Taxes Blog

 property taxes may be axed
By Kay Bell ·
Tuesday, October 18, 2011
Posted: 12 pm ET
Nobody likes paying taxes, even when we acknowledge that we must do so to get services. But which tax do we hate the most?
It's a close race, but last year property taxes edged out income taxes as the most-hated tax. Yes, even though this levy can offer some tax benefits to homeowners who are allowed to deduct it on their federal income tax returns, annual real estate tax bills really set us off.
And apparently, North Dakota residents hate property taxes more than other Americans. We'll find out for sure next summer when North Dakota voters get to decide whether to abolish property taxes.
In June 2012 a constitutional amendment to eliminate the tax will be on the ballot. If approved, it would make North Dakota the only state in the nation to abolish real estate taxes.
Like many ballot initiatives, this one will go before the voters thanks to a grassroots effort. A citizens' group critical of increased government spending pushed for the measure after noting that North Dakota's general fund spending has doubled from $2 billion to $4 billion since 2005.
While elimination of property taxes is dramatic, there have been some precursors nationwide.
Ballot initiatives have allowed many jurisdictions to limit the rate of growth of real estate taxes. See California's landmark Proposition 13, the granddaddy of real estate tax rate restrictions.
Other taxing districts have forgone collection of property taxes in years when there was enough other revenue to cover government operating costs, but the collection resumed later.
Added income is the catalyst behind the North Dakota effort to kill property taxes. The oil industry is booming in the state, especially the northwestern section, providing local governments more revenue without raising tax rates.
As a native of the West Texas oil patch, trust me. The boom won't last. But the services paid for by property taxes, most notably public schools, will continue to need money.
If the property tax system is axed, the proposed law would force the state legislature to come up $740 million for North Dakota's school districts, counties and cities. The fight over apportioning that money would be brutal.
And let's not forget about America's real pastime, lawsuits. Opponents and proponents alike of ending property taxes will clog the courts with requests for rulings on the state's obligation to provide revenue to replace property taxes.
Supporters of the North Dakota initiative say the property tax ban is necessary to keep older homeowners on fixed incomes from being priced out of their homes by rising tax bills.
Point taken. But deal specifically with that group of adversely affected taxpayers. Enact a new property tax relief program or expand existing ones specific for lower-income senior citizens.
Don't create a whole other set of impacted taxpayers statewide who see their schools demolished because the funding mechanism was eliminated.
But don't nuke a system that lets each taxing district be in charge of how money is spent for local needs. Once it's gone, I'm willing to bet that another ballot measure effort will soon begin to put the property tax system back in place.   

                                                       Comment
Charlene
October 19, 2011 at 11:31 am
Three points: First--lawsuits. The state legislature has already arrived at equitable formulas to comply with the Constitutional mandate to "fully and properly fund" K-12 education and funds 70% of elementary education. The legislature only needs devise a similar formula to "fully and properly" fund local gov. "Legally mandated services" is clearly understood by law. The ones who embrace the status quo that keeps ND property taxes one of the highest in the nation are the one who raise the bogeyman of litigation.
Second--Let's assume that the Prophet Kay is right. Let's assume that 10 or 20 yrs from now the oil boom withers and dies. If we don't abolish property tax what will happen with the oil bust? People will lose their jobs and, unable to pay both mortgage and property taxes, they will lose their homes. Right now the state's economy is based on two things: oil and agriculture. Left with just agriculture as its economic base, jobs and wages will be severely limited. There will be a statewide economic downturn, just like the bust in the 80's.
What happen's if we DO abolish property taxes? A study from the well-known economic think tank Beacon Hill Institute shows that in the first year alone:
New jobs increase nearly 12,000
Business investments increase $694 million
Personal income increase 3.6%
State revenues increase $45 million
Five years later the increases are even more dramatic:
Over 13,000 new jobs
Business investments will increase 1.05 BILLION
Personal income increases 4.1%
State revenues increase another $56 million
More importantly, the economic base will have diversified dramatically. This measure makes the entire state an "economic development zone" and so will attract industry that will invest heavily in business infrastructure (since the tax incentive will be permanent, not the 3-5 yrs incentives normally offered in economic development packages.) Instead of just oil and agriculture driving the economics of the state, we will attract businesses like Boeing, auto makers, high-tech industry and goods production. Building and the supporting trades will expand in response to this new investment.
So IF that oil bust does come (I don't claim to have the prophetic powers that Kay does), what will happen? Displaced workers will keep their houses because there will be no property tax that forces them to sell during their unemployment AND they have a wide range of job opportunities that was unavailable to displaced workers during the last oil bust. The state's economy will have diversified in those 10-20 years, becoming more vibrant and resilient.
Third--Kay seems to think that the burden of losing one's home is so negligible that it can be easily born by other taxpayers. Property tax doesn't only make the unemployed, disabled and elderly homeless for failure to pay, it unnecessarily forces many more into smaller housing, apartments and gov subsidized housing. It inhibits investment in one's home, leading to blight and neighborhood malaise. It discourages first time homebuyers--usually young families. It's no wonder that the state with the 12th highest property tax rate also has the lowest rate of young families in the nation. And every dollar of property tax relief given to the needy means a dollar added to someone else's bill and removes that money from the economic market that would improve the state.
In the last 25 years, the state legislature has amended or reformed propert tax 134 times. And every year it gets more complicated, unfair and unpayable. It's time to acknowledge that the tax is unfixable and find a better way to fund needed gov services. This measure does just that.
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