Property Tax Abolition

This election season, several states are weighing the abolition of property taxes. This is a terrible idea.

Local governments are sustained almost entirely by taxation of property in their jurisdiction. This revenue funds important services like transportation, emergency responders, park maintenance, libraries, and perhaps most notably, schooling. Abolishing property tax starves local governments of the funds needed to continue and expand these services. The deficit will necessitate either austerity or will require the shortfall be covered through other forms of taxation. The most readily available substitutes are income tax and sales tax. Both forms of taxation are regressive and disproportionately affect low-income Americans.

Consider two taxpayers. Alice earns $120,000 and spends $60,000 a year on essential goods and services. Bob earns $40,000 and spends $35,000 on the same essentials. At a 6% sales tax, Alice pays $3,600, 3% of her income. Bob pays $2,100, 5.25% of his!

County, state, and federal elections operate on vastly different scales. A state representative might have millions of voters while a county representative might have tens of thousands. As such, an individual vote holds significantly more sway when electing local representatives. Property tax ensures that tax revenue remains in the jurisdiction that raised it, and the representatives who spend it answer to the same small electorate that elected them. Replacing that revenue with sales and income tax diverts the money to the central state legislature, whose members represent millions.

Because funding follows enrollment, public schools routinely account for the largest share of a local government’s budget. With the bulk of their revenue gone, local governments will be forced to slash public school budgets. The predictable solution already seen in many state legislatures is to offer families vouchers to private schools. Wealthy families who could already afford private schooling, fearing a decline in the quality of their children’s education, leave the public system and take their per-pupil funding with them. Less fortunate families who cannot afford private institutions are left behind in the now cash-strapped public system. The public school, where Bob’s kid and Alice’s kid could sit in the same classroom, was the one institution that compressed the gap between them. The voucher program replaces it with a system where income predicts eductaion outcomes.

Eliminating property tax is often pitched as making housing more affordable. In practice, however, it functions as a windfall for existing owners at the expense of non-owners. The sale price of property represents the present value of all future benefits of ownership against all future costs of ownership. By eliminating a permanent, annual expense of 1-3% of the property’s assessed value from the calculation, the present value of the property rises dramatically. This jump in value will be captured by existing property owners when they sell their property, while first-time buyers must now pay a higher purchase price.

Purchasing a home as a first-time buyer is already a tall order; the median age for a first-time home buyer has recently surpassed 40. Abolishing property tax makes it even more difficult.