Property tax is the cost that many new home and land buyers do not consider. Many do not even know about this. After purchasing homes, new buyers get a property tax shock during the tax season.
Property tax varies depending on the state, county, and locality. For example, Hawaii, Alabama, Colorado, and Louisiana have the nation’s lowest property tax rates (source). Whereas New Jersey, Illinois, and New Hampshire have the highest tax rates in America (source).
Let’s take an example of Westchester County, New York. In this county, a $500,000 home has a property tax of around $12,000. If someone buys a house with a 30-year mortgage at 4% interest with a $100,000 down payment, the owner has to pay a $1,900 monthly mortgage and save an additional $1,000 per month for property tax purposes.
Moreover, suppose an owner fails to pay property taxes timely. In that case, the county where the property is situated will foreclose the property due to delinquent taxes and sell it at auctions.
Many property owners argue that they already pay income tax and sales tax; thus, property tax should be abolished because it’s unfair and unjust. In this article, we explain why property tax can’t be abolished.
The federal government takes income tax. Using this tax, it runs the US military, provides national security, social safety net programs, and many federal projects. Even though the federal government maintains many interstate highways, roads, and bridges, it doesn’t operate police, firefighters, school, local and state highways, bridges, and local municipal facilities. The state and local government does it.
Except for 9 states such as Florida, Texas, Nevada, and Alaska, all other states collect income and sales tax from their residents. The state government uses this income to operate the state government and its services, such as state police, state highway, bridges, courts, etc.
However, each municipality, such as the county, town/city/village, also needs to maintain local roads, bridges, sewers, water, and utilities and run the local government, police, firefighters, libraries, parks, and schools. The county, town/city/village, and school need millions of dollars to provide these services.
Many municipalities, such as New York City, also collect income and sales tax on top of state income and sales tax. However, most counties and cities rely on property tax revenue for local government services.
As a city or town dweller, everyone expects that their roads should be maintained and cleaned, household garbage should be picked up, snow should be removed, the sewer must work, and clean potable water should be provided. All these services need money, and the local government collects property tax to give these services.
Therefore, property tax can’t be abolished. However, a discussion to lower property tax can ensue.
The amount of property tax primarily depends on property value, location, and neighborhood. Typically a $400,000 property has a higher bill than a $50,000 house in the same area. Sometimes those who live in a sparsely populated area get higher property bills than those in a city in the same county.
Counties such as Westchester County, NY; Cook County, IL; and Essex County, NJ, have the highest property tax in the US (source). Anyone living in these counties generally gets higher bills than their neighboring counties and states. However, their higher property bills don’t equate to higher government services.
Cities like New York or Chicago have higher property taxes, but most of the revenue is lost due to corruption and government inefficiency. The revenues aren’t efficiently spent.
New York City has programs to provide housing, schooling, and healthcare for illegal immigrants. These extra costs must come from legal residents and homeowners. Moreover, NYC is overly bureaucratic and unproductive.
Similarly, New Jersey has the highest property tax rates in America. The government has a tremendous amount of debt and pension obligations. New Jersey is basically a bankrupt state. However, every local municipality needs a lot of money to keep everything running. They are doing it in two ways: selling more debt and raising excessive property tax.
Chicago is one of the most violent cities in America. Each year the property values are going down, and people are leaving the city. However, the government doesn’t shrink even when its tax base is shrinking. Thus, property values are going down, but the tax bill is increasing.
Therefore, even though property tax can’t be eliminated, we need a nationwide discussion regarding higher property tax bills. We have to find out the root cause of higher spending by cities and fix the spending problem first. Lowering property tax bills is impossible if municipalities don’t change their spending habits.
We should talk about property tax efficiency, not abolishment.
However, those who argue to abolish property tax have one convincing argument. That is, income tax depends on our income. However, property tax doesn’t.
Over a lifetime, no person earns the same income. Our life goes through a lot. Even in times of hardship, the county, city/town, or school board expects property owners to pay taxes in full on time. They don’t care where the money should come from. There’s no exception. If an owner can’t pay tax, the county will put a tax lien on the house.
After several years, if the delinquent taxes aren’t paid, the county will sell the house at auction. They are effectively making the owner homeless, who is already struggling financially. It’s cruel.
In this country, being homeless is a crime. However, this country is putting more burden on those financially struggling by snatching homes from them.
Upon close observation, it’s evident that both sides have a valid argument.
A better functioning local government needs money to provide policing, schooling, libraries, roads, bridges, firefighters, sewer, water, and other services. Thus they levy a property tax.
However, the local government only looks into property value to determine the tax bill, and they don’t consider the owner’s income and financial conditions.
The real solution should be in the middle, where the property tax should be based on property value and its owner’s income.