Merry Property Tax Holiday for Taxpayers?

With Halloween and Thanksgiving just around the corner it's no surprise that state lawmakers are in the holiday spirit. However, Wyoming policymakers have taken the holiday mood one step too far with a "property tax holiday" proposal.

The plan put forward by Wyoming Governor Freudenthal is simply a gimmick that does little to address the real failings of the property tax. He is proposing a one year property tax holiday that would reduce property tax rates by 12 mils. Apparently the state doesn't need to generate property tax revenue next year because surpluses are expected. Policymakers in Wyoming would be better off to go back to the drawing board and develop real reforms that would address the shortcomings of the property tax.

What exactly compels politicians to put forth such gimmicky and overly simplistic ideas to address property taxes? To answer that question, it’s helpful to know more about the property tax and just why it’s so unpopular (and why some feel that a holiday is in order).

When polled, Americans say they hate property taxes more than any other tax. This article from the Arizona Republic shows that if given the choice Mesa, Arizona residents would rather vote for a sales tax increase than a property tax increase.

State and local property taxes across the nation are on the chopping block for reform in about ten states according to USA Today. There are several reasons for this nationwide property tax revolt. First, property taxes are paid in lump sums and therefore payments are quite visible to a taxpayer’s checkbook. They are also incredibly complicated so that the average homeowner can’t even read her own property tax bill.

There is also a view, which is quite true in some states, that property taxes simply aren’t fair. For example, in California because of Proposition 13 property taxes are generally lower if homeowners have lived in the same house for a several years; while new homeowners can face truly burdensome property tax bills.

It would be helpful if property tax rates depended partially on income, but they don’t. If a homeowner loses her job her property tax will remain the same even though her income is drastically reduced. Property taxes are regressive, meaning that poor and middle income taxpayers pay a higher share of their income in property taxes compared to the wealthy.

Despite property taxes being so unpopular and sometimes flawed they remain a major source of revenue for public schools. Funding education is obviously a priority and in most states a constitutional requirement. Simply not supporting schools isn’t a practical alternative. Academics, analysts, policymakers, and others are considering a broad array of alternatives that could reform the property tax to correct some of the flaws outlined above.