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Property Tax Caps

Well, the Republican governor of Connecticut has put up a trial balloon for property tax caps. Here's the letter I sent my local paper:

To the Editor:

I read with great dismay that our governor is contemplating property tax caps. We need only look at the experiences of California ("Proposition 13") and Florida ("Save Our Homes") to know that such a thing is something that intelligent people who believe in the golden rule and rational taxation would avoid at all costs. (Do we qualify as intelligent? I hope so!)

Property tax caps may sound very appealing, and likely will gather knee-jerk approval from homeowners and commercial property owners. But if we regard ourselves as educated, rational, reality-based people, we need to examine the medium-term and long-term effects of such a plan. California's and Florida's experiences can save us conducting our own experiment.

Property tax caps don't reduce the demand for public spending a bit. They merely shift the funding from taxes on real estate to taxes on wages and taxes on goods we produce and buy from others — and from those who own choice sites to those who own less-choice sites and those who own no property at all. Property tax caps increase housing costs, which is the last thing we need here. Economists regard taxes on wages and taxes on goods as distortionary, as inefficient, with deadweight loss. They burden the economy. They burden poor people. They deaden the entrepreneur.

Alabama has low property taxes, and has sales taxes as high as 11% on purchases as basic as bread and milk; their income tax starts at under $20,000 for a family of four (a few years ago, it started at under $5,000!). Their education system, to put it gently, leaves a lot to be desired.

So what should we do? Reform the property tax. The reform I favor — which I think will hold up to whatever scrutiny one might apply — is to separate the two portions of the tax on real estate. Reduce the taxes on buildings, and increase the millage rate on land value. Were we to announce that reform today, to be enacted, say, 3 years from now, people would have a chance to make appropriate decisions regarding the housing that makes sense for them. Would it displace some people from older housing they could no longer afford? Yes, possibly. Would it create more affordable housing for the wide range of people who need affordable housing? Yes, definitely. Would it lead to less urban sprawl and shorter commutes? Yes. Would it lead to fewer vacant lots downtown? Yes.

There are many good reasons to undertake property tax reform. But assessment caps and tax caps have no place in that reform.

WCA, 3/29/2007

What's even more peculiar is that at the same time that Governor Rell is proposing caps on property taxes (even increases from revaluations!), she is simultaneously proposing spending more on education. What tax base does she propose to tap?

 

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