Home values only affect the distribution of the property tax burden among homeowners – if your home is worth more than your neighbor’s, then you’ll pay more in property tax. But if everyone’s home values in a particular city go up at the same rate, and the city budget doesn’t increase, their property taxes will stay exactly the same. Well, unless, that is, the state cuts back on local aid.
An overly simplistic but mostly correct outline of how property taxes work is this:
1. The city comes up with a budget, which sets out how much money they need to raise from property taxes. That amount is called the levy.
2. City assesors tell the city how much each property in the city is worth, and the sum total of all those assessments (with some adjustments, for example for properties that aren’t taxed) is the tax base.
3. They calculate a tax rate to complete the equation:
tax base x tax rate = levy
If property values go up but the levy stays the same, the tax rate goes down to adjust for the higher tax base. If property values stay the same but the levy goes up, the tax rate goes up to allow the city to raise the higher levy. And so on.
This is why Cambridge can boast of having the lowest tax rate in the state! It doesn’t mean we don’t have a problem, it just means we have an astronomically high tax base.
[ Edit: NoPolitician points out that, as with most municipal policy in Massachusetts, the budget process is strongly guided by state rules. They govern, among other things, how much the levy rises by default each year. Cities and towns can alter this, working within state rules. ]
The driving factor of the past few years’ property tax increases has been reduced local aid from the state. Cities and towns can either cut services, or raise the levy, to make up for it. Most have done some of each.
We can stop the growth of property taxes, or even allow some cities and towns to lower them, by bringing local aid back to its levels in the 1990s. That is, we should fund local services by a higher ratio of income tax to property tax. This would go a long way towards making housing, especially rental housing, more affordable.
That’s the core of my argument about income taxes: We need to present voters with the choice, “Would you prefer to roll back the income tax if it means property taxes keep growing or you have to slash local services; or would you prefer raising local aid funded by the income tax to allow your city or town to keep its services without raising property taxes?” Most tax-conscious voters who in principle want to cut taxes, when presented with this choice, would vote for the latter. Property taxes hurt them more, and property taxes are less fair.
Remember, income taxes, by definition, fall on those who are able to pay (unless the lower brackets get too high). Property taxes don’t. Property taxes force homeowners to raise the rent, or sell and move out.
Even though Blue Mass Group isn’t representative of those tax-conscious voters in general, here’s a poll anyway 🙂
Another point on the tax issue. While polls do regularly show the public wants their taxes to be lower, that does not necessarily mean they want the total amount collected from taxes to be less. As this recent poll found (as do many others), most people want the wealthy to be taxed more. It was a national poll, but I’m sure you’d find similar sentiments in Massachusetts.
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I think a great way for Democrats to respond to the question “Are you in favor of the income tax rollback?” is to respond “Yes, I want the income tax rolled back to 5% for the lowest income brackets and raised on the highest income brackets”. In short, we stop talking about higher or lower taxes and instead talk about fairer taxes. This is basically Jill Stein’s tax position in 2002, and I would like to see Deval Patrick’s campaign adopt it as well.
Yes, that’s exactly it: People want fairer taxes, more than they want lower taxes. And income taxes are fairer than property taxes, so anything that changes the balance to favor more income taxes and less in property taxes, makes the overall system fairer.
As are allowing cities & towns to raise service taxes on food, hotels, and other touristy attractions to bring in more sources of revenue. This serves as a replacement revenue to cities & towns who are forced to rely on the property tax.
…piazza joint. No other food, hotels or touristy attractions. In fact many small towns face the same problem. Other than slapping a $5 tax on piazza (or maybe it can be a progressive tax, charge more for meat and veggies) what other ideas are there.
If a town has enough business that they’re not worried about service taxes being counterproductive and business being driven out of town…. they can just go to a split property tax rate and charge the businesses more.
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My town’s on the border with new hampshire so food is the only tax advantage we have, what with the no sales tax on their side.
About 16 years ago, Democrat Jim Florio was elected Governor of New Jersey. In order to pay a deficit left behind by his Republican predecessor, Tom Kean, and to reduce the property tax burden on residents, he introduced a substantial hike in the state income tax, combined with reductions in local property taxes.
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The result? He became one of the most unpopular governors in the history of the state, and two years later Republicans had taken over the legislature.
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Sadly, regardless of how logical one makes an argument for raising taxes, even combined with cuts in other taxes, the opposition’s message is very simple, powerful and effective:
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THEY’RE RAISING YOUR TAXES!!!
Like I’ve said in many comments all over this blog, I think things have changed a lot with regards to income taxes. I know what happened to Florio, it’s not a new lesson. It’s unfortunately the same tired old lesson that’s misleading people.
