Affordable Housing Institute : US

Continuing our occasional series on the fundamentals of property taxation

 

Part 1 of this series established that aggregate real estate tax rates are set simply to cover the locality’s budget.  Budgets vary city by city, and more generally state by state based on cost factors … but then, so do incomes and property values, so on the face of it, rates might be the same, per capita or as a percentage of income.

 

Mightn’t they?

 

“Hey, property taxes aren’t my subject, they’re a local responsibility.”

 

The states with the highest property taxes are centered in the Northeast.  Every New England state is in the top 10, as is New York and New Jersey. The only exception is Wyoming at No. 7.

 

The states with the lowest per capita property taxes cluster in the South and West. Alabama is followed by Arkansas, New Mexico, and Oklahoma.

 

Average collections per capita.  Because some states have high real estate value, some raise substantially more revenue from property taxes.  The top five, US average, and bottom five, are:

 

	Taxes per	Per-cap
State	Capita	Rank
New Jersey	$1,908	1
Connecticut	$1,760	2
New Hampshire	$1,755	3
Maine	$1,500	4
New York	$1,414	5
US average	$992
Louisiana	$434	47
Oklahoma	$430	48
New Mexico	$416	49
Arkansas	$375	50
Alabama	$331	51

 

High taxes in New England, low taxes in the southwest.   New Jerseyites are assessed six times as much as Alabamans, and double the national average. 

 

Since real estate taxes are a principal source of funding for schools, we should find — as we do — that Northeastern states spend much more on schooling.  (Whether they get value for money is a whole ‘nuther discussion, one outside my realm.)

 

How Unity Township, Pennsylvania, slices up your money

 

Effective tax rate.  Property taxes can also be thought of as fundamentally no different from income taxes, merely a different means of apportioning the burden — in effect, a surcharge on owning property.  (Since defending property is among the natural functions of government, we could also think of real estate taxes as the property owner’s user fee.) 

 

Looking at it that way, we [or rather, CNNMoney, thanks! — Ed.] can refigure real estate taxes as an effective percentage of personal income, and then sort them from top to bottom, yielding the following intriguing chart:

 

	Effective	Rate
State	rate	rank
Maine	5.3%	1
New Hampshire	5.0%	2
New Jersey	4.8%	3
Vermont	4.5%	4
Wyoming	4.5%	5
US average	3.1%
New Mexico	1.7%	47
Oklahoma	1.6%	48
Arkansas	1.6%	49
Delaware	1.5%	50
Alabama	1.3%	51

 

That’s Alabama and Delaware on the far left, Maine and New Hampshire on the right.

 

Nationwide, property taxes represent a 3.1% surcharge on homeowners.   Once again, the south and west are low-tax, and the Northeastern states really push the envelope. 

 

In famously cheap New Hampshire — a state that is righteously proud it has no sales taxes or income taxes — becoming a homeowner is like adding 5.0% to your income tax rate.

 

“That’s another way we sock it to the Massachusans.”

 

Since taxes are reverse-engineered to cover local budgets, we’d expect them to track inflation.  But noooo ….

 

According to Bureau of Economic Analysis, property taxes leapt 34.2% over the past five years.  [Equivalent to 6.0% a year. — Ed.] They have grown three times faster than inflation and about 50% faster than sales-tax revenues.

 

Why might this be happening? 

 

That’s a topic for a future post.

 

 

“I thought finally you were going to tell me something!”