The Property Tax – An Outdated Wealth Tax

 Resistance to the Property Tax

There is a lot of resistance to the property tax in our country today, but it is mostly misdirected. Some are saying that property taxes should not be levied on people’s homes if they are fully paid for. Others are saying that retired people should not have to pay property taxes or lose their homes if they are unable to pay the taxes.

In some ways the anti-property tax campaign is a fraud. The main beneficiaries of eliminating the property tax for retired people would be rich old people who own large properties. The specter of old folks struggling to stay in homes that they have paid for is mostly a front for wealthy folks trying to avoid paying their fair share of taxes.

High Property Values Have Led to High Property Taxes

However, there is also a real problem for some people. It has arisen because real estate values have risen enormously in recent years, and as a result, some people are faced with property taxes that are much higher than they can pay. This problem occurred in California in the nineteen seventies, and as a result, the voters there passed the famous Proposition 13 that limited what homeowners could be forced to pay. This created a problem for local governments, which depend heavily on the property tax for revenue.

A Little History

Why do local governments depend so heavily on the property tax? The use of the property tax to cover the cost of local governments began in the thirteen colonies in the seventeenth century. In order to fund important projects, local governments collected taxes, and inevitably, the taxes  had to be collected from people with sufficient wealth to pay them.

At that time, land was the principal form of wealth. Most private income was derived from land. Some people owned small farms, while others were major landholders. People who owned no land were mostly too poor to pay much in the way of taxes. Moreover, local projects like roads or harbors were often undertaken to promote trade in local products, which were often agricultural products. So, it seemed fair to pay for the projects by means of a tax on land, and local governments developed a tradition of using property taxes as a major source of revenue. People paid to support their local government in proportion to their shares of the community’s wealth. That continued to be true throughout most of our history, and today, local governments still depend on taxes on land for a large share of their revenue,

Today, Wealth Takes Many Forms

Today, however, a person's share of the land in an area no longer represents adequately his/her share of the wealth in that area, because today, land is no longer the principal form of wealth. People - especially wealthy people - own stocks, bonds, mutual funds, art collections. and other valuable investments. Today, land holdings account for only a small part of the wealth of wealthy people, who hold most of their wealth in other forms. In contrast, land holdings account for a very large share of the wealth or ordinary, working Americans, who often own little beyond the homes they live in.

Working Americans Pay an Unfair Share

As a result, ordinary working Americans pay tax on most of what they own, but wealthy Americans pay tax on only a small part of their wealth. That means that in America today, people are not taxed in proportion to their wealth as they were in the past. Today, our tax system reflects the structure of our economy as it was in the seventeenth and eighteenth centuries, not the structure of our economy as it is today.

In the face of this unfairness, we need to rethink the structure of our tax system. We need to figure out a way to tax all forms of wealth and not only real estate.