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Reassessment plans further erode shrinking tax base
IN THE 1980s, the Legislature created a “fee in lieu of taxes” program that let big new manufacturing companies pay a lower fee instead of property taxes. Over the years, lawmakers have made that program more generous, so that today it applies to most large and some smaller manufacturers and even some retailers.
Then they reduced the tax rate for automobiles.
Individually, those changes made some sense: It’s counterproductive to tax manufacturing property at a rate that’s 75 percent higher than other businesses and nearly three times the rate we tax houses. There’s not a good reason to tax cars at that same inflated rate either.
But together, they shrank the property tax base. And now lawmakers are pushing plans that would effectively lower the rate at which most homes and businesses are taxed, by eliminating the reassessment process that keeps the taxable value up to date. That would shrink the tax base even further.
When you significantly reduce a tax base, you have to raise the tax rate in order to bring in the same amount of money. That means someone pays more. (Of course, legislators want to prevent that, with their least defensible proposals — to limit cities’ and counties’ ability to raise property tax rates and to eliminate all residential property taxes. That’s another editorial.)
To their credit, senators offer an all-too-rare nod to the idea that local governments are best suited to determine how local government should be operated, and funded, by allowing counties to opt out of their latest assault on the tax base. Unfortunately, the plan stacks the deck politically, making that nearly impossible.
Senate and House plans would do what the Legislature is notorious for doing — shift the tax burden in unforeseen ways. Businesses would pay a larger share of taxes, because business property often depreciates, while homes rarely do. The Senate plan would leave people in neighborhoods where property values are stable paying a larger share of taxes, while those in popular neighborhoods pay less.
It’s hard to guess how much the tax burden would shift; about all we can say for sure is that the plans would mollify some of the people who are clamoring for relief — whether they truly need it or not. Better to figure out where the current system creates an undue burden, and find targeted ways to alleviate that burden.
There are good reasons to change the property tax base. We have too many categories of property, all taxed at different rates, and too many exceptions that create the perception, if not the reality, of unfairness. But reassessment serves several important functions, from preventing huge differences in the tax bills of neighbors with identical houses to holding down overall tax rates by harvesting the natural growth of the tax base. Picking away at yet another part of the tax base, without looking at the entire thing, is a recipe for all sorts of unintended consequences.
The reassessment proposals are part of a larger effort to replace some property taxes with a higher sales tax. Done correctly, such a shift could form the appropriate starting point for a long-overdue reordering of our state’s taxing and spending systems. But no such exercise should be contemplated if it does not find the best way to pay for schools, and preserve the ability of local communities to govern themselves. Eliminating reassessment — even if counties do have a theoretical ability to opt out — accomplishes neither goal. And there are far better ways of relieving the undue burden property taxes cause for some people.
