Fixing the Property Tax (This ran in Projo, November 1, 2005)
With each passing week, I notice a new “for sale” sign or two in the Fox Point neighborhood of my ward—most recently in front of the triple-decker in which I’ve rented an apartment for the last three years.
Many of these buildings’ owners are choosing to sell, to make money off of their properties before the housing market bubble bursts. Many others, however, are selling not because they want to move—or even because they want to cash in—but because they can’t keep up with their rising property taxes. But it needn’t be this way.
By State Law, Rhode Island’s cities and towns use modified ad valorem, or “to the value,” tax structures, under which a given property is taxed based roughly on how much that property would have sold for when it was last assessed. As most Rhode Islanders know all too well, such a tax structure is regressive, whimsical, and arbitrary. Opening your tax bill can feel like playing the lottery—or Russian roulette: with each revaluation, taxes go down for some taxpayers, while others see increases of four- or five-fold.
RightTax.org, which advocates for what it calls a “Property Owner’s Tax” is right to point out that under our system an individual’s taxes are based not on his or her income, but on what other people—potential buyers—can afford.
Every property tax system will have its drawbacks, but RightTax suggests a new tax code, modeled after one that’s been used in California for twenty six years:
Property owners would be taxed, forever, based on what they paid for the property they own. A thirtysomething couple that buys a $300,000 house in 2005 would be taxed based on $300,000 of value, even in 2045, when they have retired and are living on a fixed income, and their home is valued at $3,000,000. Tax rates would still go up or down, depending on budgetary needs and the total value of property within a jurisdiction. But the distribution would be more fair than it is today, as it would be based on what owners were able to afford when they bought their homes, rather than on what somebody else can pay at tax time.
The RightTax plan would shift the property tax burden to newer owners, like speculators who buy buildings, and then turn around and sell them in a month or a year for significant profit. But such a code could make buying a first home more difficult, and so should include hefty exemptions for lower-income first- time owner-occupants. It might also make sense to inflate property values slightly (and fairly, and predictably) year-by-year, perhaps by the rate of wage inflation, to smooth out some of the disparity between old and new.
Under our new tax code, no longer would unpredictable, rising taxes force elderly residents to leave the neighborhoods they’ve lived in for decades. Landlords wouldn’t feel as much pressure to hike rents. Property owners could make improvements without worrying that doing so would drive up their assessments. City planners could make decisions with less fear of contributing to forced gentrification.
Cities and towns wouldn’t need to spend millions of dollars on revaluations every three years. Property owners wouldn’t go into shock when they open their tax bills.
Property taxes need not be unfair and overly-burdensome—they’re that way because of how our state has chosen to implement them. The General Assembly should pass legislation allowing municipalities to tax property based on purchase prices, while also leaning more on other progressive taxes, like the income tax.