Progressive Voices

By Elaine Mejia

Earlier this month, county leaders all over the North Carolina saw their hopes for the adoption of a small increase in the land transfer tax go down in flames. Now they face a difficult truth. Their communities have significant needs, but they need to come up with a different way of paying for them.

The obvious, and in many cases the best option has been available to them all along – the property tax. And you know what, that may be a good thing.

As a matter of policy, property taxes are a relatively fair and stable source of revenue. The numbers rarely swing a great deal, and everyone in a community – even renters – contributes.

North Carolina’s property taxes are actually low relative to other states and among the lowest in the nation.  According to the most recent data from the U.S. Census Bureau, North Carolina ranks 39th in the percentage of personal income consumed by property taxes and 38th in the amount of property taxes paid per person – collecting around $744 per person.

Now, it is true that lots of people don’t like paying their property taxes. Unlike a sales tax, where you pay a little bit every time you go to the store, the property tax comes in one lump sum. While that can create a sense of sticker shock, it also means people are aware of how much they’re paying and they’re more likely to hold their county leaders responsible for how they spend that money. Transparency and accountability are good things.

The one serious shortcoming of the property tax in North Carolina is the lack of a way to provide property tax relief to taxpayers who need it.  We need a form of property tax relief in North Carolina because home values are much higher as a share of income for low income families than for the wealthy. Because property taxes are based on home values rather than income, property taxes are disconnected from people’s “ability to pay” in a way that income taxes are not: a taxpayer who suddenly becomes unemployed will find that her property tax bill is unchanged, even though her ability to pay it has fallen. Residents who live on fixed incomes in communities where property values are rising may get a tax bill they simply can’t pay. Luckily, there is a way to get around this problem.

The majority of states have enacted a form of property tax relief known as a circuit breaker. The basic idea behind the “circuit breaker” approach to property tax relief is quite simple: taxpayers earning below a certain income level should be given some amount of property tax relief when their property taxes exceed a certain percentage of their income. The amount of tax that they pay in excess of the set percentage of their income is rebated to them when they file their state personal income tax forms.

If North Carolina were to implement this form of tax relief, local governments would be able to raise revenue by increasing property taxes without placing an unreasonable amount of tax responsibility on working families and people living on fixed incomes.

If we learned anything from last week’s votes on taxes it’s that it is time to reform the property tax to make it fairer and a more attractive alternative for local leaders looking to make investments that will improve the quality of life for their residents.

Elaine Mejia is the Director of the N.C. Budget and Tax Center

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This entry was posted on Tuesday, November 27th, 2007 at 1:45 pm and is filed under Progressive Voices. You can follow any responses to this entry through the RSS 2.0 feed.