For homeowners and other property owners, property taxes are an unavoidable fact of life. Local governments use property tax revenue to finance important services and operate public school systems. But, property taxes pose several problems for the economy, homeowners and even the governments that gain revenue through charging real estate taxation.
Administrative Costs
One of the largest problems with property taxes is the high level of administrative expenses. Governments must keep track of home values by employing assessors who inspect properties, study market trends and determine the added value of a new addition or home renovation. Governments with specific earnings targets can adapt property tax rates to fulfill their financial needs, but this also takes money and time. Compared to sales taxation and other sorts of local revenue, property tax is a intricate system which lacks efficiency.
Rate Disparity
Each local government places its own property tax rate based on a variety of factors. The end result is widespread disparity in real estate taxes from state to state and community to community. High property taxes may discourage new residents from moving into a neighborhood, and rising rates during an economic recession may force residents to move elsewhere to escape high taxes. At precisely the same time, communities who can afford to reduce property taxes may attract new residents and gain an advantage over communities that are in need of population and income growth.
Appeals and Fairness
Property tax programs allow homeowners to file an appeal or a complaint asking a decrease appraisal. Besides giving taxpayers a possible chance to cover less, this also adds to administrative expenses, since the authorities must review assessments and principle on their fairness in light of the data a homeowner provides. Because reduced assessments only apply to those who file appeals, other residents of a community may see the system as being unfair and favoring those who opt to file an appeal or attempt to manipulate the system.
Discouraging Improvement
Property taxes can perform into discouraging home improvements, thereby leading to neighborhood degradation. If homeowners are reluctant to make improvements due to the fear of a higher appraisal and a higher tax liability, then they may allow houses to fall into disrepair prior to selling. This can draw property values slowly, reducing government revenue by lowering the taxation base.
Negative Picture
Property taxes also reflect on the governments that levy them. Particular states with traditionally high real estate tax rates become called undesirable places to live, whereas local governments which use high property taxes to fund important programs may appear to be insensitive to the fiscal needs of taxpayers. Raising property taxes may damage the picture of a regional government.