Get Off My Property - Part 1

Lady Godiva !

What is the difference between a taxidermist and a tax assessor? A taxidermist takes only your skin. ~ Mark Twain


Man has been using some sort of property tax since ancient times. Believe it or not, near the Acropolis there is a monument to the honest tax assessor, Aristides the Just. Easy to believe though, in Roman times assessors were no longer honored but considered evil and low class people who often required military escort. And how about in the 11th century - Lady Godiva rode naked on a horse through the streets of Coventry, England to protest the tax assessment her husband imposed on his tenants' property. She won an abatement.

By the beginning of the twentieth century, criticism of the uniform, universal property tax was widespread. Even a scholar of taxation (Seligman) called the tax one of the worst taxes ever used by a civilized nation.  

In 1902 the property tax provided forty-five percent of the general revenue received by state governments from their own sources. That percentage declined steadily, dropping the most between 1922 and 1942 as states adopted sales and income taxes. Today property taxes are an insignificant source of most states' tax revenue. For local governments the property tax as a percentage of own-source general revenue rose from 1902 until 1932 when it provided 85.2 percent of total general revenue. Since that time there has been a significant gradual decline in the importance of local property taxes.

There are a number of problems with the general property tax. Property taxes failed to deal with the problems resulting from differences between property as a legal term and wealth as an economic concept. When we had a simple rural economy wealth consisted largely of real property and tangible personal property -- land, buildings, machinery and livestock. In that economy, wealth and property are the same things, and most importantly, the ownership of property was closely correlated with income or ability to pay taxes.

However, in today's economy ownership and control of wealth is related to a variety of financial and legal instruments such as stocks, bonds, notes, and mortgages. These rights though may not be absolute; they may be shared with many others. It's not hard to guess that our our local property tax administrators lack the legal authority, skills, and resources needed to assess and collect taxes on such complex systems of property ownership.

There are increasing numbers of wage-earners and professional people who have substantial incomes but little property that make property ownership a less suitable measure of ability to pay taxes.

Then we come to problems with the assessments due to the inability or unwillingness of elected local assessors to value their neighbor’s property at full value. Let's face it, when property assessments are valued well below their market value and changed infrequently the tax assessor is our friend.  And if the assessor is an elected position he is more apt to be reelected.

Pennsylvania is one of six states that don’t require periodic assessments.  In some counties in Pennsylvania comprehensive real estate assessments haven't been done in years - or decades.  Of the commonwealth’s 67 counties, 22 have not reassessed since the mid-1980s. That includes four of Allegheny County’s neighbors.  Realize when property is not reassessed regularly inequities develop - usually with newer home purchasers carrying a heavier load than the old-timers.  And when the real estate market is rapidly climbing or falling old assessments easily become inaccurate.

In Allegheny County a judge stepped in and forced the reassessment.  Then politicians fell all over themselves to declare a horrible injustice.  They hollered "unfair" and pointed to other Pennsylvania counties that had not been subjected to this indecency. Of course, while the politicians were grand-standing about the unfairness of implementing reassessments residents were burdened with wildly inaccurate assessments.  The popular stand of our county politicians was to call for a freeze or a moratorium. In essence - kick the can down the road for more courageous politicians to deal with it.

It's true that modern day property assessments are very expensive for states or municipalities.  Allegheny County’s 2001 assessment cost $23.9 million and the 2010 assessment cost $12.4 million.   

Perhaps you have heard of places where assessments are done regularly with little fuss. There are some sophisticated mathematical models employed to the task. That's nice, but sometimes the new assessments aren't accurate. In a review by the Post-Gazette of the 2010 reassessment of Pittsburgh "treated expensive land and buildings gently, while overestimating the values of low-priced properties. The Allegheny County-run reassessment fell far short of the goal of distributing the tax burden fairly among owners of high-dollar properties and residents of modest homes."

One more argument.  Some activists and observers have recently called into question the justice or even constitutionality of real estate taxes.  They argue that owners of property are not really able to fully enjoy the property even after it has been paid for (say after a 30 year mortgage).  "Owners" are forced to continually pay the government to hold on to that property.  They are never secure in their property because of the property tax.  Some people describe it as renting the property from the government.  While I understand this argument, I don't totally buy it. (Owners do in fact substantially, even if not fully, enjoy their properties. They may dwell on the property, build a home, raise a family, or gain revenue through rents, etc.)

However, I am convinced for all the reasons above that the real estate tax as a source of local government revenue has outlived its usefulness. In my next blog I will discuss abolishing property taxes.