If you buy a book for $10, the state doesn’t say, “We think you ought to pay tax on $20.”
If you earn $50,000 a year, the IRS doesn’t say, “We think your job is really worth $60,000, so pay income tax on that amount.”
If you’ve received a property-tax assessment lately, you might see where I’m going with this.
Homeowners across metro Atlanta are receiving notices indicating their taxes may rise by thousands of dollars this year. At a June 24 town hall meeting I attended in Buckhead, more than a dozen Fulton residents said their assessments were at least 60 percent higher than last year.
The property tax may be the most despised tax in Georgia because it seems to be based on arbitrary, unpredictable calculations. The calculations may be unpredictable, but they’re not arbitrary.
They’re worse than that.
Unlike sales and income, not every property has a transaction on which a tax can be based. So, state law requires property assessments based on “fair market value.” Fulton’s chief appraiser, David Fitzgibbon, tried to explain that requirement, and how his staff attempts to meet it, to some 250 people at that town hall meeting. Percentage increases aren’t a factor.
“We’re not going to let that affect us if it was $300,000 last year and it’s $1 million this year, if we have it right this year,” Fitzgibbon said.
No, the problem is not that the calculations are arbitrary. It’s that they’re almost certainly wrong, as any high school economics student should recognize.
The conceit here is that appraisers can take the prices from maybe a dozen home sales in an area and extrapolate them to hundreds of similarly situated homes as if they’d all sell for comparable prices if they were on the market at the same time. They may not think about it that way, but that’s essentially what they do.
No one familiar with a supply and demand curve can believe this is correct. Even if every house on my (hypothetical) street were the same, and three of them sold for $200,000 apiece, the chances are virtually nil that there would be buyers for all 30 of them at that price within the same calendar year. All things being equal, the price would fall. Property assessments defy this law of economics, usually to the benefit of government coffers.
The market is proving the appraisers wrong as we speak. One reason prices are soaring in some neighborhoods is too few people are willing or able to sell their homes, even as prices rise. When dollar signs do entice additional sellers into the market, they often find there aren’t enough buyers with that kind of money. The prices of those that sold don’t justify higher valuations for the ones that didn’t, much less the ones that were never even on the market.
Still, year after year, county appraisers pretend they do. To the extent four-digit tax increases push more homes onto the market, these assessments could halt the real-estate recovery.
The answer is not to improve the assessments. Nor is it to scrap the property tax altogether; county governments (and cities, and school boards) would just find another way to replace the hundreds of millions of dollars that tax raises each year.
What is the answer? Click here to read on.