The Impact Of Property Taxes: Jonathan Williams on American Radio Journal

Do you think your property taxes are too high? Are you concerned with the lack of transparency around the process? Well, you’re not alone. Long one of the most hated taxes, Americans are seeing property tax bills soar to unaffordable levels. The property tax increases often happen silently until the bill arrives at the doorstep. Even then, homeowners and renters alike are many times totally in the dark when it comes to determining why their costs are escalating, as well as who is driving the burden of government ever higher.

Even more troubling are the deceitful proclamations from many local politicians who say they’ve held the line on our property taxes this year, all while property tax bills increase for hard-working taxpayers. How can that be? Well, property taxes have a major honesty gap problem. That problem comes from a difference between how taxes are calculated by local governments and how they’re paid by taxpayers.

The problem is multiplied by the desire some local politicians have to escape the well-deserved political liabilities that come with the overspending at the local level—the spending that drives nearly all property tax burdens across the country. For most of the nation, property tax bills are determined by multiplying a local tax rate by the property’s assessed value. While that tax rate is set by the government, the property value can fluctuate depending on the market.

For example, if the local housing market tightens and a taxpayer’s home value goes up, they can be served with a much higher tax bill. Just because their home value goes up, that might not mean they have any more money to pay the tax, of course. Through all this, local government did not need to take any action because the tax increase is due to the higher property valuation signed by the government. When asked, local government officials will even say that they didn’t increase the property taxes because the rate set is not changed.

At best, this half-truth, of course, ignores the fact that the local government sent out those higher bills and pocketed the windfall revenue from the assessment increases. Even worse, some big-spending local officials excel in shifting the blame to the state level and claim that state lawmakers are the cause of the property tax problems since they didn’t send local governments enough aid. However, when you look at the tax collections data, it becomes clear that nearly all property taxes across the nation are driven by local units of government.

This situation, in which many communities around the country find themselves, is obviously not serving the interests of the taxpayer. It just leads to compounding confusion and financial pain, but it is a windfall for those who would like to spend more and grow government at the local level.

Some states, recognizing these problems, have implemented a solution called Truth in Taxation, which we at ALEC endorse as model policy. This policy, pioneered decades ago by fiscally prudent states like Utah and Tennessee, is based on the principle that government exists not for the sake of collecting taxes, but to provide certain core functions to its taxpayers. To do this, Truth in Taxation requires honesty and transparency. Local taxing authorities need to calculate the tax rate that would provide them with the same amount of revenue as the previous year after assessment changes are made. The default becomes for taxes not to increase, but if they do increase, local officials must be clear about why and hold themselves accountable for such decisions.

If the local taxing authority wants to collect more money, it can do so, but it must do a few simple things: provide notice to taxpayers, hold a public hearing, and take a recorded vote of the appropriate local officials. By creating a transparent starting point each year, it ensures taxpayers and officials mean the same thing when they talk about increasing property taxes or keeping them the same.

But without these reforms, property taxes have a major honesty gap problem. Bills continue to rise with property values while local governments pocket those windfall revenues, all while taxpayers are stuck in the dark.

In order to break out from this current failed system of property taxes across America, state and local leaders must fundamentally bring spending-side discipline to the equation for local governments. Make no mistake: local spending decisions determine property tax burdens. Bringing real transparency and accountability to that reality is exactly what hard-working American taxpayers deserve.