In my prior post about property assessments and taxes in Missouri, I highlighted a few things we can do immediately to address the situation of higher taxes resulting from higher assessments. We can end the Kansas City school district rollback exemptions, end the personal property tax rollback exemption, and require certificates of value everywhere, not just in the most populous counties.
When you freeze assessments (or implement a similar plan), you create distortions in the system that have their own economic consequences. For example, people not taking a job because it would require moving, and moving would result in higher property taxes on a new home. The best way to deal with the problem of trying to reduce tax increases on property owners without creating harmful market distortions is through tax rates. That is what the Hancock Amendment has done with some success over the years.
To start the discussion, If there is one number I would suggest changing, it is the maximum five percent inflation adjustment. That number could be lowered to, perhaps, three percent, to allow for local governments to still address inflation at least in part. Yes, during this period of recent high inflation, lowering the number from five to three percent could affect the bottom lines of taxing agencies (by limiting that portion of their tax rate calculation to below inflation levels), but my interest has never been ensuring that taxing agencies get as much money as they can. My interest is in ensuring that we have a property tax system that funds local government while encouraging economic growth.
Don’t believe this constant canard that we aren’t funding our school districts, cities, etc. Local governments have more money than they know what to do with right now thanks to the various federal stimulus programs and assessment increases. They can all live with a lower inflationary adjustment in their annual rate-setting process just fine this year. If they have to make some budget adjustments, then so be it.
Another thing we should do in the next few years is phase out the personal property tax. Property taxes work best when the thing being taxed is immobile. That means taxing land and buildings, but not taxing cars, boats, and livestock. (Yes, livestock really is taxed.) Missouri taxes personal property more than most other states. Moving property taxes in a revenue-neutral way more toward land and buildings and away from mobile items like cars will create a more stable tax base. Yes, it would shrink the tax base some, which I am generally against, but in this case I think there is strong evidence that it would be a beneficial change.
Next up, what are some of the bigger, more complicated changes we can make to our property tax and assessment system?
