Property Taxation: Economic Aspects
Government Finance Brief No. 13
Executive Summary The property tax plays a role in today’s government finance large enough to surprise many observers. The tax takes more from taxpayers than ever before (per capita, in dollars of constant buying power) and brings more into local government treasuries, nearly $25 billion this fiscal year, about $140 per capita, or $700 for a family of five on the average (up from $53 and $415 respectively in 1965 dollars in 1965). The outflow of expenditures, however, has risen more rapidly. Such will continue to be the case. In many localities, property tax yields will not grow so rapidly as local government spending, allowing for grants in aid, etc., unless effective property tax rates keep rising. But even if “adequate” rate increases were possible constitutionally, politically, and economically, they are not assured. Nor would increases be desirable where rates already as high as in some localities.
Every tax has effects other than those of taking dollars from the taxpayer and giving them to a government treasury. The adverse non-revenue effects can be more than minor significance, most certainly when the tax rates are at the high levels found in numerous communities today.
For local governments the property tax can compare favorably with alternative revenue sources—within limits. It shows up badly, however, when used as intensively as in a relative few (but important) communities today. Poor administration plagues the tax more generally than is necessary. Achievements in numerous places have demonstrated that administration can be improved. And the structure of the tax could also be much improved. This paper will not deal with one structural problem—the taxation of personal property. Another structural element, the relative reliance on land and buildings, will get attention later.