Do we over-rely on property taxes?

[cthulu2016]

I am not suggesting net taxation/revenue should decrease, at all, but if real estate is an unstable boom/bust kind of thing (as opposed to old-reliable as we used to think of it), are states and localities too specifically reliant on property taxes versus other taxes? (Like income. I do not favor more of any regressive taxes like sales tax.) Should localities be more revenue diversified?

I wrote an earlier post about the many reasons a housing-bubble recession is more damaging than other kinds.

http://www.democraticunderground.com/1002796852

But a factor I didn't even think of is that we have, as a nation, hitched our fiscal wagon directly to real estate valuation.

A housing-bust will cut state/local tax revenue more than any other kind of bubble burst because people are taxed on the value of their property as it sits. And as we all know, the shrinking of state and local governments is much of what has kept these bad times going.

A collapse in a stock market bubble of the same size is a huge federal revenue hit (cap gains), but a smaller state revenue hit (property tax).

On the other side... if a state taxes too much people can move to another state. But property is something you cannot pick up an move to a lower tax state. So the heavy reliance on property tax is probably sensible most of thetime... but terrible lately.

In any event, give a gold star to anyone in the popular press who pointed out in 2007 that when the housing bubble went bust it would wreck state and local governments, in particular.

[MadHound]

1. Perhaps, but what would you replace it with?

It is the major way that schools are funded, so how would you fund schools if we took away property taxes?

Plus, I think it varies a bit from locality to locality, given that local residents generally vote on how high their property taxes are.

[cthulu2016]

3. I don't know. Probably income. State cap gains taxation?

I am not suggesting property taxation be eliminated (at all), just questioning whether states and localities have a sufficiently diversified revenue portfolio.

IIRC, Florida has no state income tax. That suggests Florida is very, very reliant on property taxes. And Florida was the hardest hit state in terms of property valuation. (Or at best 3rd worst hit. Nevada and Arizona and Florida were competing for that title.)

So it must have been a fiscal massacre. All the eggs in the one basket that happened to get tipped over.

No proposal here. Just an observation.

[MadHound]

5. It really does depend on the locality

States that have no state income tax generally make up for it in sales tax, increased(both in number and amount) fees, increased crime revenue, and yes, higher property tax.

I live in Missouri, and we're fairly balanced between income, sales and property taxes, and weren't seriously hit by the housing bubble. Our problem with schools lies in the fact that we fund them at the state level via the lottery and gambling revenue. At the local level, they are funded with property taxes, but we require a super majority to raise those property taxes, which means that even though a majority of people might want to fund a school bond, a large minority can nix it(and this happens far too frequently, both here in Missouri and other states).

[cthulu2016]

7. The least popular thing in Virginia is the personal property tax,

which republicans call "the car tax."

A tax on the value of your auto is regressive, so that's undesirable. But it does have the logic of the fact that driving cars is tied to state expenditures very directly. (roads)

Better than a sales tax. Worse than an income tax. Probably a sensible part of a revenue mix... but good luck getting it passed anywhere that doesn't currently have it!

Anyway, I suppose the reliance on property taxation is that states compete with each other and land is the one thing you cannot take to a lower tax state. Duh. I hadn't thought of that. Will add it to the OP.

So probably no practical alternative.

[pipoman]

2. Too many states and municipalities

offer tax abatement for the properties which would otherwise produce the most tax revenue...commercial and industrial...rich don't pay taxes here..

[hfojvt]

4. in some ways

but sales taxes are worse

I did a random check of four states from here http://journals.democraticunderground.com/hfojvt/159

Massachusetts, Connecticut, Kansas, and Florida. In all of them sales taxes seemed to be a bigger impact on the poor than property taxes are.

One trouble with increasing income taxes is that people with high incomes can leave if state income taxes get too high. Perhaps one thing that might help is - eliminate the Federal deduction for state income taxes, which primarily benefits the upper 5% and return that money to the states.

[cthulu2016]

6. Very true, about income

And at this point, changes would probably be "fighting the last war."

But it is an irony that the one thing, in the entire economy, that decreased most happened to be exactly the one thing we tend to peg our school spending to.

[libinnyandia]

8. What I hate is that some states, like South Dakota, for example, tax groceries. That is so

recessive!

[snot]

9. GREAT QUESTION! And I say, YES!

For starters, would the results be so bad, if the inheritance tax were 100%? Think about it.

But putting that aside . . . the reality is, some of our taxes are designed intelligently, but many aren't.
E.g., I think cigarettes should be taxed at a rate that's determined based on the actual costs to society of the disease they cause.
Ditto gasoline -- the taxes should reflect the actual costs to the environment.

On the other hand, we should design funding for things like education, the internet, healthcare and the like in ways that will ensure that cost is NOT an issue for users, at least not to the extent of basic needs (i.e., all kids shd have equal access to a good edu; all citizens should have equal access to the internet; all citizens should have decent healthcare).

[TheKentuckian]

10. I know I don't like them as the revenue stream for education, I think that is part of why

we have such inequality. Maybe if that was just the collection system and the revenues went to a central fund and were redistributed equally per student that would no longer be an issue.

The point of your question requires more pondering but I tend to think the tax would be okay if high value property didn't tend to get exempted, despite any ups and downs.