Property taxes: Independent tax study commission needed now
By William Settlemyer
Executive Publisher
Last week I did some reading online about “property tax reform,” courtesy of references provided by Google’s news search tool.
At the top of the search results, sorted by relevance, was a Dec. 3 editorial from The Post and Courier that ended with these words: “There is nothing more basic, more complicated, more controversial or more subject to political demagoguery than the property tax issue. What’s needed is less heat and more light.”
The Internet and its borderless sources of information give us an easy vehicle for seeing our own circumstances in the broader context of national policy making.
It was interesting to see that The Post and Courier’s editorial made the top of the list in my search. Of equal interest, however, was the second article on the list, on the same date, from the Pittsburgh (Pa.) Tribune-Review titled “Tax reform rises to top of agenda.”
In Pennsylvania, shifting the tax burden from property taxes to sales taxes is also on the front burner, according to the Tribune-Review article:
“I think you’re going to see something happen,” said Rep. Mario Scavello, R-Monroe County, author of the expanded sales tax plan. “I’ve never seen the type of interest that’s out there right now to do something about this. (Overhauling property taxes) has been around for 30 years, but it was never at the top of the plate like it is now.”
The same 30-year-old obstacles remain, though. School districts need money, so the cash they lose from lower property taxes would have to come from somewhere else.
(Gov.) Rendell’s plan is the only one that doesn’t raise any other taxes—and it’s the one that provides the least property tax relief. The other two plans get more money from higher sales and income taxes.
“The problem with property tax reform is that what people really want is their real estate taxes reduced or eliminated, and they don’t want their income tax or their sales tax increased,” said House Majority Leader Sam Smith, R-Punxsutawney. “But in order to do some kind of restructuring, there’s really only two places to go: the income tax side or the sales tax side.”
Sound familiar?
Of course it does, because while the state is different, the reality checks are the same.
Read my lips: There is no free lunch when it comes to paying for government services. Somebody has to pay.
The law of unintended consequences
In any complex system (and here I’m talking about society, not taxation) there will always be unexpected and unintended consequences when change happens.
Here are some examples:
When people retire on a fixed income, the longer they live, the more their real income shrinks due to inflation. After a period of time, the gap between real income and all expenses, including property taxes, becomes dramatic and painful.
Everyone loves to see dramatic growth in their “investment” in their homes. In recent years, many people have made hundreds of thousands or even millions of dollars either on paper or in cash money by “flipping” homes and condos.
But rapid appreciation brings rapid rises in property taxes too, and that is viewed as “unfair,” even though the increased home values are not “unfair.”
A different idea
So here’s a different “tax reform” idea: Let people choose their home valuations.
If you want to have yours fixed so it won’t increase, that’s fine, but when the home passes to a new owner, the portion of the gain over the fixed valuation would go (with interest added) to the taxing entity that allowed the homeowner to “fix” a lower valuation.
Or you could have the taxing entity just recover the difference between property tax paid and the taxes that would have been due if the valuation had not been fixed at some earlier date.
To make this approach even more palatable, you could allow people to “backdate” their valuations to some lower level than their current valuation. It would be somewhat like having a reverse mortgage strictly for property taxes.
You might compare this to the recent surge in popularity of “consumer driven” health care, only in this case, people get control over how much cash they have to shell out each year for property taxes.
Let’s stop kidding ourselves
For those who don’t want their property to be taxed at all, my proposal would come up short. But as pointed out in the Pittsburgh Times-Review article, a lot of people want their property taxes cut or eliminated without having any other taxes increased to offset the cuts.
Let’s stop kidding ourselves. The idea that a state like South Carolina can make do with a lot less tax revenue is foolish and unrealistic, especially when it comes to funding public education and other social services.
There are many things wrong with public education that stem in large part from decades of decline in the role of traditional families in our society and the general abandonment of respect for authority and discipline by adults and children, both individually and as members of society.
We expect our schools to reverse these trends, which is a tall and probably unrealistic order. Money won’t fix this problem; it will take a collective change of mind and will on the part of American society.
But that doesn’t mean that there’s anything to gain by under funding our public schools. As Charleston County school board member Nancy Cook has accurately stated, we’ve been under funding the county’s schools for many decades, and now we’re playing catch-up.
Actions affecting complex systems have unintended consequences. The Post and Courier was right to endorse The Palmetto Institute’s call for an independent, statewide tax study commission to review and evaluate pending legislative tax proposals.
It’s time for the General Assembly to pause in its headlong rush toward “tax reform” to avoid lasting harm to the state’s ability to meet the needs of its citizens.
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