Pros and Cons of Living in an Area With Low Property Taxes
Taxing privately owned land to fund local governments is a concept that can be traced back to at least 6,000 years B.C., according to the International Association of Assessing Officers. In America, the concept is as old as the Republic — literally. Adam Smith was advocating for property taxes in 1776.
As Bloomberg points out, economists tend to love the property tax — the homeowners who pay it, however, would largely disagree.
So who is right?
Is life better in areas where property taxes are low or does the entire community benefit when the government has a deep tax pool to draw from? Well, as with most things in life, there are pros and cons to living where property taxes are low. Let’s take a look at the pros and cons and then dive a little deeper into some of them.
Pro: Low Property Taxes Equal Low Monthly Housing Payments
In New Jersey, where residents are saddled with the highest property taxes in America year after year, real estate taxes average 2.13%, according to Quicken Loans. For the average homeowner in the Garden State — using the average home price of $500,628 in the first quarter of 2021 — that’s more than $830 added to their monthly mortgage payment and more than $10,000 forfeited to their municipal governments every year. In dirt-cheap Hawaii, it’s 0.31% for an estimated annual property tax bill of $1,086 — about $90 a month. After five years, the average Hawaii resident would be about $45,000 richer than a New Jerseyan in this situation.
Even if you don’t own a home, there’s no escaping the burden. Landlords pass the cost of property taxes onto their tenants, so where property taxes are high, so, too are rents.
Deductions: All the Tax Write-Offs You Don’t Know About
Con: With Public Education, You Get What You Pay For
Property taxes pay for public schools, which benefits not just students and their parents, but business owners who want to hire educated employees and the community at large, which benefits from an educated population.
Because well-paid teachers, small classes and modern facilities and equipment depend on higher per-pupil spending, kids born in areas where property values are high tend to go to good schools. Kids born in neighborhoods where property values are low can count on having a much different classroom experience.
Pro: Home Ownership and Retirement Are Easier
Since monthly payments are lower when property taxes are lower, homebuyers in low-tax areas can afford more house and have an easier time qualifying for mortgage loans. When it comes time to sell, lower property taxes allow for higher home values.
Also, the introduction of property taxes might deter investors or builders from launching new home construction projects. High property taxes might also force residents to move elsewhere, resulting in population loss and overall neighborhood decline.
Finally, it’s much easier to live on a fixed income where property taxes are low, which makes for less expensive and more predictable budgeting in retirement.
Con: Critical Local Services Depend on Property Tax Revenue
Nearly half of all property tax revenue goes to public elementary and secondary education, according to the Lincoln Report on Land Policy. But police, fire, EMS and other frontline safety services depend on property taxes, too. Real estate tax revenue also funds sanitation services and road construction and maintenance, as well as other public services like local animal shelters. Lowering property taxes means starving those services.
So, Are Property Taxes Good, Evil or Something in Between?
According to the Tax Policy Center, property tax advocates pitch real estate taxes as a kind of cover charge for living in a community with police protection, an educated population and all the other services that depend on property taxes to function. They view homes as capital, and since capital tends to be concentrated in wealthier households, they consider the property tax to be a progressive tax. The setup favors lower-income households, advocates argue, because they tend to have more children in public school and use emergency services more frequently while paying less in taxes than wealthier households, which use those services less.
Opponents view the property tax as a regressive tax because it doesn’t factor income into the equation. They consider it to be a tax not on capital, but on consumption, just like the regressive sales tax. This is an especially compelling argument since low-income households spend more of their budgets on housing and because landlords pass property taxes onto renters.
It’s a debate where both sides have strong cases, but one thing is certain — it sure is an easy tax to hate.
Property taxes can go up without the homeowner doing anything — like earning more income or spending more money — which makes long-term budgeting incredibly difficult.
Also, it’s just so conspicuous.
As Bloomberg points out, it’s the last major tax that average people actually have to fork over of their own volition. You don’t notice income or Social Security taxes, which are withheld from your paycheck, or sales tax, which merchants remit at the time of purchase. With property taxes, you still have to write a check or fund an escrow account to deliberately hand over your money to the government — and who has ever enjoyed doing that?
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