Q & A with Iris Lav on Property Taxes
http://www.offthechartsblog.org/q-a-with-iris-lav-on-property-taxes/
Posted by: CBPP
Posted in: Budgets, State Budget and Tax, States in the Recession, Taxes
Today, we sat down with Senior Advisor Iris Lav to discuss property taxes, and good and bad ways to address concerns about rising property tax bills.
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Iris, let’s start with the basics. How are property tax revenues used and who collects them?
Property taxes are a major source of funding for public safety, schools, roads, libraries, and other services in most American communities.
They usually are collected by local governments, such as counties, towns, or school districts.
In recent decades, concern over rising property tax bills has led a number of states to impose a limit on the amount of property tax revenues that counties, municipalities, or school districts can collect. Several other states are considering such a limit, known as a property tax cap. Are caps a good idea?
Well, supporters of property tax caps argue that restrictions can lower property taxes without depriving residents of needed services.
Unfortunately, that is not the case. What happens is that localities are forced to cut back on teachers or course offerings, road repairs, public safety, and other services that are vital to sustaining a certain quality of life.
Are there specific states where you can see this negative impact?
California adopted a tight property tax cap called Proposition 13 in 1978. Public services have declined dramatically since then. California’s school system, formerly one of the best in the country, became one of the worst.
Similarly, some Massachusetts towns have had to close libraries and senior centers, and lay off teachers, fire fighters and police officers in order to comply with the state’s severe property tax cap. In some communities, class sizes are up, foreign language classes and gym classes are being reduced or eliminated, and students face massive fees to participate in activities. Residents face deteriorating roads, poorly lit streets and longer police and fire response times.
Do states have alternatives to caps that allow them to provide tax relief to property owners who face high tax bills, without undermining public services?
Yes. One option is called a “circuit breaker.” Circuit breaker programs put a limit on a family’s property tax bill if it represents too high a share of the family’s income. Households whose property tax payments exceed the limit receive a rebate from the state.
Circuit breakers allow the property tax to continue to fund essential services like education at the local level, while targeting assistance to those who need it.
To learn more about property taxes and property tax caps please visit the Policy Basics section of our website. You can also find a podcast of this conversation on iTunes.
I encourage you to look at Bill Batt’s articles at urbantools.org and wealthandwant.com, particularly one entitled “Poor Widow Solution.” The property tax, tweaked slightly to reduce or eliminate the portion of the tax which falls on buildings and increase the millage rate on land value, has the potential to be the ideal source for public revenue — natural public revenue, if you will! It doesn’t take from anyone something he/she/it creates, and recycles for public use publicly created value.
We underuse this tax! We’d be better off if we collected a larger share of the rental value of all our land, and then reduced our taxes on wages and sales and things of human production. Think about the incentives that would generate for using choice sites well, and fringe ones lightly if at all.