Rising Home Values means Rising Tax Bills: How to fix an Unjust System
by Kyle Scott on February 20, 2014 at 8:40 AM
The rapid economic development in Harris County has been something to behold. While residents, politicians and business leaders are actively praising the development, there have been a few things that we have yet addressed adequately. For there is perhaps never a transition or development such as this that does not bring some negatives with all the positives.
One of the negatives is the rise in home values for those of us not planning a move anytime soon. With home prices rising due to all the new people moving to our area, revenue from property taxes are also rising. This has nothing to do with the rate of taxation but the assessed value of the home. If your home is valued more this year than it was last year, you will pay more in taxes even if the tax rate remains unchanged or if the tax rate is not lowered enough to compensate for the increase in assessed value. In other words, long-time residents are being punished. They are being taxed on unrealized capital gains. One does not benefit from, or realize any economic gain, an increased home value until one sells it. Thus, taxing a homeowner before they sell their home at a profit, as though they have already made a profit, punishes anyone who has lived in the same home for more than a year or two.
There is a two-step solution that would be simple to implement. First, elected officials across jurisdictions who have authority to adjust the property tax rate should collaborate to develop a formula that would reduce the property tax rate to adjust to rising home values so that the homeowner will have the same tax bill from year-to-year. This will allow the state to generate revenue at the same level from each homeowner as they did the previous year—a rate for new homeowners will need to be established as a baseline—and it gives the taxpayer the peace of mind that they will be able to know what they will be told to pay every year. Families can’t plan for the future amidst a climate of uncertainty.
If government entities need additional revenue from homeowners, then they should be forced to raise property taxes and be held accountable for that decision. Officials should not be able to fill their coffers with additional revenue from homeowners who have no control over the value of the asset being taxed. The current system is deceptive as it forces homeowners to pay more while elected officials can pat themselves on the back for maintaining the current tax rate while also increasing revenue. The choice should not be between raising taxes or keeping them the same but rather to lower, raise, or maintain current levels.
The second step to this solution occurs at the time of home sale. If a homeowner sells their home at a profit, and has not paid more in taxes despite a higher assessed home value during the time they were living in the house, then the state will receive a portion of the profit. I would be content allowing the home seller to keep all of the profit but in politics there must be some room for negotiation and compromise and that is what this second step is designed to provide. The argument is that one should not pay a tax on an unrealized capital gain; so when that gain is realized, the tax can be collected.
The debate over whether a property tax is just, or whether it prevents anyone from owning property, is a debate best left for another time.