The property tax is a good tax. Local governments in Tennessee have depended on the tax on the value of property since 1835. Proposals to restrict this tax are unfair.
Improvements in public service increase the value of property. For example: Better policing with less crime attracts residents who bid up property values. Stronger firefighting lowers the cost of fire insurance. Homeowners then bid up property prices to reflect the savings in insurance. Tax-financed refuse collection significantly lowers cost compared to private collection. Private collectors form local monopolies with high prices.
More broadly, local services have value beyond the individual. When police arrest burglars, the likelihood of burglaries in the neighborhood go down.
Many people gain. Putting out a fire quickly in one building reduces the chance of fire going downwind. With tax finance, the government arranges collection of everyone’s trash. Neighborhoods are tidy. Property values are higher.
Schools show similar effects. Better schools attract residents. They bid up the price of housing. Better educated workers increase the productivity and wages of colleagues. The benefit of education spills over to other people. But here is the twist: Some children who are educated locally move away. The full benefit of education, including spillovers, extends beyond the local school district and its taxpayers.
Property taxes create a fair burden for public service funding
The burden of the property tax, if any, is borne by owners of property, not renters. With ineffective government, tax revenue may not deliver better services. Landlords may want to pass the cost of the tax with little service along in higher rents. As renters sense the loss, they tend to move to other jurisdictions. Renters moving limits increase in rents. Rent net of the tax with little service will put a burden of the tax on property owners.
The spillovers justify significant finance by state government.
Tennessee collected a state-level tax on the value of property from 1835 to 1949. A primitive, paper-based system allowed assessments on individual properties to wander wildly. The weak system unfairly overcharged some and undercharged others. In recent years, however, computer-based systems track the sales of properties to produce more accurate appraisals of market values. Assessments are fairer.
Tennessee’s Comptroller plays a major role in managing assessment data in 86 counties and monitors the assessment process in the other nine. The State then has systems in place that would easily support a fair, state-level property tax.
A property tax complements the sales tax. The sales tax collects a larger share from lower-income households. The property tax collects more from higher-income households. As mentioned above, renters have little burden from the property tax. Combining property and sales taxes creates a better balance in tax revenue from Tennessee’s households who benefit from public services.
Malcolm Getz is a professor emeritus of economics at Vanderbilt University.
This article originally appeared on Nashville Tennessean: The fair case for state property tax in Tennessee | Opinion
