Tax Deferral

One of the concerns often expressed about rising property taxes is that people will be "taxed out of their homes." Sometimes this is expressed as "a man's home is his castle, but it isn't really his if taxes might rise beyond his ability to pay."

Interestingly, far fewer tears are shed for renters who cannot afford to pay rising apartment rents, or for people whose adjustable-rate mortgage payments rise precipitously.

In California and Florida, and other places, this concern about not "taxing people out of their homes" led to Proposition 13 and "Save Our Homes" which have protected one class of people at the expense of burdening others. The result has been that new owners of homes may pay multiples of what their long-owning neighbors pay on identical properties.

A better way is to permit those who feel they cannot afford rising property taxes to defer some or all of their property tax payment, with interest, as a lien against their property. That lien would be satisfied upon the sale or transfer of the property. In order to avoid burdening younger taxpayers with subsidizing such deferrals, revenue anticipation bonds could be issued, with the cost covered by the interest on the deferrals.

 

Fred Foldvary: Ultimate Tax Reform

Costs of collection and administration

Consider the effect of abolishing income taxes and sales taxes, replacing them with a land value tax. There would no longer be any tax audits. There would be no record-keeping for taxes. You, the landowner, would instead get a monthly bill, like you get for utilities. You would simply pay the bill or have it automatically deducted from some financial account. At the same time, government would avoid the high cost of processing complex accounts and keeping individual tax records. It would only need to keep real estate records and assess the land values, both of which it already does for property tax purposes.

Those who are retired or temporarily have little cash income would be able to defer taxes by accumulating liens on the real estate until they die or sell the property, as is commonly done today with real estate taxes.

If you thought the assessment of the land value was too high, you could appeal, as one can today’s real estate taxes. The land value assessments would be public records available on the Internet, unlike income tax records, which are quite properly hidden from public view. You could easily compare your assessment with those of your neighbors. If the appeals board rejected your claim, the assessment could be appealed to a jury, if you were willing to pay the cost of the jury’s decision.

Nobody would be sent to prison for tax evasion, because there would be no tax evasion. A non-payer would lose title to his land or lose the protective services of government, depending on the local enforcement practice. Property taxes are already being assessed and collected by counties in the U.S. A complete shift to the taxation of land values would not increase these costs, but would eliminate the expenses involved in collecting sales and income taxes. ... read the whole document

Wyn Achenbaum: Eminent Domain and Government Giveaways

But our system wasn't designed to send signals all that well — Connecticut law required properties to be reassessed once every decade (and I've heard that once in early '70s and once in the late 80's was construed to satisfy that requirement). Now assessments are required every 4 years (though my town decided it didn't like the 2003 revaluation and is keeping the 1999 for a few more years).

But if the properties had been reassessed on a regular basis, with market-based values assigned first to the land and the residual being assigned to the existing buildings, the homeowners themselves would have been in a position to make their own rational decisions on whether it was worth it to them to continue to occupy extremely valuable land (and pay the taxes on it), or more to their advantage to accept an offer from someone who was prepared to put it to a higher and better use, and take that equity and buy elsewhere.

I am sympathetic to those who want to occupy their homes forever, but if those homes are located on land that is valuable (because of its views or water access or transportation services, for example) or becomes valuable because of surrounding development, it seems fair that they compensate the rest of us for holding up progress, for continuing to occupy as single-family residences, land which it is now time to develop into something that produces good results for the entire community.

Most of us know of an older home, or perhaps a diner, or something else that was a highly appropriate use for its site — and typical of the neighborhood — 50 years ago, which stubbornly remains in the middle of a neighborhood which has been redeveloped with taller commercial buildings. The home or diner is something everyone else has to walk around, drive around. If that site were well developed, it could prevent the premature development of far less desirable sites on the fringe of town — an acre downtown well developed, can save 10 or so acres on the fringe.

Should we protect the right of elderly people to stay in their homes, at the expense of the rest of the community? Should we protect the right of a young person who shares that home to stay there for an entire lifetime, at the expense of the community? I'm comfortable with the idea of allowing the elderly person to defer payment of the property taxes, with interest-bearing debt accruing against the property until it is sold or transferred. It seems to me to be an acceptable tradeoff, even if it creates potholes in the redevelopment. But his heirs should not inherit it until the lien is satisfied, which will usually mean that at last it will be developed consistent with the neighborhood.

But unless the properties are regularly and correctly assessed, land first and buildings as the residual, we won't have the signals which tell us when it might be time to move on.