How to reform the property tax to protect taxpayers and services

Calls to abolish the property tax are growing louder across the country as elected representatives respond to constituents' increasing concerns about rising property assessments and tax bills. Wyoming is one of the states currently having this debate. What happens there next could be a lesson for lawmakers in other states.

In the last year, Wyoming legislators passed stopgap measures to lower residents’ bills in the short term. The lack of meaningful and long-term reform, plus increasing assessments, is leading people to seek to eliminate the property tax in favor of a sales tax increase. In addition, more residents and their representatives are asking philosophical questions about the morality of taxing property repeatedly and why they should “pay rent to the government” in their opinion for property they supposedly own.

To those who complain that they never “own” their property because of property taxes, what would be the alternative?

As Jared Walczak writes in Confronting the New Property Tax Revolt:

“Imagine a new community is formed in a place without government services. The best thing to do, presumably, is form a government, because some services are best provided or at least funded by governments. But if this were impossible for some reason, the private sector certainly can provide roads, schools, security services, firefighters, and the like. Imagine that homeowners enter contracts for some of these services, paying premiums for police and fire protection, or paying to ensure that their home is on the road grid. Would they value these services, and expect to pay for them, even though they already paid for their home? And would they, in fact, potentially value them more highly if their home has a higher value?”

Regardless of whether one pays for services via property taxes or other means, a homeowner will need them continually, not just the year of purchase. Local governments are structured to provide stable services.

As for a region’s economic outlook, multiple studies show that property taxes are healthier for growth than income and sales taxes. The data is clear: property taxes are both the most efficient way to raise local revenue, do the least harm, and can even help increase gross state and domestic product when taxes are shifted from income and sales taxes to property taxes.

Defending the property tax does not mean it cannot be improved. The current system in Wyoming is a patchwork of complex and temporary exemptions that people must apply for and potentially unconstitutional rate cuts that treat people differently based on the type of property owned and the length of time spent in it each year.

Policymakers across the country should focus on enacting levy limits and providing more transparency on the impact spending has on property taxes. This would shift the focus from assessments to the revenue needed to effectively provide core services while holding government officials accountable for spending decisions.

When paired with a reform known as Truth in Taxation, residents would be able to meaningfully constrain their bills. These laws require local governments to advertise proposed property tax increases with detailed information and adequate time for public input and comment.

To aid lower-income people of all ages, legislators could also pass what are known as circuit breakers. Generally, there are two types. One offers relief when property taxes surpass a certain income percentage and is known as a “threshold” circuit breaker. The other basis discounts on a “sliding scale” of different income levels.

Instead of swapping a property tax system that has worked well for decades with an unproven and unreliable one destined to create animosity and infighting between different localities, why not improve the current one with reforms proven to guarantee both taxpayer relief and stable government revenue?

Legislators should also avoid any changes like California’s Proposition 13, which passed in 1978. That law significantly distorted the market by discouraging homeowners from selling because if they moved, their property tax bill could be significantly higher each year based on the price of the new home. It also benefits long-term homeowners at the expense of new arrivals and causes problems for local governments, which must find other revenue streams to adequately fund local services.

Skyrocketing property taxes that have outpaced wage growth and inflation in recent years have rightly frustrated homeowners and made them question the system. Lawmakers in Wyoming have thus far responded with short-term legislation to temporarily reduce the pain.

While calls for scrapping the system are understandable, studies show the alternative – moving to a higher sales tax or imposing an income tax – will hurt the economy and job growth, provide inadequate funding, generate animosity between counties, and potentially deter people from moving to Wyoming.

Policymakers should instead move to foster fairness, stability, transparency, and fiscal restraint through the proven concepts of levy limits paired with Truth in Taxation legislation and potentially circuit breaker relief to help lower-income homeowners of all ages. In doing so, lawmakers would pave the way for many other states facing property tax revolts to chart sustainable and sound paths forward through an emotionally charged issue.