Inequity in Property Tax

As a recent Natural State resident, I was surprised when I found out that Arkansas is frequently amongst the states with the lowest property tax in the nation.  I immediately began pondering the implications upon the largest portion of property tax expenditure, k-12 public schooling.  Yet, as a delved deeper into the causation upon the low taxes, I found that many states are utilizing similar tactics and in many cases generating more money is not making the school systems more effective.

Here are a few common rationales for discounting the system and to consider like North Dakota, Kansas, Oklahoma, and Missouri to eliminate property taxes.

1.  Business owners facing the burden with competitive neighbors
Small businesses are heavily hit with the fluctuating property tax assessments due to changing developments.  In this New York Times article, one property owner describes the potential raise in property taxes due to investment within the neighborhood that could push his business into financial distress.  Development creates positive economic benefits for some, but pushes the neighborhood in a new direction that could alter how property taxes are assessed.

Similarly, residential property owners face poorly assessed property taxes.  Many county entities do not have the capacity to assess properties on an annual basis allowing rising property taxes but falling property values.  Having effective, accurately assessed properties is essential to making sure that property taxes are equitable in nature.

2.  The burden of the tax
Secondly, property taxes are considered regressive in nature making them worse off for low-income residents.  Renters claim an unfortunately large share of property taxes.  Typically, when property tax values rise, landlords unload the burden of the tax within the rent.  Property taxes show extreme injustices upon the poor, lower classes.

Also, the share of property base is not equally distributed causing many residential areas to become homogeneous.  Property owners look to move into areas where they are assessed at lower rates than their neighbors to get more added value from their taxes.  These homogeneous areas again cause a disproportionate share of property tax to be burdened on the poor.

3.  Unique property situations
Finally, there are many unique property situations that are not capitalized upon.  Across the United States, empty school buildings are drawing money from governments and property bases.  Detroit's decline has failed to keep up with the changing tax base and many residents flee to avoid the failing economy.  As tax bases change, due to unique geographic and economic areas, the government needs to be able to adapt quicker to create equitable resources.  Property taxes do not react to changing circumstances as effectively as other types of taxation.

In Chicago, many people are wondering if neighborhoods are worthy of the high property tax?  The demand and supply of a neighborhood is constantly evolving and property taxes need to be able to respond to these unique property situations.

What do we need to do?
Property Taxes make up the largest portion of state and local revenues (see Figure 2 below).  It would take a huge jump fiscally, like North Dakota considered, to truly abandon property taxes.  Strides need to be taken to help make the property tax more equitable for all residents, but elimination may not be possible with current states taking in above 30% of their revenues from property taxes.  Currently, states are choosing to collect the taxation and then re-distribute through primarily health and education services.  The effectiveness of these programs is in question making it easier to consider abandoning or lowering property taxes.