Housing Complex

In Defense of Higher Property Tax Assessments

tax rates

My column in this week's paper looks at a persistent issue in D.C.: the city's underassessment of properties, and the resulting lost tax revenue. I can already anticipate the comments on the piece. Why the fuck should I pay more taxes when the city's running a huge budget surplus

It's a valid question. But ultimately, there are two good reasons why we should be paying more taxes—particularly property taxes. Here's why property assessments closer to market value would be a good thing.

1. If the goal is to lower taxes, there are much better ways to do it than to selectively underassess properties. First of all, about 55 percent of D.C. residents are renters, and while property tax bills theoretically get passed along to renters, it's naive to think that a windfall for the owner will result in proportionally lower rents for the tenants. And even if underassessment somehow did affect owners and renters equally, there's the matter of unequal assessment: While single-family homes will be assessed at 97 percent of their 2012 sale values after the Office of Tax and Revenue's revisions for 2014 taxes, commercial properties are only getting valued at 90 percent, and apartment buildings at 79 percent. In other words, owners of big buildings are getting off easier than average homeowners.

2. The goal probably shouldn't be to lower taxes. D.C.'s taxes are already the lowest in the region. In fact, they're considerably lower than they were in the late 1990s. As laid out by the D.C. Fiscal Policy Institute earlier this week, property tax rates have declined across the board since 1998. So have income tax rates: While income north of $20,000 was taxed at 9.5 percent in 1998, it's now taxed at 6 percent from $20,000 to $40,000, and under 9 percent from there on up. Our roads are full of potholes. Our schools are a mess. Homeless people need housing. There's a better way to spend our money than to allow some property owners to pay less in property taxes than they should.

Former D.C. Council candidate Paul Zukerberg complains on Twitter that higher assessments would force out longterm residents, because currently higher assessments kick in only after a property sells. But again, underassessment is a pretty blunt and awkward tool to help low-income homeowners. The Council has considered legislation to limit property taxes for low-income residents and seniors. If the aim is to help a certain class of homeowners, then help that class of homeowners directly. But underassessing properties—and particularly office and apartment buildings—isn't a great way to do it.

Graph by Aaron Wiener, with data from the D.C. Fiscal Policy Institute

Comments

  1. #1

    So if we should lower taxes - which we shouldn't because we need more taxes to pay for the same failed social welfare programs - then we shouldn't lower taxes in a way that would lower taxes.

    Huh? Please leave the usual boilerplate tax & spend stuff to DCFPI.

  2. #2

    It would be more helpful to see a differentiation between the types of property. Not all commercial space is the same, just as all multifamily residential is not the same. Do we not have a budget surplus?

    I understand having a conversation about spending priorities. I do not understand the desire to increase taxes without having the spending priorities conversation first.

  3. #3

    @Actually,

    No, I think he's implying tax policy should be based on deliberate policy objectives, not on selective enforcement--which by the way favors the property owners with the most economic and political clout, not the average homeowner.

  4. #4

    There's zero correlation between higher property taxes and better outcomes for the poor and needy.

    And there's a negative correlation between more money for services, and the poverty rate.

    There's an EXTREMELY strong correlation between large amounts of money available for services for a given family and the next generation (their kids) being in poverty their whole lives (even if their parents were only in for part of their life).

    When you don't want to work, and you don't have to work, you don't work.

    Also solve the alcohol problem in DC and you solve the employment, violence and child abuse problems simultaneously for no added cost.

    Ask the DCFPI.

  5. #5

    The thing is, the premise of the column is wrong: Assessments are not intended to be a tool to set the amount of money raised by property taxes; rather, they're a tool to distribute the cost of those taxes equitably. Nearly everywhere, the assessments are done first and then the property tax rate is set based on how much money is supposed to be raised from the tax. That's why, in boom times, assessments go up and rates go down, while in bad times, assessments go down and rates go up. So, the District is not leaving money on the table here by underassessing properties, because it decides how much money it wants when it sets the tax rate. If it wants more money, it can raise the tax rate.

    This also means that the relative level of assessments is much more important than the absolute level. If everybody is at 95% of fair market value, that's presumptively fair. (This ignores basic tax policy questions such as whether you actually want to tax businesses at a higher rate than residences, or whether you should tax rental properties differently than condos.) If some people are at 95% and others are at 75%, then the 95% people are paying too much and the 75% people are paying too little.

    In other words, the problem identified in the article - assessments are too low - is different from the real problem that the facts in the article disclose - assessments are not uniform enough to be fair.

  6. #6

    What about areas of the US that do reassessments only when the property sells or every tens years...why don't they do what you are suggesting... Because why it's cost a ton to do and doesn't result in a real increase in taxes revenue, it just plays with the rates in order to generate a revenue target.

  7. #7

    If one looks at sales in some post gentrifying neighborhoods, guess what, assessments are going up anyway.

    There is a vision of a little surplus Switzerland, where everyone can gambol.

    And then some of that every one wonders what hit them.

  8. #8

    Um DC subsidizes homeowners with the deduction (if it is owner occupied). If you up the rates on apartment buildings than homeowners will be subsidized even more. I say this as a homeowner. The current situation makes some sense.

  9. #9

    The reason that they tread lightly when it comes to multi-family and commercial properties is because these owners have more resources to challenge the assessments. It's the same reason that the IRS tends to audit those in the middle class more often that those with higher incomes or those with lower incomes. They will have a hard time collecting the interest and penalties from the lower income folks and the higher incomes folks have the resources to hire tax layters and accountants and fight the system which ultimately costs the governement more.

  10. #10

    The notion that every commercial and multifamily land owner has cash to pay for high priced lawyers is crazy. Believe it or not, there are people who own property who are not rich. Those who have owned for more than the past ten years may be small time folks who would be dramatically impacted by an increase in assessments. That's why this information needs to be parsed.

  11. #11

    The discussion should be why homeowners are being asked to shoulder a higher burden than business owners, when the business can deduct the expense from their income taxes while a residential homeowner can not.

  12. #12

    I would be interested to know if Mr. Wiener (whom I assume to be a DC resident) owns or rents his residence. I've been both, and from personal experience, renters don't care so much about higher assessments. If they get passed along through higher rents, it is gradually over time and pretty indirectly. Homeowners care a lot. Mr Wiener, inquiring minds want to know. Thanks.

  13. #13

    Some services cost more in the suburbs and exurbs than they do in the core. But the cost of the services has little relationship to the value of the home, nor to the homeowner's ability to pay. The author says that an unemployed person should pay more for services just because they were fortunate enough to pay off their home when they were working. Not exactly a compelling argument in my point of view.

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