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The 1980s were the heyday of anti-income-tax sentiment, which continued through most of the 90s, but it’s faded away. Now, in 2006, polls show a solid majority in the US would support raising the federal income tax. That’s only been true for the past few years; it’s new, but it’s real.
Sure, there still exist a lot of people who will vote to cut the income tax without further thought, but they’re now outnumbered in most of the country by people who don’t think like that. Sure, there are still some states where the anti-income-tax knee-jerk is the stronger force (ahem Alabama), but I highly doubt Massachusetts is one of them.
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As I noted in a comment on drgonzo’s post, one way Howard Dean gained support in New Hampshire was to run against property taxes, and in favor of higher income taxes. Since he was running for president rather than governor, he was talking about Federal income taxes, but the case he made was very similar: The Federal government cut income taxes and as a result it can’t pay to fund the education reforms it passed, which forces cities and towns to pay for it (NH has no income tax, so cities and towns don’t get local aid to pay for education, only federal aid). That raises your property taxes. The message: Bush raised your property taxes with his income tax cuts for the wealthy. It was a wildly successful message, in New Hampshire of all places.
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Remember, it used to be a sacred rule of NH politics that the candidates for Governor had to take “the pledge” that they would not support an income tax. Nobody had won in ages without taking the pledge. A couple of sitting Governors had abandoned the pledge, but then lost their re-election bids.
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Until 2000, when incumbent Democrat Jeanne Shaheen abandoned the pledge, said she probably would try to institute an income tax, and won a solid re-election despite that. She didn’t actually succeed in instituting the income tax, but it’s no longer an election killer. And that’s New Hampshire!
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We are now ripe for what Jim Florio tried to do in the early 90s.
graduated tax rates (like the federal tax code) are not constitutionally permissible in Massachusetts, so a constitutional amendment would be required. Possible, but very difficult, since it needs legislative AND ballot-question approval. It is therefore not a simple proposition to “tax the wealthy more” in MA.
for the important correction! That’s very interesting and makes an even stronger case for why the Democrats need to explain a little better just why property taxes go up in relation to state taxes and cuts. I thought the connection was a tad more diffuse, but this makes it pretty clear that the connection is very strong.
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Any dem campaign workers or strategists out there trying to tackle this issue? I’d think a nice, tight message would be one way to start.
does that tax rate/base=levy formula apply across the board to all of our cities and towns or does it vary?
From my experience, towns don’t figure how much it needs, then set the tax levy accordingly. First, under 2 1/2 the levy has to be set so the town knows how much it can spend.
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In order to raise revenue these days, municipalties aggresively revalue property. What used to be done ocassionally is now done annually. Where I live the tax rate used to be one of the highest in the state, annual revaulations means that the rate has gone down dramatically, while the average tax bill has gone up. Also dramatically.
This is incorrect and is the exact misconception that the original post tries to dispel. A municipality can’t raise revenue by revauling property. All revalution does is change the distribution of taxes.
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That’s the “grumpy man on the street” comment — “Sure, they can’t raise the taxes so instead they jack up the value of my property to get more money”. It’s absolutely false. The town can only collect 2.5% more levy than the previous year, plus new development.
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The original post had a little mistake in it; a town does not “set the budget to determine the levy”. The levy is usually the prior year’s levy x 1.025 (2.5% increase), plus any certified new growth. The formulas are available on the state DOR website.
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I think there’s a nuance that when a town doesn’t tax up to the levy in one year, it can “make up the difference” in subsequent years. So let’s say that a town only raises its levy 2% each year (instead of 2.5%); I think it can “bank” those 0.5% increases and use them at a later date. I may be wrong on that point, so hopefully someone can clarify.
I definitely oversimplified on that part. Cities and towns do have mechanisms available to carry over money from one year to the next, and in a convoluted way to sort of carry over money from the next year to the previous. They can use these methods to smooth out property tax increases year to year. But… I have a copy of the Cambridge 2006 budget, it’s almost 400 pages, I spent many hours last year poring over it, and I still don’t think I quite understand the intricacies of how those funds work.
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And yes, like everything else cities do, the state has a rule governing what they’re all supposed to do. That’s a Massachusettsism; cities (or counties) in other states have more autonomy. However, generally, the levy does reflect what the city thinks it needs to fund its budget, and they can work on the “growth” part to make it add up. Or, in some cases, they can cut costs enough such that they don’t need to grow the levy as much as the state would allow them to.
My point is that you can’t do it backwards. Before you determine how much you want to spend, you have to determine how much you have. You can’t make the taxes fit the budget.
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Believe me I know how all this works, I did learn something after nearly 6 years on a Fincom.
