Monday, April 07, 2008
Editorial: Property tax system belongs in a museum
Funding local governments by taxing property doesn't make sense in the 21st century. Bath County shows the need for a change.
From the RoundTable blog
Read the latest entries
When real estate assessment rose by as much as 1,000 percent in rural Bath County, taxpayers were outraged.
The board of supervisors canceled the county's contract with the appraiser and will stick with the old assessments.
That takes care of the immediate problem, but the situation in Bath highlights the fundamental flaws of using property taxes to fund local government.
As historian John Steele Gordan said in a 2006 commentary on Marketplace, the property tax is "a relic of the colonial past and should be abolished." He said it should be displayed in the Smithsonian "along with other relics like chamber pots and clay pipes."
A tax on property made sense when only the very wealthy owned property, and that property generated revenue and economic activity.
Now home ownership is widespread. But far from producing income, homes consume it. Houses generate no real economic activity until they're sold.
Consider Ellen Andrews, whose 25 acres and small home in Bath County were assessed at $185,000 -- a 300 percent increase.
As Andrews told Roanoke Times reporter Rob Johnson, she is anything but wealthy. "I can barely afford to feed my dogs," she said.
Andrews bought her property for $40,000 in 1994. Though it's provided her shelter since then, she won't see any economic benefit from the property's rising value until or unless she sells it.
That's true of most property owners. But that doesn't stop local governments from wanting assessments to reflect current market value.
In some places where real estate values have risen quickly, mechanisms have been put in place to blunt the impact on homeowners. In Florida, for instance, a homestead exemption limited assessment increases to 3 percent annually.
That results in wild and unfair disparities in what even next-door neighbors pay in property taxes, however.
The problem is that any property tax system will be unfair and arbitrary. Property taxes bear no relation to the taxpayer's ability to pay. They depend on the skill and fairness of individual assessors.
Historian Gordan recommends a fundamental restructuring of local taxes, allowing localities to piggyback on the state sales tax.
"It would be simple, cheap and fair," he said.
That solution might not help places, like Bath, that have little commerce. The revenue-sharing necessary to make such a system work statewide would be a political nightmare -- as would selling an increase in the state sales tax, which would need to more than double to make up the $8 billion in revenue generated by property taxes every year.
But as Bath supervisors found out, the current system has plenty of nightmare potential as well. Gordon's sales tax may not be the answer, but it is certainly time to look for ways to alter Virginia's tax system to reflect 21st century economics.
