Tuesday, May 1, 2012

Meanwhile, over in North Dakota... property tax wars

This caught our eye in the Bismarck Tribune recently: Measure 2, if passed, would eliminate all property taxes in North Dakota. It is an idea that has political legs primarily because of state coffers that are bursting from oil-related revenue. Unlike Montana, North Dakota has aggressively worked to develop oil exploration, and that makes everything that much easier.

The tack that supporters of the measure have taken is brilliantly simple. They maintain that as long as there are property taxes, it isn't really every possible to own property -- one only gets to keep it as long as one is able to "pay rent" to the government in the form of property taxes, making any government that taxes property the real owner of said property.

Sarpy Sam wrote something a few months ago to the same effect, and it really got me thinking when I read it. Most people don't notice property taxes on their homes because most are still paying a mortgage (often refinancing over and over again, extending the life of the loan,) with the taxes wrapped into their monthly payments.

For those who manage to pay off their homes or other property, however, the cold reality is that if one is unable to pay the taxes, the property will be confiscated faster than you can say "Department of Revenue." The burden is particularly heavy on those who bought a house a long time ago and paid it off, but who now find that the value of their property has gone up sharply, and with it the taxes. Since many of the homeowners who fit this profile are retirees on fixed incomes, they can be forced to sell their homes because they can't afford the taxes.

The idea is a seductive one -- what would it be like to have property that one actually owned? In other words, what if you could actually pay it off and owe nothing else on it? What if no one could take it away from you once you had burned the mortgage? An amazing thought, really!

The drawbacks are significant, though. This particular law wouldn't allow even local entities to levy property taxes, meaning that local governments would have to be funded by the state government. The net effect would be a loss of local autonomy, essentially turning city and county governments into administrative districts of the state government, rather than uniquely responsive local government entities.

The temptation to raise income taxes to make up the difference would be very high -- one of North Dakota's strong points when it comes to taxation has been that North Dakota has a very balanced schema: modest income, sales, and property taxes, none of which carries a disproportionate load. A related point is that property taxes, unlike income taxes, are very stable taxes that provide a steady flow of income not subject to the vicissitudes of economic cycles. Even sales taxes, while far more stable than income taxes, are somewhat cyclical. Cyclical taxes such as income taxes tempt governments into greatly increasing government spending during booms -- spending that a government then must struggle to pay for during inevitable economic downturns.

All in all, from an MH perspective, while all taxes are evil (even when necessary,) property taxes are less evil than are income taxes, since they do not directly punish productivity (although they do punish investment and saving.) We would favor very low property tax rates, with creative ways of addressing some of the worst aspects: perhaps having lower rates for those over the age of 65 with fixed incomes, or maybe even having property tax rates drop significantly once a mortgage is paid off, which would have the effect of encouraging families to reduce their debt burdens.

These creative proposals are things that can't be explored anywhere but in the legislative process. Bills to eliminate property taxes failed to pass the North Dakota legislature during the last session, a fact that should sound a warning bell for any "small-r" republican. In general, law made by referendum and ballot initiative tends to be poorly written law -- there is no formal debate and testimony, there can be no amendments to deal with problems that a bill's authors hadn't thought of, etc. While legislative wheels grind slowly, they tend to grind fine and to produce results that, because they usually involve compromise, reflect as close to a consensus view as can be reasonably hoped for.

We will watch with interest to see how North Dakotans vote on this matter, hoping that whatever they decide will be good for their state. Let us also hope that the Montana legislature looks across the border for inspiration and finds ways to lower our own taxes... of every kind. Of course, before that can happen, Montana will need elected officials at every level who creatively encourage a robust development of our oil and coal resources -- until that happens, any tax relief that we can hope for will be symbolic rather than substantial.

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