America's most hated tax

By Michael L. Young

American taxes are inordinately complicated. And the American taxpayer is inordinately confused about them. That confusion often blends with anger, dismay and frustration. While Americans are mad about a lot these days, taxes are near the top of that list.

But what particular tax do Americans hate the most? You might think the income tax, and certainly it is controversial at times. Or you might guess sales taxes, and for sure, few like them. Or you might even guess that the most unpopular tax is the so-called ?nuisance taxes? like the occupational privilege taxes levied by many local governments, including almost every Pennsylvania jurisdiction.

Those would all be good guesses ? and all wrong.

According to the Tax Foundation and other sources, the most hated tax in America is actually the local property tax. And it?s not just average citizens who deplore property taxes. Most public finance experts agree, finding little to recommend about them.

In particular, public finance professionals list four major defects of the modern property tax, any one of which might be a good argument for dumping it.

Property taxes are expensive to administer fairly or efficiently. It costs more to collect property taxes than any other major revenue source. And the difficulty in setting accurate real estate values makes the tax inherently inefficient.

Property taxes ?grow? with the economy slowly compared to other taxes. This is a major reason local government raises property tax rates so often. Expenditures chronically outrun revenues.

Property taxes are generally regressive, which makes them unfair. The less income one has, the more of it is spent on paying property taxes. For this reason, property taxes raise equity issues among different income groups.

Property taxes generate ferocious resistance among taxpayers. This makes them a hot potato for elected officials, who consequently administer them badly, often imposing huge rate increases on taxpayers in a single year or avoiding reassessments and other administrative reforms that might make property taxes fairer.

If the property tax is so bad, why do we have so much of it? One answer is expediency. The tax, which dates back to Colonial times, has been around so long we have come to depend on it, even with all of its defects.

A better answer is that the property tax exists and persists because it has become the only significant source of income local government can raise for itself. Without property taxes, there would be no local government as we know it.

If we stopped there, we might legitimately say that the property tax is therefore a necessary evil. Bad as it is, it does preserve the integrity and independence of American local government, and that might be a price worth paying.

But we can?t stop there because the property tax itself doesn?t stop there. Instead, it has been extended and expanded to finance public education as well as local government. The percentage of the property tax going to education is nationally about 65 percent and as high as 80 percent in some jurisdictions.

Once this arrangement made some sense, when education was mainly a local concern and when the costs of education were modest. But today with educational costs soaring and American?s competing for jobs in a global economy, funding public education with the property tax makes no sense at all.

Like so much in public policy today, this is a problem we know how to fix. What we don?t know is how to muster the political will to do it.

Just as we can?t get blood from a turnip, we also can?t continue to try to finance modern education with an 18th-century relic. Instead, we should dedicate the property tax to its original purpose, the financing of local government ? parks, police, local roads and other local services.

And we should move the financing of public education to a broad-based tax, such as the income or even the sales tax. State House Bill 2230, introduced this year, proposes a modest step in this direction. So our politicians already know what?s needed. But if history guides us, they will not act decisively on this bill or any other because they fear the political repercussions.

They will act however, if we let them know that we are tired of good policy becoming a casualty of bad politics. If we let them know we are tired of holding education hostage to the vagaries of local real estate. And if we let them know we want real and sensible property tax reform. Until we do this, the property tax will continue to be ?America?s most hated tax.?

Michael L. Young is a managing partner of Michael Young Strategic Research in Hummelstown, Dauphin County.

Source: http://businessweekly.readingeagle.com/?p=2860&utm_source=rss&utm_medium=rss&utm_campaign=americas-most-hated-tax

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