Roughly a quarter-century has passed since Proposition 13 in California and Proposition 2-1/2 in Massachusetts touched off a coast-to-coast wave of public interest in property tax limitation measures. Yet today the property tax remains one of the most dominant fiscal policy concerns, and for good reason.
The property tax is no longer the overwhelming revenue source for states and localities it was in the early twentieth century, but it continues to have a major and often countercyclical role in public finance.
Property Taxes Rising Rapidly
Between December 2001, when the economic slowdown was still gripping the nation, and December 2004, state and local personal income tax proceeds declined by 1 percent, while sales tax coffers grew 12 percent, according to U.S. Census Bureau statistics. Property tax collections surged by 25 percent.
In many areas of the country, property taxes have risen far faster than the national rate. In Alexandria, Virginia, residents have faced an average 13 percent inflation-adjusted increase in their property tax bills each year for the past five years. Communities in states throughout the country, from Florida to Nevada, New Jersey to Illinois, Wisconsin to Rhode Island, report even bigger jumps in property taxes.
Citizens, Politicians Seek Limits
Public officials and taxpayers have responded to these trends in various ways:
- On June 13, Times of Trenton political reporter Tom Hester Jr. noted both Jon Corzine and Douglas Forrester, who are challenging each other in the “off-year” New Jersey governor’s race, “talk about property tax help via increased state spending on property tax relief, not by reforming the system that forces New Jersey property owners to pay an average of $6,000 per year in property taxes.”
Corzine would raise the maximum property tax rebate for most homeowners to $1,175 over a four-year period ($1,750 for elderly and disabled residents), while Forrester would phase in over three years a state-funded credit of 30 percent against local property taxes on a primary residence.
- Citizens in Maine, which has long ranked among the top five states for property tax burdens, qualified a measure for the 2004 ballot that limited the property tax rate and future valuation increases (much like Proposition 13 does). The proposal was rejected, but this year Maine activists–led by veteran tax-fighter Mary Adams (http://www.taxpayerbillofrights.com)–have mounted a new ballot drive modeled after another famous Constitutional limit, Colorado’s Taxpayer’s Bill of Rights (TABOR).
Adams’ measure would set strict legislative “supermajority” or voter approval requirements for most tax increases and would limit the government spending that has often been associated with property-tax growth in the past.
- After Nevada Gov. Kenny Guinn (R) signed into law a statutory assessment-growth limit of 3 percent on certain residences, State Assemblywoman Sharron Angle (R-Reno) declared she would lead a citizen-initiated petition campaign (http://www.wethepeoplenevada.org) this fall for a tougher constitutional amendment to cap the property tax rate at 1 percent and limit future annual assessment increases to 2 percent (again, two of the most salient features of Proposition 13).
- Other citizen groups are reacting to property taxes one community at a time. For example, the Connecticut Federation of Taxpayer Organizations (http://www.ctact.org) is tracking and providing advice to local activists seeking referenda on town-level budgets. As a May 20 editorial of the Manchester Journal Inquirer noted, voters in five towns near Manchester (Bolton, Ellington, Somers, Tolland, and Vernon) rejected their high-tax, high-spending budgets “because their leaders cannot say ‘no.'”
- Although best-known for having helped defeat the imposition of a statewide income tax for several years, activists with Tennessee Tax Revolt (http://www.tntaxrevolt.org) have flexed their muscles on behalf of local TABOR movements in cities such as Spring Hill and Oak Ridge.
- Bills drafted by Minnesota State Rep. Phil Krinkie (R-Shoreview) and State Sen. Warren Limmer (R-Maple Grove) would replace the current “Truth in Taxation” property-tax grievance process with a survey that would ask each property owner whether he or she was content with the proposed level of property tax in the locality for the year ahead. If the number of “not satisfied” surveys returned to the state exceeded 20 percent of the parcels in a given jurisdiction, then a binding voter referendum between the proposed property tax rate and the rate already in effect would be held.
At press time the legislature was still in special session and the fate of the bills, which have support from Gov. Tim Pawlenty (R) and the Taxpayers League of Minnesota (http://www.taxpayersleague.org), was uncertain.
- A citizen group in South Carolina (http://www.stoptax.org) seeks outright elimination of the property tax on homes and is enlisting legislative allies to accomplish the task. Palmetto State Sen. David Thomas (R-Fountain Inn) has proposed legislation (for 2006) that would replace the residential property tax with a 3 percent sales tax, while also reducing commercial property taxes.
- In Pennsylvania, a movement led by a former radio talk show host (http://www.grandoldusa.com) wants to abolish property taxes on homeowners in exchange for higher taxes on incomes and elsewhere. Meanwhile, a group of Pennsylvania House members known as the Commonwealth Caucus (http://www.commonwealthcaucus.org) has crafted a different approach: Phase out school-related and other property taxes in favor of a broadened 5 percent state sales tax.
- Similarly, Texas lawmakers grappled throughout this year’s legislative session with property-tax relief plans, some of which would create a new business “payroll tax” that would function much like a statewide tax on incomes. (Texas is one of nine states without such a tax.)
Some Alternatives Called Worse
These “abolish and replace” proposals ought to signal a cautionary note to would-be reformers: From an economic standpoint, some alternatives are worse than property taxes themselves. In a 2002 study conducted for the Texas Public Policy Foundation (http://www.tppf.org), Ohio University Professor Richard Vedder concluded that in addition to keeping total taxes at a tolerable level, policymakers seeking healthy economies should avoid steep, “progressive” income taxes and orient their systems toward sales and consumption taxes … while keeping property taxes moderate as well.
Vedder also noted overall tax burdens increased three times faster in states enacting an income tax in the past 40 years than in states that shunned a broad-based wage tax.
Relief On Its Way
David H. Bradley, a policy analyst with the liberal Center on Budget and Policy Priorities, wrote in a June 6 article for the Wall Street Journal, “if the historical trend holds, property taxes will stabilize or decline over the next several years, without the need for tax revolt-type limitations.”
But taxpayer advocates around the country aren’t so sure. Property tax limits and TABOR-type measures were the two hottest topics at the 2005 National Taxpayers Conference, sponsored by the National Taxpayers Union’s research affiliate and held in Washington, DC on June 16-18. The event, which featured networking and training opportunities for citizen activists, shattered all attendance records for previous conferences, which have been held biennially since 1989.
“National Taxpayers Conference alumni have participated in virtually every major citizen-based tax limit campaign over the past 15 years, so the future will likely hold many surprises for elected officials who believe the property-tax gravy-train will just keep rolling along,” NTU President John Berthoud remarked. “Homeowners have been unwilling passengers on this high-tax express, and they’re clamoring for a more responsible engineer who can apply the brakes.”