76-05-A3
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Inflation and the Property Tax I
TranscriptIn response to taxpayer protests, several states have tried to put a lid on property taxes, but the taxes keep right on going up. I'll be back to tell you why. The property tax is the most unpopular tax in America. In a recent national survey to determine which tax people consider the most unfair, property tax scored two to one over federal income tax, and three to one over state sales tax. Forty-five percent of those surveyed consider property tax the most unfair. Only seven percent thought at the fairest. Time was when the property tax was the only one American citizens had to pay, and right after World War II, it produced more revenue than any other tax. Now it ranks fourth behind taxes on personal income, social security, and sales, and only slightly ahead of the corporate income tax. Why is the property tax so unpopular when other newer taxes are taking more of our earnings? One reason is that property tax buys important, highly visible and local public services—schools, fire and police protection and parks--and we're more likely to criticize what we can see and hope to influence. Another reason is that the property tax is locally administered. We're more likely to hold the strongest opinions about things closest to us and no one likes taxes. But a third reason crucial to the current situation is that the property tax has become not just a double, but a triple tax. Every dollar of our earnings used to buy a home is taxed three times: once as personal income, once to pay the property tax rate, and once to meet the increased property tax assessments resulting from inflation. Now let's take them one at a time. The homeowner's favorite tax deduction is the interest he pays on his mortgage, yet this deduction does not apply to the part of his income with which he actually buys the home. Every dollar he pays against the principal, that is every dollar by which he increases his ownership, has already been fully taxed as normal income. THen he is taxed to pay the property tax rate which ranges from two to four percent of the value of the home or about five to ten percent of the homeowner's income, after he has paid income taxes. Finally, whenever the Federal government adds to the national money supply, it produces inflation, which raises prices and hits the homeowner as a higher property assessment, and therefore a higher property tax. The deadly scissoring effect of higher tax rates and inflationary assessments often drives homeowners on fixed incomes to a despairing choice: will they keep their homes or will they eat. What's more, even wage earners can't gain a clear advantage by earning more, since the higher income tax rates that go with higher earnings offset any gains on inflation. Next time, I'll tell you what we must do to relieve the homeowner of triple taxation. This is Ronald Reagan. Thanks for listening.
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