George Washington University Professor David Brunori had this to say to those in Georgia contemplating elimination of property taxes in the state: local governments will be essentially powerless. From the Atlanta Journal-Constitution:
He would replace the lost revenue (only $8 billion) with state aid and more local option sales taxes. The additional state revenue would be raised by expanding the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. base to include services and many necessities such as food.
We know what would happen in Georgia if Richardson’s plan is successful. Without an independent source of revenue, local governments’ power and authority would be curtailed. And that is a terrible outcome.
Brunori’s summary:
In the end, local governments would be at the mercy of the legislature. When times are tough, legislatures always cut local aid first. And there is the problem of legislative control over local government spending – all central funding comes with strings attached.
Brunori is correct. The underlying theme is that there is no such thing as a free lunch. If you eliminate the property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. , some other taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. must be raised in the future or spending cut (unless you are in the unique situation of a surplus). And with the way in which Georgia is proposing to shift taxes from property to sales, the power of local governments will be essentially zero as they will be unable to raise their own revenue sufficiently.
Brunori ends by teaching the readers a key principle of local public finance:
But in the end, control over the property tax rests with the people. If the citizens think their property taxes are too high, they should consider what they are getting in return (quality of schools, infrastructure, and so on).
If the citizens still think property taxes are too high, they should demand that the taxes be lowered. If the tax remains too high, the people should vote their local elected officials out of office.
Or they can just move, as Tiebout would predict. To listen to Brunori’s podcast on other tax issues, including fat taxes and gross receipts taxes, click here.
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