Friday, October 16, 2015

Is it time to eliminate "property" tax?

Property tax is a legacy from the days when it was much easier to measure a man's property than to measure his income.  In those days, it was a good proxy for a family's ability to pay a given amount of tax.

Property taxes stimulated development and property turn-over.  A speculator had a disincentive to sitting on a stand of virgin timber when he had to pay a higher tax bill and had no income (from the property) to make that payment.  A speculator who attempted to corner the market on property would face ever-increasing tax bills as the value of the property appreciated.  Property taxes acted as a pressure check valve.  They encouraged speculators to shed properties and dampened out up-spikes in property prices.

The downside

Taxes cause distortions.  The multi-decked Spanish Galleon was a response to harbor taxes.  Like property taxes, harbor taxes tended to use easy-to-measure proxies for income. 

Harbor taxes present in interesting story of co-evolution.  At first, they based the harbor tax on the size of the top deck; typically the largest deck and the one that was easiest to measure.  So boat designers created a very tiny "top" deck through the use of "tumble-home" and stepped decks.  In the case of the image above, the poop deck is the top deck and it is roughly the size of a postage stamp.

Then some harbor masters rewrote the taxes so they were based on the second deck.  No problem, the ship builders simply added another deck.  The same thing with the third "top" deck. All tiny, all measurably taller then the other.

Why does the evolution of harbor taxes matter?  If harbor taxes in the Mediterranean Sea had not followed this evolutionary path, they I would be typing this blog in Spanish and our economy would not enjoy the advantages of  English Common Law but would labor under a legal heritage shared with Venezuela.

Imagine what happened when the Spanish Armada formed.  The Crown pressed a multitude of merchant ships into service.  They mounted a bunch of cannons on the top decks where the could shoot through the railings and the wind could carry away the smoke.  Then imagine rough weather, tall waves and sudden maneuvers. 

You guessed it.  Much of the Spanish Armada was sunk by rational responses to evolving taxation pressures.  Correction, each response was rational on a micro scale, but had a net effect of making the fleet marginally seaworth.  A fact that surfaced (or sunk, if you prefer) when one more demand was placed on the ships.

Back to property taxes

Governmental units like property taxes because they have been more stable than income and consumption taxes.  They also like property taxes because the property is collateral that can be seized for non-payment.

The hook on the stability issue is that incomes vary.  Taxing property buffers the government at the expense of the taxpayer.  They taxpayer must benchpress absorb of the risk while the governmental unit has no incentive to "variablize" their costs. 

Of course, it is entirely possible to write tax law to smooth out the bumps.  Farmers and many folks with "lumpy" income used to be able to pay their taxes on a ten year average.  Governmental units did not like this because the progressive nature of the tax code meant that the farmer paid less tax, in total.

In the early days of our country, property had both a housing and a wealth generating function.  Now, the primary function of property is residential.  Throwing people out of their homes is a political third-rail.

Ordinary folks are avoiding property taxes by moving into modular housing.  That is code for "trailer parks".  Modular homes do not get taxed as "property" if it is still possible to put axles beneath them and roll them down the road.

An unanticipated attack on property taxes happened here in Michigan.  Menards in Escanaba filed a challenge to their tax assessment.  They contended that the assessor was valuing "dark", i.e., unoccupied property at one rate and occupied properties at a very much higher rate.  Menards contended that the property was the same.  They contended that property tax should not comprehend stock on the shelves, the sign in front of the store nor the number of vehicles parked in the parking lot.  The property tax should be based on the lot and the building shell.

Since there is almost no secondary market for humongous, big-box buildings in rural areas,  the actual transaction prices for vacated big-boxes were in the ditch....a very, very small fraction of what the assessors were soaking the operating businesses.

Looking at this challenge from a slightly different angle, the assessors over-assessment of operating businesses proves that property taxes are a thinly disguised income tax.  So drop the disguise.  Call it what it is.  If a municipality wants to tax income, then pass an income tax and eliminate the property tax.  At least we will stop the distortions being caused by the current, archaic property tax codes.


  1. One municipality locally, Pollock, LA did a study last year and found that it cost more to assess, bill and collect property taxes than the revenue they received from the tax. So, they simply decided to repeal their municipal property tax entirely. All done legally and with great fanfare at the city council meeting. Now, the revenue of the Village of Pollock is based entirely on economic activity, ie, sales tax.

    The mayors of the surrounding municipalities were exasperated at Pollock, but it served to help them eventuate their own tax policies.

  2. We don't own a damn thing. We pay rent to the crown.
    Having to pay a tax, on the land and house you own, in order to continue living there, is an abomination. What happens when we get old and cannot work to pay the tax? Sure, we can get some firewood and raise some chickens and grow a garden, and eke out a living in some small way, but the state wants it's tribute in cash- and it is truly amazing how little in arrears one can be to get thrown out on the street. I have seen listed in the public record newspapers dozens of tax auctions where the owed sum was well under $1,000.

    The government these days is nothing more than a veiled crime syndicate. The founders would be sickened by what we have become. Serfs, in the land they spent their blood to free. The criminals in our government would not recognize "sacred honor" if it bit them in the ass.

  3. Is it time to eliminate the property tax?

    Taxation is theft. The mob that taxes us has only one legitimate purpose for existence, and that is to Protect Our Rights. Can you think of one of your rights (remember these were endowed by the Creator)- just one of your rights that has been protected by the tax-collecting-thief organizations in the last 50 years?
    Naw, me neither.

    Interesting article, Joe. Especially interesting that the mob figures out a better way to steal, and then the victims find a way to minimize the pain of their theft.