The following is an opinion contribution and reflects the author’s views alone.
Growing up in America, most of us are asked at some point, either in school or by an adult in our lives: “what does the ‘American Dream’ mean to you?” This can be a challenging question to answer, resulting in arguments over small details such the extent to which it is about a commitment to a set of ideals or a mere description of how life ought to be in the United States. A far easier question to answer for some may be “what does the American Dream look like to you?” One of the easiest images to come up with may be a buying a car, a dog, starting a family, succeeding in one’s career, and finally owning one’s own home. Some will imagine this home surrounded by a freshly-painted white picket fence, others will see a handmade cabin in a forest clearing, and others still will see a farm surrounded by rolling hills.
Land has been on the minds of the American people for decades, from the Homestead Act of 1862, which gave Americans a chance to claim 160 acres of land for free if they promised to work it for five years, to the late 20th century, where it was common knowledge that homeownership was an incredibly American act. As a New York Times article proclaimed in 1988, “when it comes to owning a home, few people in the world pursue the dream with as much vigor, desire or penny-pinching thrift as Americans.” The penny-pinching thrift comment is insightful, because property taxes in today’s America, which sometimes are over 2% of the property’s taxable value a year, are a key factor in the expenses facing homeowners. Property taxes are an economic burden which prevents families from buying, maintaining, and passing down their key assets: land and homes. These taxes are similarly harmful to some of the most basic notions of liberty and the American Dream that we hold dear. It is a tax burden which should be moved to other areas, such as income or sales, while also acknowledging that property taxes are completely justifiable on second homes whose owners live out-of-state.
Property taxes are, in effect, a small rent payment each year which restricts the idea of true ownership, partially counteracting some of the best benefits of owning a home. For example, over time it is less expensive to buy a home because eventually one will have spent more on rent than on the mortgage while not owning any property whose value increase might increase over time. Another point in favor of homes is that the buyer owns and control them, allowing him to make changes to the house and property, to resell it, or to pass it on to his children. Yet both of these points miss the ultimate trap homeowners face: failing to have the funds to pay these taxes will force the homeowner to sell the home in order to avoid legal troubles. The home never really belongs to the homeowner, because he must continue to pay for the house each year, just for the privilege of continuing to own the land that he or she already owns.
In reality, the homeowner is more like a home controller: he maintains a degree of control over the property insofar as he makes the yearly payment. Unlike someone renting an apartment, the homeowner can make whatever choices he wants in regard to the property, insofar as they comply with the law, and he makes one large payment for the home in exchange for far smaller yearly payments instead of monthly payments. Yet, this enhanced property control and reduced economic burden do not change the fact that property taxes are still payments for something he supposedly already owns, and his ownership and influence over the property is contingent on him paying the government. Unlike an income tax, property taxes are not linked to one’s yearly income, and hence are insensitive to dramatic changes in one’s finances. Property value is a poor measure of real taxable income in a community. When compared to a sales tax, property taxes are similarly regressive, but they are not contingent on someone actively making a purchase. Instead, the government effectively assumes that a person will have the money each year to cover the tax on the property that person had purchased beforehand. When compared to the estate tax, a property tax is not even taking money based on a perceived exchange of wealth. A property can stay in the same hands for decades yet be taxed year after year.
Some may question just how burdensome these property taxes really are. For context, as of 2017 six states have effective property taxes of 2% or greater: Connecticut, Vermont, New Hampshire, Texas, Illinois, and New Jersey. In New Hampshire, for example, the average home value is $255,242, and the effective property tax rate is 2.03%, meaning that in 50 years a homeowner will have paid for his home’s at-purchase value two separate times: once in the purchase, and again through property taxes. He will in effect have bought a second home which does not even exist. This situation gets even worse when once factors in the sales price of the home, which will have been higher than the actual home’s value; interest on the buyer’s mortgage; and the possibility of the home’s value increasing, which would increase absolute taxation even more). California did take steps to rectify this problem through its 1978 Proposition 13 which changed tax laws so that a property’s taxable value cannot increase more than 2% in a given year. Property values may only be reassessed when a given property is sold. Unfortunately, most states have not taken such bold measures to end the punishing nature of property taxes. The danger of an increase in home value is the truly offensive element of property taxes: you are punished by the government for doing home improvement to a house you may not ever actually sell.
