Fix The Tax Code Friday: Property Tax

Home sales (or the lack thereof) continue to dominate the media these days. And despite realtors touting it as a buyers’ market, it seems that largely, buyers are staying away.

It’s not just the sub-prime fiasco that has some buyers running scared. In some places, like Philadelphia, many taxpayers are concerned about what’s going to happen to property taxes. As the values of homes have increased (and in some places, such as parts of California, they’ve actually skyrocketed), property taxes have also risen. This makes sense because in most areas, property taxes are keyed directly off of the value of real estate.

But the more that I think about this, the more that I wonder if that’s a fair method of assessing tax. In most cases (though not all), those who have more expensive homes can afford more expensive taxes. But it’s also clear that the more expensive taxes do not correlate to more services. Let me explain what I mean…

I live in the Wissahickon section of Philadelphia, near the park. It is one of the prettiest areas of the City. It is also, statistically, the safest area of the City. And, because it is solidly middle class, it is also stable in terms of home values. My home is assessed at several times more than a similar sized home in, let’s say, Kensington, an area of the City that has clearly seen better times – and with the City’s crime issues these days requires enormous numbers of police (not to mention other services).

However, in terms of services, I would venture to say that my area of the City also costs taxpayers much less than Kensington costs taxpayers. Policing is less necessary – and thus, less expensive. And when the City needs help – whether it’s cleaning the street, or buying extra bikes for the police, our business owners pitch in with a contribution through our Neighborhood Improvement District. Our residents regularly clean the parks (the 100 Steps, LaNoce and Gorgas all have regular, organized efforts) which means less work for the overwhelmed, underfunded parks workers. And… well, you get the picture.

So, we pay more for less. It is a problem that has caused many homeowners to flee the City. But we’re not alone in that regard. Many taxpayers all over the country pay proportionately more for property taxes for arguably fewer services (I note this isn’t always the case because some high dollar districts also get extraordinary amounts of services, like Manhattan). Is this fair?

That brings me to today’s Fix the Tax Code Friday question:

Should property taxes be based on an inherently flawed formula that assesses taxes on fair market value? Is it just a reality that those with more can afford to pay more? Or is there a better alternative?

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0 thoughts on “Fix The Tax Code Friday: Property Tax

  1. A good question.

    One area that you did not mention, which substantially increases real estate taxes at least here in New Jersey (home of the highest property taxes in the nation), is the school tax.

    The local Board of Education budget is financed for the most part by local property taxes. Every homeowner pays this additional tax, based on the assessed value of their home, whether or not they have now, ever did have, or ever will have school age children – of if they use the public school system or enroll their kids in private or Catholic schools. I never had, and, hopefully at this point in my life never will have, children – yet a part of my monthly rent goes to pay for the local schools.

    Granted a good school system benefits all residents in the long run – but why should someone like me have to pay for a service that I have never used and will never use.

    Unfortunately, while I agree with you that the cost of municipal services is certainly not allocated based on use or need, and that this is not a fair method, I do not have an alternative way of assessing real estate taxes to offer at this time.


  2. Thought provoking post. It inspired mine this morning:

    I think a lot of the time what someone is willing to pay for depends on how they view priorities. I’ll be sending my son to a private elementary school. But I’m against vouchers, and I don’t mind paying the school taxes for public schools. I think education should be a high priority for our society.

    On the other hand, I am annoyed that the taxes on gasoline mostly get returned to oil companies. It would be nice if they went in greater quantity to developing renewable energy sources and technology.

    It’s all about priority, and what we think is important.

  3. Miranda – I agree with you re education. I have three children and I am paying for tuition for two of them now (fortunately, one is just preschool). I don’t mind paying real estate taxes for public schools – I do wish that the “wealth” was more evenly distributed between urban and rural schools but I can’t imagine that happening in my lifetime.

    Robert – You’re absolutely right about the NJ schools and the corresponding property taxes. It’s one reason folks still move out of Philly to NJ – taxes are higher but deductible and beat the heck out of private school tuition which is more expensive and not deductible!

  4. Very interesting question, but I think it goes well beyond just property taxes. For better or worse, we seem to buy into the notion that a progressive tax structure is better, but in many cases it results in a large disconnect between those consume the services and those who pay for them. Not sure what the best answer is, but I’d like to see a more direct relationship between service consumption and service funding, and less income redistribution.

  5. After commenting on your posting I wrote a piece on the AMT for the NATP TaxPro Journal. When it was finished it occurred to me that something I said in the piece was relative to your discussion on the inequality of property tax assessments. The inequity is not limited to real estate tax. I decided to devote today’s posting to THE WANDERING TAX PRO to this issue – check it out at:

    Thanks for the inspiration.


    PS – It looks like Another Tax Geek beat me to the punch on this aspect of the issue.

  6. ATG –
    You have a great point. As I was formulating this post, my mind started wandering to other taxes… It’s a difficult thing to resolve.

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