When I read in my local paper, the Sun Gazette (published in Washington's Virginia suburbs), that the Arlington County Board was planning to raise property taxes, I prepared the chart below. It shows how my own property taxes have risen since I bought a house in 1997 (with my first tax bill, in 1998, set at 100).
I had the following letter published this week in the Sun Gazette:
[Arlington] County Board members are discussing raising the real estate tax rate by 5 cents. The Sun Gazette on Feb. 28 published a chart showing that the proposed rate was actually higher in 2000 and 2001. But what you didn’t show was the soaring level of real estate assessments. Property taxes are much higher than they were a decade ago. My first Arlington tax bill was in 1998. My 2012 bill was more than double the 1998 rate--about a 127-percent increase. I think that’s true for most Arlington homeowners. It’s not easy to find past budgets on the county government’s Web site, but I would assume that the county’s revenue has gone up approximately as much. So Arlington isn’t hurting for revenue; it’s just itching to raise spending even faster than tax revenue rises. The Sun Gazette quoted County Board member Libby Garvey saying that a 5-cent tax hike is “a very good compromise.” Not for taxpayers, it isn’t.
This pattern happens in many states and localities, of course: they spend money freely in good times, then run into trouble when the economy or the housing boom slows down. As Chris Edwards told a reporter in 2009, states during the preceding years had "repeated the same mistakes they made in the late '90s, assuming the good times were going to last forever." And when the money stops rolling in, they don't want to cut back--so they decide to raise taxes to keep their revenue and spending at the high levels they reached during the boom.
The New York Times editorialists are at it again. June 12th's lead editorial, "The Latest Work Dodge: A Shutdown," frets over the specter of the New York state government being shut down because Albany's legislators can't agree on a budget. Well, the Times must have breathed a collective sigh of relief late Monday (June 14th). That's when the State Senate passed Governor Paterson's 11th temporary budget extender, which allowed state offices to hang out "open for business" signs on Tuesday.
But, the Times wants a final state budget and claims that more taxing and borrowing and maybe some cuts in school aid will do the trick. One item that the Times wants off the table in Albany is property taxes. According to the Times, Democratic state senators outside New York City should stop pushing for restrictions on the rate of growth of property taxes. I agree. Instead, the legislators should start pushing for sharp cuts in New York's oppressive property taxes. When every U.S. county is ranked according to its average property-tax bill, as a percent of home values, 14 of the highest 15 are in New York state.
As Prof. Steve Walters and I concluded in "A Property Tax Cut Could Help Save Buffalo" (Wall Street Journal, December 6, 2008), New York should follow California and Massachusetts and cut property taxes. Voters capped property taxes in California at 1% of market value with Proposition 13 in 1978. That forced San Francisco to cut its rate by 57% overnight and brought forth a tidal wave of investment, even amidst a recession. By 1982, inflation-adjusted city revenues were two-thirds higher than they had been before Prop. 13. Massachusetts voters passed Prop 2 ½ in 1980, forcing Boston's property tax rate down by an estimated 75% within two years. Massive reinvestment, repopulation and urban renewal followed.
Most politicians and other advocates of tax harmonization are clever enough to pretend that they do not want higher tax rates. Instead, they assert that their proposals are merely ways of reducing evasion and making tax systems more efficient. So it is rather surprising that the Prime Minister of Finland has a column in the Financial Times, where he admits that various governments should conspire to simultaneously raise tax rates in order to finance big government:
The overall tax rate will have to rise as well over the longer term. In some areas that can be done without much consultation between the countries. For example, property taxes or inheritance taxes can largely be determined at the national level without adverse economic consequences. But such taxes will not raise significant amounts of revenue. Only changes in value added tax, various excise taxes or taxes on earned and capital income can make a real difference. However, raising such taxes can have detrimental effects on economic activity. This is especially so when a country acts on its own: capital and people can respond by migrating to jurisdictions with lower rates. Deeper co-operation is therefore necessary if tax revenues are to be increased in a way that truly helps fiscal consolidation. ...It is important that different countries do not find themselves with very different tax solutions. We should avoid tax competition and the damage this would cause to Europe’s economic growth. ...member countries could agree, for example, to change the levels of certain taxes in parallel. Parallel measures would help all of Europe: tax competition risk would be reduced and the public finances of individual countries would improve. Such co-ordinated tax changes could set also an important global example. In particular, it might encourage the US – with lower tax levels in most areas – to do what has to be done to address its spiralling budget deficit.
In the column, Prime Minister Vanhanen even suggests that the United States might be tempted to join the tax cartel. This has always been a goal of the Europeans since an OPEC for politicians without the United States will not work any better than the real OPEC without Saudi Arabia. One of my first videos -- back in late 2007 -- was on this topic, and it is embedded below for those who did not have a chance to view it.