Most people don’t like to pay taxes. Some find taxes on their homes particularly objectionable, and others don’t mind. The underlying issues apply in nearly any city or township in the United States. So follow through the basic issues.
First, real estate taxes on property usually go to multiple jurisdictions. For 2011, of the $3,251.76 we owe, 36 percent goes to our county, another 33 percent to the local school district and 26 percent to the city itself.
Second, the total amount of tax raised depends on what local governments spend, not on the value of property. So taxes don’t automatically go up because property values go up.
But the spending that must be covered by property taxes then is allocated in proportion to the value of property. Real estate owned by state and local government and nonprofits like cathedrals, churches, private colleges and hospitals is not subject to the tax.
In my home state of Minnesota, it is also important to acknowledge that, despite much political rhetoric about out-of-control taxes, the total price of government, summing both state and local, is considerably lower now, relative to collective personal income, than it was 15 to 20 years ago. That may not be true in many other areas. (Government employment is also a lower fraction of the workforce here than in the past, but that is another story.)
My wife and I have an ugly but comfortable old house that cost $75,000 in 1986 and is assessed for tax purposes in 2011 at $230,200. This is down 24 percent from 2009, but, as then, I think it would sell for 10-20 percent more than its assessed value, even in today’s housing market.
Our taxes are flat from last year and won’t rise much in 2012. Adjusted for inflation, they are 13 percent below what we paid in 2006, at the peak of the housing market. Moreover, they are down 15 percent from 1997, which puts some perspective on the notion that taxes have risen inexorably year after year.
In a burst of budget surpluses in the late 1990s, our state increased transfers to local government. That reduced local taxes sharply. Now, with budget problems of its own, it has axed that “local government aid.” Surprise, surprise, local taxes are now going up.
Some people’s taxes are going up by double digits and perhaps did the same in prior years. But that is not the rule. The median increase in my city is $69 per house or 3.2 percent. This is after a year in which the national Consumer Price Index went up 2.7 percent. So as an economist, I don’t see local taxes as out of control, and I think citizens get value for money.
This whole question of “value for money,” is extremely subjective however. Like beauty, it is inherently in the eye of the beholder. Some people think they have good government, while others in the same town see only “waste, fraud and abuse.”
The $70 that my wife and I pay in monthly tax for city government is less than we pay for phone and Internet service. We pay more for car insurance. Yet we have great parks, pretty good streets, and excellent police and fire departments.
We pay a bit more for public schools, $90 a month. All three of my kids got most of their K-12 education in these schools, and the cumulative total I have paid in school taxes over 25 years would not have put one of them through one of the excellent private high schools in our city. Moreover, it is important to me personally that a good education be available to all citizens.
We also own farmland and, in the past three years, have spent nearly $40,000 on our farm, including 5,000 feet of 2-inch PVC pipe, culverts, drain tile, concrete and gravel, and to contractors with backhoes, motor graders, front-loaders, dump trucks and dozers. I bought fuel and a new engine for my tractor. So I have an appreciation for how much it costs to build and maintain roads, bridges and other infrastructure, plow snow and all the rest. A student of mine heads a suburban school board, so I have heard about the enormous utility costs for one school building. So I understand some of the reasons why the county to which we pay $1,189 a year plus the schools and city spend as much as they do.
My wife and I are not poor, and real estate taxes amount to less than 2 percent of our earnings. When I was 20 years younger, it was much higher, and it will be again after we retire. We always considered them moderate. But other people, even those with much more income, consider their taxes abusive. That is what introductory econ textbooks describe as “differences in tastes, preferences and values.” There is no right or wrong answer on this, and each citizen or taxpayer must decide for themselves.
ed@edlotterman.com