Imagine a woman has saved up money for a decade to buy what she plans to one day be her dream home. The $200,000 house on an 11 acre property is in poor shape at first, yet she hopes to slowly fix it up in her free time to be the house she has always wanted. She is going to do this all by her own hands, and has no desire to ever put the home on the market; this house is where she wants to spend the rest of her days. She spends her weekends replacing the home’s damaged shingles, planting a garden, and clearing brush from the yard. She puts on a new coat of paint on the chipping walls and builds the home a new deck. As tax season draws near, she is startled to realize that these home improvements have increased the value of her home! At first she is happy to know that she has made so many improvements to her property. Yet, she realized that the assessor who had come to her house just a few weeks earlier had changed the recorded value of her property to $220,000. She realizes that she will now have to even more in property taxes because she had the audacity to spend her free time improving her property and making her neighborhood more beautiful than it was before. She would have been better off financially if she had just left he home with chipping paint, a broken roof, and brush covering the yard. In effect, the government has punished her for her hard work and diligence. It has disincentivized good behavior and has turned it into a burden.
The situation could get even worse for this woman. Let us pretend that she is 40 years old, and has been working a fairly low paying job since leaving high school, and she had been putting money back for nearly two decades to afford this house. Each time the value of her property increases, the government will demand an even higher fee for her to continue living in the house, even though neither the tax rate itself nor her actual income has changed. At a 2% tax rate, her yearly payment of $4,000 will increase to $4,300. This is not pocket change, especially considering that 40% of American adults would not be able to afford a $400 surprise expense. Imagine if this woman were to have a pay-cut at work: it could put her homeownership at risk, possibly forcing her to sell the home she has put her own labor, savings, and love into perfecting.
Up until this point I have explained how oppressive property taxes are to Americans who wish to own property, but this oppressive nature does not mean that all property taxes are unjustifiable. In fact, there are two possible scenarios in which a state could justifiably have these taxes. There are certain government services which a state’s populace may determine to be critical to the protection of land and homes themselves. For example, a fire department is necessary to ensure that fires neither destroy someone’s property nor jump from one person’s property to another’s. It is necessary to have roads so that these the fire trucks can reach the properties, or so that various government employees can reach the property if the need arises. All of these services directly relate to the protection of property. They do not fund ancillary services or programs. Yet, for these services, what matters most is the size of both the home and the surrounding land. The quality of a home’s paint, or the addition of a garden to the yard, should not be relevant to the amount of money the government needs to protect the property. Therefore, the tax should be one based on size as opposed to general value. Homeowners could pay a yearly rate based off of the land’s acreage or the home’s square footage. There are a plethora of alternative taxes which the government could levy that would not be such blatant afronts to the basic ability to own property. Those in favor of more progressive tax rates might worry about the relatively regressive nature of the tax just described. Yet, having a flat tax in this particular area would not prevent progressive taxation in other areas such as income.
Another justifiable use of property taxes is placing them on property held by non-residents. These property owners will be paying no income tax to the state where they hold this extra property, such as a second home. They will also be using land which could have been used by local residents. It would be justifiable to ask these out-of-state property owners to pay a property tax based on the value of their home, in order to improve the lives of the state’s actual residents, as well as to protect this owner’s property. There are many alternative areas from which a state can collect taxes, from income to sales to sins. Ultimately, we should make an effort not only to tax at just rates but also to ensure that our method of taxation is just.
Hunter Campbell’s piece is part of the Tory’s Saturday Essay series, selected for the spotlight by Editor-in-Chief Jeff Zymeri. Follow the Tory on Facebook and Twitter to start your weekend with the best of our content.
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