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Wealth and Want | |||||||
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Adequacy
of Property Tax on a Local Basis for Financing Education and other
Services
Herbert J. G. Bab: Property Tax -- Cause of Unemployment (circa 1964) Three criteria are generally
used to judge the merits of a tax.
For instance if full employment
and economic growth are regarded as
desirable, the question to be examined is what effects will this tax
have on achieving these objectives?
The shortcomings of property taxes as revenue producers have been obvious for a long time and are widely known. The main difficulty is that revenues from property taxation do not keep pace with the ever-increasing requirements of local governments. Every county, every city official and every school administrator will testify, that there are not enough funds available to meet the requirements of local governments. The inability of local government to raise enough revenues from property taxation has forced them to borrow at an ever-increasing rate. The debts of local governments have increased from about $16 billions in 1947 to over $61 billions in 1963, an increase of about 382%. During the same period private debt increased by 279% and federal debt by only 26%. ... To satisfy the second criterion, a tax must be equitable. It must be either based on the ability to pay principle or on the benefit principle. ... An analysis of the social and economic effects of a particular tax system would indicate the third criterion. When analysing property taxes we shall distinguish between that part of the tax which is assessed on improvements and that part which is assessed on land. That part of the tax that is assessed on buildings penalizes everybody who improves his land, his buildings or intends to construct residential, commercial or industrial property. The most serious incidence of property taxes is on new housing. When rental property or houses are newly constructed these taxes add 15 to 20% to the annual cost depending on assessment practices and tax rates. ... To the extent that property taxes discourage residential construction and the improvement and modernization of homes they create unemployment. ... Under our property tax system wealthy communities with expensive homes or with heavy concentration of industry will have a large tax basis and low tax rates. Schools will be good and public services will be adequate. Yet in a poor community the tax base will be much smaller, tax rates will be much higher and still it will be found impossible to provide for good schools and adequate public services. In a pamphlet entitled Paying for better schools the Committee for Economic Development came to the conclusion that "where a child happens to live is likely to be important in determining the quality of his education. In some areas children are taught by meagerly qualified teachers in substandard schools with inadequate equipment. The school session is shorter and the school leaving age is lower than the national average." A defect of our property tax system that is seldom mentioned is that it puts a premium on obsolescence and penalizes new housing. This is so because property taxes are ad valorem taxes. Every piece of real estate except land is subject to depreciation. Thus the owners of old and obsolete real estate will pay little in taxes, while newly constructed buildings will bear the brunt of the tax. .... Professor Galbraith and others have expressed concern about the poverty of the public sector of our economy as compared to the affluence of the private sector. The appearance of our cities, the inadequate financial support we give our schools and poor public services seem to support this view. Yet, I can not agree with Professor Galbraith's conclusion that we need more public revenues to meet these needs. It seems to me that the spreading out of our cities over wider and wider metropolitan areas has immeasurably increased the financial burden of local governments. In other words, wasteful use of land caused by our property tax system is the real reason of the poverty of the public sector. It stands to reason that the spreading out of our cities into wider and wider metropolitan areas is a very costly venture. For instance it was found that in the New York region suburbs have to make capital outlays of $68 per capita for new housing, while only $44 was required for new housing in the central cities and only $38 in the non-metropolitan area. Another survey found that it costs $80 per household to provide water in the outlying suburbs against $30 in the city. Read the whole article Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894) — Appendix: FAQ
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