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Like the nuance you refer to is called “excess levy capacity” and can be utilized by town any time it wants to.
Argyle – the law was changed a while ago regarding revaluation. Now a town MUST revalue at MARKET BASED rates at LEAST every three years, and it is supposed to every year in order to have its tax rate certified by the Div. of Local Services branch of the Dept. of Revenue. So, it isn’t aggresion, it’s compliance.
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My own tax bill went down, because while the value of my propety increased this year, it DECREASED in relation to other properties – so when the rate was applied, I actually paid a little less while somebody with a nicer home paid more.
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Property tax IS the progressive tax you seek.
Mostly in order to maximize revenues.
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Where I live, few, if anyone’s bill goes down. Property values rise and taxes follow. If your taxes went down, someone else got screwed.
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Property taxes aren’t progressive, they change without regard for the income of the people occupying the property. It’s a mistake to assume that only rich people live in expensive houses. Considering the senior citizen living in a house he’s occupied for years.
Again, you’re recklessly spreading a myth. A town can’t increase revenue by revaluing property. Revauling only changes the distribution. Please see above.
Here’s what they do in my town:
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They do an annual revaulation.
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The town valuation goes up.
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They levy accordingly.
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Strangely enough, they have more money to spend every year.
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So what the hell are they doing if they aren’t increasing revenue by revauling property? Hell that’s pretty much how the town assesor, treasurer and finance director explain it.
A town freqently revalues property in order simply to make sure the tax levy is properly distributed among all taxpayers. Nothing more.
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The reason that property taxes are increasing so much on homeowners is that business values have been stagnant. That shifts the burden from business to homeowners in a stealthy way every year. That’s why everyone’s taxes seem to up each year — if houses go up 20% and businesses stay the same, now houses are worth more proportionally compared to businesses, and they will now bear more of the tax burden.
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If everyone’s property doubled in value, the tax rate would have to be cut in half. If one half of your town doubled in value and the other half staghated, the first half would bear a larger amount of the total taxes compared to the other.
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Here’s a link to a spreadsheet that should explain things:
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http://www.dls.state.ma.us/mdmstuf/mungrowth.htm
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Here is Springfield’s calculation, for example:
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FY2005 MRGF Levy Limit 131,042,165
FY2005 Levy Limit * 1.025 134,318,219
FY2006 Estimated New Growth 2,306,342
FY2006 Estimated Levy Limit 136,624,561
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FY2006 MRGF Levy Limit 136,624,561
FY2006 Levy Limit * 1.025 140,040,175
FY2007 Estimated New Growth 2,404,592
FY2007 Estimated Levy Limit 142,444,767
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There is no number based on the value of property in your town. There’s no line that says “amount we want to jack up the levy by revaluation”. They can’t do it. Every grumpy old tax-hating man thinks they can, but they simply can’t — by law! Check your town and see what the numbers say.
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This is why new growth is so important to a town. It is the “slush fund” that beats the 2.5% cap. It is a bit more complicated — check out the code in that spreadsheet for hidden tabs so you can see how things are really done. I think that they do an average of the lowest three of the past four years to determine something. I think you need to be a rocket scientist to figure out the big picture.
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I don’t blame you for being confused because in most cities the mayor or city council stand up and say “well, we’re such good managers that we’re going to lower your tax rate this year again”. But in reality they back into the tax rate based on the levy and the new valuations.
Great articulation of the levy/rate difference. However, I must quibble. Cambridge does not have the lowest tax rates in the state. According to these figures (caution: Exel file), Cambridge is actually #46 in residential property tax rates. Interestingly enough, the towns on the Cape and the Islands seem to be disproportionately represented among the very low, when it comes to property taxes. Orleans, for example, weighs in with a $4.16 per $1,000 of valuation tax rate. Cambridge has a rate of $7.38 per $1,000. Greenfield, where I live, reports a $18.22 rate, #342. Western Massachusetts dominates the highest reported property tax rates in the state. Our values are low, so our rates are high.
Thanks! I unfortunately can’t seem to find those glossy brochures Cambridge sent us all last year. But somewhere, either in one of those, or in an interview, I remember them boasting “the lowest” when they should’ve said “one of the lowest” or “almost the lowest” or something like that. Not that it means anything, except as a prod to get you to give us that useful link 🙂
Did I say I was from Orleans?
I don’t know if you mentioned it here, but your blog indicates that. It’s interesting to see how property tax rates map out in the state. Candidly, I think comparing the rates on the Cape, where home values are high, to the rates in Franklin County, where I live and the values are relatively low, effectively rebuts your assertion (above in comments) that property taxes are somehow progressive.