Replacing property taxes is no simple task
“In this world, nothing is certain except death and taxes.”
American founding father Ben Franklin is credited with making that statement back in 1789 and in the 232 years since then little has changed.
In about a month, state residents will begin receiving their annual property tax bills. While accounting for only about a third of the tax burden of state residents, the property tax is one of the most disliked. Politicians tuning into this popular dislike of the property tax have made regular efforts to reduce its impact. Over the years this has resulted in state-imposed caps on local spending for schools, counties and municipalities and rules limiting when and how referendums to exceed those caps can take place.
Efforts are underway in the state to look at options for replacing property taxes with other forms of revenue such as increases to the income or sales taxes. While in the big picture, residents would still end up having to pay for local, county and state services somehow, it would be done in a less intrusive manner than getting a lump sum bill a few days before Christmas each year.
According to the nonpartisan Wisconsin Policy Forum, state residents pay about 3.4% of their personal income in property taxes each year, with the total tax burden currently at about 10.2%, a 50-year-low for the state.
Critics of the property tax cite very real concerns that it is unfair to older residents and those on fixed incomes whose property values and taxes are climbing due to market conditions. Critics also note the inherently subjective aspect of property assessments and how values are assigned for tax purposes. These are valid concerns. However, simplistic responses such as raising the state sales or income taxes bring their own risks and concerns over who will be the winners and losers of any tax shift scheme while raising important issues in terms of local control.
For example, increasing the state’s reliance on sales taxes to replace the property taxes would shift the bulk of taxes onto the backs of private consumers while leaving most industries and commercial businesses paying comparatively very little to support the police, fire and roads that they rely on. This is because most equipment purchases for use in manufacturing are not subject to sales tax. Changing the tax code to include the major equipment purchases would have negligible short term impact given that major pieces of equipment may be replaced once a generation and runs the risk of being a deterrent to companies investing in upgrades.
While people may complain about local taxes, local residents have significant input about how that money is spent through the election of municipal, county and school board members. Following the maxim that he who has the gold makes the rules, a system totally reliant on revenue from the state government would make local government boards redundant and reduce government accountability.
The goal of any tax system is to ensure that everyone pays their fair share when it comes to investment in infrastructure, education and vital government services. As policymakers look at alternatives to reduce or replace the property tax, they must use care to ensure that they do not set up an unfair tax shift onto the backs of working class consumers to provide tax breaks to billionaires and mega corporations.