The proposals for property tax increases in the upcoming election are making me re-evaluate the entire concept of property taxes. These are some of the problems I see with property taxes on real estate:
Problems with property taxes:
- High property taxes must be paid even if a person is unemployed or living on a fixed income. High property taxes can force families into bankruptcy and encourage retired families to relocate to tax friendly states.
- Property taxes penalize families for improving their homes.
- Property taxes discourage people from getting building permits for improvements due to fear of higher taxes and permit fees.
- The Headlee amendment limits tax increases for long time homeowners, making it difficult or impossible for some people to move because of the potential for a big tax increase.
- Local governmental bodies spend large sums of money each year to reassess property values and to deal with complaints over assessments.
- Crushing tax burdens within cities are encouraging families to migrate outward from urban areas to suburban and rural areas with lower tax rates, helping to fuel the decline in urban areas.
- Property taxes discriminate against families who choose to live in single family homes and give preferential treatment to families living in apartments and mobile homes, even though all families receive the same level of services. This is fundamentally unfair.
- Voters who choose to live in apartments and mobile homes have little incentive to take an active interest in local issues because tax increases have little effect on them. These residents can enjoy the higher level of services which result from tax increases while paying very little for them.
Can we do better?
Property taxes are used to finance schools and local government, so if we eliminate them we must find some other way to finance these services. The question is, how can we change the tax system to levy the tax load more evenly while continuing to support local services and still giving taxpayers a say in how their dollars are spent? Looking at the taxes we have in Michigan, the fairest tax we have is the flat rate income tax (Aside from the fact that the state government keeps tinkering with it to make it less flat). Nobody likes paying taxes but I hear fewer complaints about the flat income tax in Michigan than I do about any other tax.
I've seen the proposals for a "Fair Tax" floating around, but as far as I can tell they don't include any real estate property tax reform.
So I starting thinking . . . what if we were to get rid of the cumbersome property tax system that we all suffer under and replace it with a flat residential tax, where every residence in a taxing jurisdiction pays the same tax, regardless of property value or residence type? Any solution needs to keep the current financial independence of local governmental units and give voters as much incentive as possible to become involved in the decisions of local governments.
Replacing the real property tax with a flat residential tax
Concept: Eliminate all current property taxes on land and buildings used for houses, mobile homes, or apartments. Also eliminate fees on mobile homes, fees for building permits, and fees for transferring property. Replace the lost revenue with a flat residential tax, where all residential units within a given taxing jurisdiction would pay the same annual tax regardless of housing type or value of property. This flat residential tax would vary from jurisdiction to jurisdiction because tax proposals in each jurisdiction would still be voted on by taxpayers, giving voters in each individual school district, city, county, and township the flexibility to decide what types and level of services are wanted. So a residence would pay a flat tax to each of the local school district, county, and city/township jurisdictions that residence is located within, just as property taxes are currently paid to these governmental units. The difference is that the new FLAT tax would be the same for each residential unit located within these same jurisdictions, rather than based on value as it is now.
- The tax would be levied on each address regardless of the type of housing. This would make it possible for more families to buy their own homes, and for large families to move into larger homes.
- A flat residential tax would save Michigan taxpayers millions of dollars every year due to a reduction in staff currently used to assess and reassess property values.
- Homeowners would have no excuse for failing to pull permits for improvements.
- Spreading the burden for schools and local government more evenly over the population is the most fair way to tax elections.
- Having every family within a jurisdiction pay the same flat residential tax gives everyone an equal stake in property tax increases. This would encourage more people to take an interest in these issues and make it harder for local governments to raise taxes.
- A flat residential tax would allow people to move freely without having to worry about major tax increases.
- A flat residential tax would allow blighted areas to be rebuilt because owners would not face a big tax increases for improving their properties, giving a big boost to efforts to revitalize cities like Detroit and Flint where tax rates are monumental. Quite honestly, this might be the cheapest and easiest way to encourage revitalization in urban areas.
- This would remove a major objection to mobile home parks because mobile home residents would pay the same taxes as homeowners.
- This removes the need for the Headlee amendment because property taxes would no longer rise with property values. Essentially, this permanently fixes the single biggest problem with a tax system based on property values. Local units of government would see revenue increases only from new residential units or from property tax increases approved by voters (I know I've not addressed the issue of commercial and industrial property)
To give this proposal a real shot at being implemented I feel that it should be revenue neutral, otherwise local officials statewide would rise up against it. A revenue neutral proposal allows this proposal to be considered solely based on it's own merits. (Sorry, taxpayer groups)
Obviously there are more issues that would need to be addressed as this is just a simple outline. But I think the basic idea is good and I would like to hear commentary from others on this idea about potential issues and about ways in which it might be fine tuned to make it work better. So fire away . . .
Tuesday, July 18, 2006
Property Tax Reform
I got this sent in an email from one of our commenters that I think should be posted. I agree with most of these ideas and think that property taxes, more than any other tax, kills us here in Michigan.