“Feel Good” Taxation

Ban Property Taxes

Here in Ohio there’s a “new” movement to ban property taxes.  That’s right, folks are out there campaigning to pass an Ohio Constitutional amendment that would, after a year, drop all property taxes.  

What’s driving this movement?  Well, first of all, no one likes taxes.  So it makes citizens “feel good” to actually talk about wiping some out.  That’s particularly true in most of Ohio, where property values have gone up astronomically in the past few years.  My example:  in 2015 our house here in Pataskala had a market value about $180,000.  We paid around $2300 a year in property tax.  That’s 1.3% of the value a year.  Ten years later, the same house now has a market value over $300,000.  We pay $4030 in taxes.  That’s still 1.4% of the value a year – but it’s a whole lot more money.  

That compares to income taxes.  We’re both retired, so our incomes are pretty stable.  We don’t make a whole lot more money now than we did in 2016, and we pay about the same amount of income tax, federal, state and local, every year.  It fluctuates a little bit, often depending on the “politics” of the moment.  But, year in, year out, we pay somewhere around 12% of our gross income in taxes.

Income Tax

Income taxes are flexible.  If you make more money you pay more taxes.  But property taxes don’t work that way.  Sure, you house may increase in value, but you don’t benefit from that increase unless you sell.  Meanwhile, the taxes continue to go up on that “anticipated” value.  But that anticipation doesn’t put a dime in your pocket when it comes time to pay the tax bill.

Most would agree that income taxes are “fairer”.  But, here in Ohio, the State Legislature is working hard to reduce income taxes.  Maybe that sounds good to some. But income taxes are based on earnings, so that those that earn more, pay more.  If you’re Vivek Ramaswamy (Republican candidate for Governor), making millions of dollars a year, income taxes are a bigger burden than on this retired teacher in Pataskala.

The State Legislature is dependent on the wealth of Ramaswamy and others for campaign (and other) money.  Those politicians want to keep the wealthy happy, so the legislature keeps income tax low.

What We Pay For

Meanwhile, most of the local services folks get are paid by property taxes, not income or sales taxes.  And in recent years, the Legislature has put more and more of the  burden on the local governments, and picked up less and less of the tab from income tax.   Here’s the list of local entities that get a “piece” of my property taxes:

• Local Schools
• Fire Department
• City of Pataskala (Police, Snow Removal, Roads) 
• County (Sheriff, Snow Removal, Roads)
• Vocational School
• County Parks
• the local Library
• County Services for  Developmentally Disabled 
• County Services for Children 
• County Services for Senior Citizens 
• County Services for Mental Health.

So while it may “feel good” to talk about cutting property tax, there is the other side of the equation.  If you zero out property tax, then who pays for all of those services?  The Legislature isn’t likely to raise income taxes, even though that would be the fairest way to do it.  So, which of those services should we just “give up”:  fire, schools, police, the library?  

Pending Disaster

The anti-property tax folks don’t really say much about that.  They, rightfully, just feel that property taxes place an unfair burden on many. It’s increased taxes without an increased ability to pay those taxes.  That’s unfair, there’s no question about it.

Every state in the Union has a property tax.  Even the states with biggest income tax rates, like California, still have local services supported by property tax (about 1.5%, just like Ohio).  So a property tax “ban” would be a radical change, both for Ohio, and in the Nation. (Just an aside, Ohio has never been the home of “radical” government anything).

Tax reform sounds great to me.  I think that ALL of our taxes, should be collected by the state in income tax, then distributed back for all government services.  That way everyone pays their fair share, from Vivek all the way down to Marty.   But that radical reform isn’t likely to happen anytime soon.  And meanwhile, the government services we need and use the most, schools, police, fire, snow removal; all depend on the property taxes it would “feel” so good to dump. 

There are two sides to the equation.  The draconian “dump property tax” crew are happy to cancel out one side, but have nothing in mind to balance the other.  They’ll let the Legislature deal with that.  If they get their Amendment on the ballot, the people of Ohio will be asked to make a radical leap of faith in the Legislature to do the “right thing”.  And there’s no empirical evidence to show they could, or would, do so.

Dumping property taxes might feel good, but it just might be a disaster.