It wasn't much discussed in the recent election but may be simmering beneath the surface
Candidates in the recent Presidential election spent a lot of time talking about taxes but most of the talk was about income tax -- on the one hand, taxing billionaires and on the other, cutting taxes on tips, overtime and other relatively small change.
There was also a lot of talk about housing, primarily the lack of affordable housing. But,there was very little hot air about property taxes, which are both a cause of high housing costs and the result of them -- and also an annoyance that lurks just beneathmost taxpayers' consciousness.
President-Elect Trump didpledge to restore federal income tax deductability for state and local taxes, including property tax. Kamala Harris said she would giveeligible first-time home buyers a tax credit of up to $10,000. But that was about it.
Of course, property taxes are controlled at the local level so perhaps the Presidential contenders felt it wasn't their problem. Yet, jurisdictional questions aside, Americans are feeling very prickly about the cost of living and the taxesthey pay on their home.
"I always vote against every incumbent in Virginia," snapped a D.C.-area homeowner who was asked about his feelings on election day. "The only people who can afford to live here are federal bureaucrats and generals."
Similar feelings exist not only in the shadow of the White House but just about everywhere, in red and blue states alike, and especially in areas that are experiencing rapid increases in property values. When a "starter home" costs $1 million, it will carry a hefty property tax bill, something homebuyers sometimes gloss over to their subsequent regret.
Polls document a growing surliness on the subject.
- A January 2024 UChicago Harris/AP-NORC poll revealed that approximately 69% of U.S. adults believe their property tax rates are too high, with only 27% considering them fair.
- In Texas, a February 2023 University of Texas/Texas Politics Project poll found that 47% of respondents identified property taxes as having the largest impact on their personal finances, surpassing other state taxes.
It's not that consumers are just discovering the property tax. Rather, they have been hit with fast-rising taxes based on skyrocketing property valuations, which are meaningless to homeowners who don't plan to sell.
- Property values have skyrocketed in recent years, rising almost 27 percent faster thaninflationsince 2020, which yields dramatically higher property taxes in jurisdictions that fail to adjust millages (rates) downward, according to the Tax Foundation.
Instead of shouting slogans or makingoutlandish promises, let's take a sober look at what goes into rising property taxes.
The Economics
Economics is seen as a boring subject but it packs a powerful punch when examining what's behind rising property taxes. Basically, it comes down to:
Rising property values
In recent years, housing prices have soared in many parts of the country, especially in urban and suburban areas. As property values increase, so do property assessments, leading to higher tax bills for homeowners.
- Even in places where housing markets are cooling or stabilizing, assessed values may lag, leaving homeowners with tax bills based on peak prices that no longer apply.
Inflation
Inflation has driven up the cost of basic goods and services, leaving many people feeling financially squeezed. In this environment, rising property taxes can become an additional burden that many homeowners can't afford.
- Many retirees and older homeowners on fixed incomes struggle with escalating property taxes as their incomes remain steady or grow only modestly. This can lead to situations where long-time homeowners, especially in gentrifying areas, face the possibility of being priced out of their own homes due to tax increases.
- This also applies to people of all age groups who are disabled or relying on fixed-rate payments of one sort of another.
Housing affordability
High property taxes contribute to the overall affordability crisis, as both homeowners and renters are affected (landlords usuallypass tax increases onto tenants).
- This is especially challenging in areas where affordable housing is scarce.
The Reponse
Consumers encounter food and gas prices almost every day so they tend to be quicker to complain about perceived increases, real or not. The same is true of food costs. But once the subject comes up, everyone has an opinion about property taxes and that opinion is nearly always negative.
Nowhere was this more evident than California in the 1970s, when hectic population growth sparked steep increases in property taxes that drove up the cost of housing and threatened to drive retirees and others from their homes.
Passed by California voters in June 1978, the initiative was spearheaded by Howard Jarvis, a taxpayer advocate, and Paul Gann, a political activist.
The people of California have been taxed to the limit, and were fed up. Proposition 13 is the only way to give homeowners and renters the relief they desperately need, Jarvis said. The measure passed handily in 1978, setting off a scramble by state and local governments to fund schools and other essentials from a smaller pot.
California's initiative process is powerful and politicians arewary of angering voters, as seen when then-Gov. Jerry Brown accepted the Prop. 13 it with these words: The people have spoken. The government must now learn to live within the limitations that the taxpayers have set.
Opponents of the measure said it would wreck California and stymie its growth but 40-some years later, California's economy is fifth in the world and it continues to have a thorny housing crisis.
There's little doubt voters in other states would like to do something similar, but few states allow voters as much power to take the reins as California. But there's also little doubt voters elsewhere are fed up with what many see as unfair and unnecessarily harsh property taxes.
This is evidentin places like North Dakota(where a proposal to repeal the property tax made the ballot),Nebraska(where a repeal measure missed the ballot but the taxs evisceration was debated in special session), andWyoming(where the legislature passed a virtual elimination of the tax on residences, but drew a gubernatorial veto), and elsewhere, according to the Tax Foundation, an independent research organization.
- In some communities, lawsuits are being filed to contest assessments or challenge tax increases, claiming theyre unfairly burdensome or improperly calculated.
- Organized protests or public campaigns are also emerging, where residents demand reforms to make property taxes more predictable and manageable.
Rural vs. urban
In rural areas, residents often feel that property taxes are disproportionately high relative to the services they receive, especially as compared to urban areas.
In some states, taxpayers in weathier areas resent what they see as a free (or at least cheaper) ride being enjoyed in rural areas, where a similar house carries a much lower tax bill than one in a more affluence suburban area. This can intensify regional tensions over tax allocation and may lead to political pressure for property tax reforms.
Growing dissatisfaction with public spending
Some property owners feel that increased taxes are not matched byimprovements in local services or schools. Dissatisfaction with government spending transparency or efficiency fuels resentment, as taxpayers feel they are paying more without seeing benefits.
Legal challenges
In some communities, lawsuits are being filed to contest assessments or challenge tax increases, claiming theyre unfairly burdensome or improperly calculated.
Organized protests or public campaigns are also emerging, where residents demand reforms to make property taxes more predictable and manageable.
- In some areas, homeowners are organizing to challenge property tax assessments, pushing for legislation to cap increases or allow for certain exemptions.
Homestead exemptions
Some states have responded by implementing or expanding homestead exemptions, which offer tax relief to primary residents, or tax-freeze initiatives for older adults or low-income homeowners. As taxes continue to rise, there is increased pressure to expand these relief programs.
Shift in public opinion
More people are beginning to view property tax reform as a key issue, and in some places, local and state candidates are running on platforms to cap or reform property taxes. This could signal a shift toward policies that limit annual increases or revise assessment methods.
If this dissatisfaction continues to grow, legislatures could be forced to act. However, reducing property taxes is challenging, as they are a primary revenue source for funding local services like schools, law enforcement, and infrastructure and politicians don't like to take the blame for cutbacks to essential services. That's where an initiative process like California's can get action without elected leaders sticking their necks out.
Balancing these competing interests isn't easy and won't happen without straight talk and action by elected officials and candidates. Talking about onetime tax credits or tax-free tips may get a round of applause but doesn't do anything to begin defining and implementing a solution to a problem everyone wants to solve.
Photo Credit: Consumer Affairs News Department Images
Posted: 2024-11-11 00:31:20
