Like many folks, I had sticker shock when I opened my property tax bill; my property taxes have doubled in recent years. The high rate of inflation in recent years has been accompanied by a sharp increase in assessed property values. Since 2020, property values in the U.S. have increased more than 50 percent, much higher than the rate of inflation.
Most citizens make a rationale choice in purchasing a home. As the late Thomas Sowell said, “an affordable home is a home you can afford.” For much of our history, home ownership was the most important decision that citizens made to accumulate wealth over their lifetime. Paying off one’s mortgage was a lifetime event, allowing citizens to retire in comfort. But today, many citizens are losing the dream of home ownership.
Unlike other taxes, property taxes give citizens freedom of choice in deciding to invest in a home. Citizens can compare the government services offered relative to the property taxes they must pay in different jurisdictions. And citizens can vote with their feet, moving to a jurisdiction that matches their preferences. Since a large share of property taxes are earmarked for education, citizens can compare the quality of schools and the property taxes in different school districts.
But, high rates of inflation distort the rational choices that citizens make in investing in a home. Since 2020, citizens have been hit with a double whammy. Higher interest rates and higher home prices have priced many citizens out of the housing market. Citizens who own a home are often left with the choice of selling their home and downsizing to a home they can afford. But homeowners ask the obvious question, why should I have to sell my home simply because the government has failed to stabilize prices?
The property tax revolt is about protecting the property rights of citizens. During the first property tax revolt, launched by a citizen’s initiative in California, prop 13 was enacted imposing a limit on the increase in assessed home values. Under this limit, the assessed value of a home could not increase more than 2 percent per year, or the rate of inflation, whichever is lower, as long as the citizens remained in their home.
In Colorado, citizens used the initiative process to enact the Colorado Taxpayer Bill of Rights (TABOR). TABOR is a levy limit that caps the amount of revenue that a jurisdiction can keep and spend, including local property tax revenue. The property tax revenue limit is equal to the rate of inflation plus population growth, adjusted for a local growth factor. For example, if the rate of inflation is 2 percent, and the rate of population growth is 1 percent, the amount of property tax revenue the local jurisdiction can keep and spend is capped at 3 percent, plus an adjustment for growth in that jurisdiction. If property tax revenues exceed that limit, then the jurisdiction must reduce the property tax rate to conform to the limit.
TABOR also requires voter approval for any new tax or increase in existing tax rates. Further, if a jurisdiction wants to keep and spend revenue above the limit, it must have voter approval. Over the years, hundreds of these ballot measures have been presented to voters in Colorado. Many of the ballot measures have been approved at the local level, reflecting the perception among citizens of the benefits of local government services relative to tax burdens. At the local level, citizens can observe and monitor how their property tax dollars are spent. However, when I served on the Colorado Tax Commission, we conducted a survey of citizens’ attitudes toward taxation at different levels of government. Most citizens responded that they thought local governments waste much of the revenue received, and that state and federal governments waste most of the revenue received.
What we have learned after a half century of property tax revolt is that both property tax limits are required to protect the property rights of citizens. Limits must be imposed on the assessed value of homes to protect the rights of individual homeowners; and limits must be imposed on the amount of property tax revenues that local governments can keep and spend. If a local jurisdiction wants to increase property taxes, or spend revenue above the property tax limit, this should require voter approval. Prop 13 in California, and TABOR in Colorado, set the precedent for effective property tax limits. Both rules must be enacted to protect individual freedom, and the best way to enact these rules is through citizen initiative. The new property tax revolt reveals that many citizens perceive that the government is too big, too expensive, and too intrusive in their daily lives; the initiative process allows citizens to decide how much government they want and are willing to pay for.
Barry W. Poulson is professor emeritus at the University of Colorado, Boulder Colorado, and on the Board of the Prosperity for US Foundation