improvement value. Improvements depreciate over time and land values increase. Moreover assessments frequently fail to keep pace with the changes entailed in this.

A tax on improvements imposes a penalty on owners for maintaining and improving their property, and discourages them from using their parcel sites to the full extent that their value warrants. Distinguishing how much of a parcel is land and improvement value was once a daunting challenge, even though assessors were required to do this. Today computer algorithms provide means by which to do this easily. Taxing only the land value should be the first step in any remedy.

The value of land parcels is due to the flow of economic rent created by a community's market enterprise. Rent was well understood in classical economic study but has been ignored and trivialized in contemporary thinking. But it is the first step to addressing property tax burdens. Because rent is socially created value reflected in the price of land in neighborhoods and whole regions, without reference to any individual parcel owner's effort, it cannot be stemmed, relieved, or eradicated without affecting the economy linked to it. Rent can either be left alone to affect the market price of sites or be recaptured by means of a tax. There is no other way.

But the tax need not be collected as now is by regular installments. One solution would be to attach it to a home mortgage, to be paid by the financing institution as it comes due. Another solution is to defer the payment with appropriate interest until a home is sold, when a portion of the sales gain can be allotted to the tax payment due.

Some 24 states and the District of Columbia now employ some version of a deferral option, so there are many models to emulate. If deferral were implemented in New York, either as a local option or as a statewide program, transitional measures could be instituted during initial adoption to mitigate any temporary loss by local governments.