Comments on Local Taxation

A new independent report contends Philadelphia’s new property tax assessments under the Actual Value Initiative, or AVI, are even more inaccurate than the current ones. Whether or not that’s true, homeowners across the city have been complaining about the new valuations.

via Economist: Sound Philadelphia tax policy depends on AVI — NewsWorks.


My comment:

I sit on a school board and have led our local economic body.  It is almost humorous that folks oppose using property taxes.  Unfortunately, drawing revenues from just income would be disastrous to every local municipality for one very basic reason.

If we think of municipalities as factories that produce a product, we can liken a municipality to a factory that produces streets and services.  Production output is relatively constant because the population it supports changes little each year.  Thus, the revenues that support that “production” also cannot change much.

For factories, when revenues fall, output and employment can be reduced with demand.  There is little change in demand for local governmental bodies, so revenues must be relatively constant.  To stay constant, those revenues must be tied to something that is also stable.  Property values are most stable, though they do fluctuate.

As those who sit on boards have witnessed, the economic downturn had a significant impact on local revenues through reassessments.  If local revenues had been tied to incomes, these municipalities could have ceased to function, which is not conducive to a healthy economy for anyone.

People do lose jobs and salaries drop, yes, but when this happens, most have the ability to adjust their consumption.  If folks can’t pay their taxes, they can move.  Municipalities can’t move, they can’t easily reduce consumption, and they can’t reduce employment costs and still maintain service.

Local governments must tax based on the link to the land where they reside.  It is the only way to ensure a stable level of service to the community and this stability helps to return the larger economy to stability.

We can make sure that our taxes reflect our priorities and that those funds are being spent efficiently, but as long as the “production” of a municipality remains relatively constant, the tax base must do so as well.