Scott Tibbs
Published by the Hoosier Project, 06-21-2001

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Should the property tax system be abolished?

Across America, states use the property tax as a method of generating revenue, specifically for schools and local government. But is the property tax the best method of taxation?

The property tax operates on assessed evaluation. If the total assessed evaluation of the land being taxed goes up, the rate goes down. Also, if the assessed evaluation of the land goes down, the tax rate automatically goes up. The tax rate is automatically calculated to ensure a specific amount of revenue for the government.

One argument used in defense of the property tax is that it is a reliable revenue source. Since the amount of funds being raised by the tax (adjusted for inflation) doesn't change, schools and other units of government can count on the property tax to give them the funds they need. However, one could make the argument that the reliability of the tax is actually an argument against the property tax. In lean economic times, people have less money to pay to the government, but the property tax continues to raise the same amount of money. Perhaps instead we should fund local government with a tax that is more in tune with the economy.

Another argument against the property tax is that it is fundamentally unfair. The property tax basically negates the entire notion of private property. Even if one has completely paid off the mortgage to his home, he never really owns his home because if he is not able to pay his property taxes he loses his home to the government. Basically, you do not own your home; instead you pay rent to the government for the privilege of living there. The property tax discourages private ownership of property.

The property tax is also regressive. A person with a low income, or a senior citizen on a fixed income, cannot afford to live in a nice home because they cannot afford to pay the property taxes on that home. Unlike an income tax, where your taxes fluctuate with your ability to pay, the property tax is like a hammer, hitting the poor the hardest.

As the preceding examples show, the property tax is not a good measure of wealth. Senior citizens on fixed incomes may live in a nice house, but only because they have spent decades paying for that home, and are now finally able to enjoy the fruits of their labor. Yet they are taxed based on the value of their home, not their ability to pay. On the other hand, a very rich individual may live in an apartment or condo, owning no actual land, with low assessed evaluation for his home. The single rich person, despite the ability to pay more, may pay much less than the senior citizen.

In addition, the property tax is very expensive to collect. Government has to pay legions of bureaucrats to assess the value of property, and then must ensure collection of that tax. In addition, the property tax is inconsistent. Two nearly identical homes may be assessed at different values, causing different property tax bills due. The inconsistency of the Indiana property tax system is precisely the reason the Indiana Supreme Court ruled the assessment system in Indiana unconstitutional.

Often, businesses are assessed a higher property tax than residential property. This can be done through different tax rates or, as it is done in Indiana, by offering residential property owners deductions so they pay less. However, businesses do not have a money tree, and their taxes are passed on to the consumer. The individual citizen pays all taxes, either directly or in the form of higher prices.

A better alternative is the income tax. Since the income tax is a proportion of your income, the amount paid fluctuates with ones ability to pay. In addition, the income tax is paid in smaller increments, and is often taken directly from your paycheck.

In addition, the income tax, unlike the property tax, fluctuates with the economy. In tough economic times, taxpayers are not saddled with a huge property tax bill they cannot pay. One could argue that the government should have to live within its means, rather than have a guaranteed income every year.