Chris Mooney, a regular correspondent from Whitehall, writes thusly:
“Every time that I read an article about property assessments, the authors talk about the fact that there are inequities in the system. They all observe that the system is not fair.
“The problem is that assessments will never be an accurate reflection of the value of a parcel over time. The fair-market value of a piece of property is what the transaction price is for an arms-length transaction at a specific point in time. Everything else is just an approximation, a guess, a fiction, if you will.
“Periodic reassessments do not change the fact that assessments are arbitrary,” Mooney writes.
“One can make the case that the sale price is the only correct valuation, and that number should never change as long as the owner doesn’t sell the property.
“Imagine the howls from the bleachers if the county went to an actual cost-based (purchase price plus improvements based on building permits) system.
“Would that method of assessment be any more fair?” Mooney asks. “That depends on one’s definition of the word ‘fair.’ My point is that property taxes will always be inequitable to someone. As long as property taxes exist, you can never own your own home, you will just be renting it from the government(s).”
Continues Mooney:
“I will submit to you that property taxes should be abolished and replaced by income taxes. Income taxes more accurately reflect one’s ability to fund the government. The systems are already in place to collect income taxes and the enforcement mechanisms are fairly robust.
“Also, the county property tax department would be eliminated. Imagine an entire floor of the county office building becoming unnecessary. Your municipal tax collector would also join the ranks of the dodo bird. Less bureaucracy anyone?” Mooney concludes.
Mooney’s correspondence prompted Frank Gamrat, executive director of the Allegheny Institute for Public Policy, to share his views on, what by any standard is, the property assessment challenge:
“There’s no such thing as perfect taxation as each possible solution comes with its own problems,” the Ph.D. economist reminds. “We’ve heard the ‘don’t-own-your-own-home’ argument for years. But the reason property is so easy to tax is that, unlike income or wages, you can’t hide property.
“The question is then how do you fairly tax property? That is, what is its value?
“The sales price is obviously the most-fair value because it’s what the seller and buyer have agreed upon, as long as it’s arms-length and not a “love-and-affection” sale.
“But when the owner stays in a property for any number of years, and the value of the property changes (assuming proper maintenance), if by nothing more than the rate of inflation, then that owner’s tax liability actually decreases in real terms.
“However, when a neighbor moves in next door years later, and that buyer and seller agree to a price for an identical property, they are likely to pay their property tax based on that new, inflation-adjusted, at the very least, sales price, which will be higher than what the long-time neighbor is paying.
“Is that fair?” Gamrat asks. “They are both paying different amounts for the same county, municipal and school district services. Is that fair? And, of course, that is often referred to as the ‘newcomer’s tax.’”
Gamrat offers this note about prices:
“Based on economics and the notion of supply and demand and their intersection providing equilibrium, all prices are arbitrary,” he reminds. “We each have a value in mind for a commodity, be it a house, car or tube of toothpaste and are willing to pay what we think is (no greater than) that value we have in mind.
“And the seller will sell the commodity at a price at which he or she has valued that commodity and will not sell for less than the value in mind.
“If both parties agree, then the transaction takes place. In that respect, they are all arbitrary, determined by the fluidity of the supply and demand of the market.
“So how do you value a property? The best, and fairest, way, is to do so by assessing it regularly and asking what price would it bring on the market if it were to sell—based on the fluidity of the supply and demand of properties in that respective area/market,” the think tank scholar says.
“There are experts out there trained to do so by knowing the market. They can only do so by looking at the outside and the specs of the property, as most people won’t let them inside.
“So, in that respect, it is arbitrary, based on the opinion of the assessor of both the condition of the property and the state of the market at that time.
“But that arbitrariness is no different than that of a buyer and seller,” Gamrat further reminds. “If the property owner and taxing body disagree, they can go through an appeals process.”
Gamrat says that because Pennsylvania has placed such importance on local property taxes to fund public schools, it has become a hot-button issue — especially here in Allegheny County and more recently Westmoreland County.
“In most states where public schools are funded at the state, or even county, level, it doesn’t seem to be much of an issue. We have written volumes on how expensive Pennsylvania and, in particular, Allegheny County, public schools are.
“Yet the [academic] results are, on average, mediocre at best,” Gamrat observes.
“If public school spending was kept under control — for example, not allowing teacher unions to strike — this argument would not be so strong.”
But here’s proverbial nub of the rub, per the Allegheny Institute’s Gamrat:
“If we abolished property taxes, that would not only take that burden off the home owner but also the commercial business owner. What if they don’t pay an income tax to the state or local taxing bodies?
“Do we let them off the hook? What about wealthy retirees with large/valuable properties? What do we do about them? The unfairness gets pushed off onto another class of taxpayer,” he says.
“And then the ‘we-don’t-own our own homes’ argument falls flat when considering the services received from the local governments — such as infrastructure, education and public safety. It could be thought of a usage tax based on property.”
As Chris Mooney of Whitehall suggested above, “we could just increase the income tax to cover everything,” Gamrat notes.
“In fiscal 2022-23, PA collected about $17.6 billion in personal income tax on 3.07 percent. Each percent raises about $5.7 billion. School districts across the state collected over $15 billion in real estate taxes.
“So, the personal income tax would have to double to meet the school component. But then local control would be an issue. As would the distribution of funds, which, of course, is what the court order from last year was all about.
“I admit to not knowing the municipal or county totals but another 2 percent should cover it. So, at least an 8 percent personal income tax would be needed to cover the abolishment of property taxes,” Gamrat surmises.
But Gamrat’s bottom line is this:
“(I)n Pennsylvania, and other states, we are loathe to tear down systems, even if we know they are inefficient, and replace them. People don’t like change, especially large-scale changes.
“Many states have state-run, or county-run school districts,” he notes. “But in Pennsylvania, we do not. And as long as you’re going to have this system [we have] in place, you need to have a fair and frequent assessment system in place,” Gamrat concludes.
Feel free to join the discussion.
Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
