Let’s say you and your neighbor both buy your homes the same year, for about the same price. After a few years he moves — and sells his house for $100,000 more than he paid.
Good for him! But when your property tax bill comes the next year, your own home is suddenly deemed more valuable, too. You don’t have any more money in your pocket, and you aren’t getting better schools or more street light. All that’s changed is your tax bill.
The unpredictable nature of property taxes makes them a particularly loathed levy. As I explained in greater detail Thursday, they even defy the laws of economics. Can’t we do better?
I think we can.
Government property appraisals are an elaborate way of recreating what the market does on its own, to establish a tax base for properties that haven’t changed hands. This is a bad way of meeting a worthy goal.
While some people might want their home assessments frozen at the sales price, over time that means people who stay in one house pay a lot less than neighbors who just moved in. That’s no more equitable or realistic than the current system, and it creates a perverse incentive for people not to sell their homes — shrinking supply, driving up prices and further distorting what new buyers pay for their homes and their taxes.
Rather than (badly) mimicking the market, with wild gyrations in many places, let’s put tax assessments on a steady, low, predictable path.
Here’s what I have in mind: When you buy your home, the county accepts your sale price as its starting value. From then on, until the home sells again or you pull a building permit for a major renovation, the assessment increases each year by a set percentage.
Actuarial studies would be necessary if this idea were to go forward, but for argument’s sake I’ll open the bidding at 2.4 percent. It isn’t a round number, but it would mean the value doubled over the course of a 30-year mortgage, which feels about right. And it more or less tracks the long-term average of general inflation. If your bill is $1,000 this year, it’d be $1,024 next year.
Yes, that means a small automatic tax increase each year, even in years when the market actually falls. But let’s face it: Your assessment tends to rise over time already. This allows it to do so in a way that is steady and predictable. The day you closed on your house, you would know not only what your mortgage payment would be, but a good idea of your property tax bill each year, too.
And yes, local governments and school boards could still raise the millage rate to increase your taxes. But they’d no longer get a stealthy revenue boost when the tax digest shoots upward. They could also lower the millage rate to keep revenues flat. Either choice would be an improvement in transparency, which just might impose some more fiscal discipline on them.
I bounced this idea off a former local elected official who suggested a periodic checkup, maybe every 10 years, to ensure properties that hadn’t sold stayed in line with those that had. I could live with that.
But like a lot of you, I’m tired of living with shocking property tax assessments produced by staffs of appraisers recreating the market’s work. A lone person who’s good with spreadsheets and mail merges could just about run this system himself.
Sounds about right to me.