Posted on Tue, Nov. 15, 2005


Reasons to tax homes far outweigh reasons not to tax them


Associate Editor

WHEN THE Senate tax panel voted last month to essentially cut residential property taxes in half, there was no applause in the room. The self-appointed defenders of the taxpayers were outraged, and warned that if senators didn’t straighten up, they wouldn’t be coming back for another term.

They would accept nothing less than the complete eradication of the property tax on homes. It was not a modest demand: This would mark the most radical change to tax policy since South Carolina first instituted a sales tax, more than a half-century ago.

No such threats were needed for the House; representatives acquiesced in advance, discarding all of their other ideas to rally around a plan to meet the protesters’ demands and, in the process, reduce the ability of citizens to control spending and services in their communities.

The tax protesters offer a philosophical and a tangible complaint. The tangible complaint — that some people are forced out of their homes because they can’t afford their property taxes — is a real one. And although this happens to far fewer people than they would have us believe, it’s a problem that legislators should address, with a solution that is targeted to that specific complaint. Unfortunately, legislators aren’t seriously considering any reforms that are targeted to the real problem. But that’s another column.

A big reason lawmakers aren’t trying to target property tax relief is the populist power of the philosophical complaint — that having to pay property taxes means you never really own your home. This complaint sounds good — until you think about it. Then you realize it doesn’t hold together.

By that logic, having to pay an income tax means you never own your time or your talents — that you are a slave.

Contrary to the idea that tax opponents try to conjure up with their carefully chosen rhetoric, taxing property isn’t a new or radical concept. It’s as old as civilization itself. And with good reason.

As a white paper by the National Council of State Legislatures explains: “Even before the existence of money, early leaders received payments from their subjects in the form of property. Over time, this practice evolved into the concept of taxation based on value, what is now termed an ad valorum or property tax.”

In the United States, the report says, a national property tax on land “provided a way for a fledgling country to fund its fight for freedom.” The new federal government gave up the property tax for tariffs, but states continued to rely almost exclusively on the property tax, and at the turn of the last century, 82 percent of all state and local revenue came from property taxes.

The property tax was a particularly sensible form of taxation in an agrarian society, when how much income you had and how much you consumed were directly related to your property, from which you produced both.

But as more people moved to cities and took jobs that didn’t depend on owning land and equipment, and purchased their food and clothing rather than growing or making it, the property tax became a less perfect tax. So states followed the federal government and started taxing income; then they started taxing consumption. And so was born the concept of a diversified tax system, which operates on the same principle as a diversified portfolio — providing stability and predictability through economic ups and downs.

South Carolina stopped collecting a state property tax in 1938, and left it to cities, counties and schools, which have no choice but to rely heavily on the property tax: The General Assembly tells them what type of taxes they can levy, and it has given them few options — all strictly limited.

That lack of options is one reason property taxes make up more than 40 percent of the revenue collected in South Carolina from the “big three” taxes — income, sales and property — and one reason it makes sense for lawmakers to swap some property taxes for other taxes.

But while I can argue either side of the issue on schools, I’m convinced, for a policy reason and a practical reason, that it makes a great deal of sense to fund cities and counties with property taxes, including residential property taxes.

The policy reason is that most services provided by cities and counties protect or enhance property: If your $1 million house burns down, it costs more to replace it than if a $50,000 house burns down; so the monetary value of good fire protection is greater. The same goes for police protection, since the $1 million house almost always has more expensive contents that can be stolen or destroyed. The same is true, to a lesser degree, of trash collection, street lights, water and sewer, road maintenance, even beautification.

Ask any real estate agent: Good local services increase the value of homes.

The practical reason it makes sense to use property taxes to pay for local services is that they make it difficult to avoid your obligation to pay for your community’s services. You can avoid a local sales tax by purchasing products outside your city or county; you can avoid a local income tax by working outside the city or county where you live. But as long as you live in a given county, your house stays there, and you pay taxes on it.

If you do away with property taxes, you’ll end up with a significant number of people who receive the full benefit of having good police and fire service and other local services and amenities, but pay far less than their share for them.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.





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