Worse than you think
Property taxes illustrate the problem with ‘wealth taxes.’
Minnesota homeowners have been receiving their preliminary estimated property tax bills for 2020. Many of them are unhappy. Star Tribune Editorial Board member Patricia Lopez tweeted:
“Those of an uncharitable frame of mind might point out that if you continually endorse candidates who say they will raise your taxes, you can’t get too upset when they eventually raise your taxes.”
And even if St. Paul’s property taxes increase by only the six percent estimated by the Star Tribune, there is another aspect to this conversation: Wealth is not the same as income. Property taxes are a form of “wealth tax.” They are levied based on some assessment of the market value of an asset you hold. In this case it is your house, but it could be bonds or equities.
But you cannot pay your tax liability with these assets–the authorities will not accept $3,000 worth of bricks from your house in settlement of a $3,000 property tax bill. Your tax liability has to be settled in cash. And, while your assets may have increased in value by six percent–and according to Zillow, Ramsey County home values have gone up 3.1 percent over the past year and are forecast to only rise 1.8 percent within the next year–there is no guarantee that your cash holdings will have increased at a similar rate. The median household income in Ramsey County has not increased by six percent since 2000, in either real or nominal terms. Any year that your property tax increases at a greater percentage rate than your income, your property tax burden is increasing, irrespective of what happens to your house price. Given this, even a six percent property tax increase will rest pretty heavily on St. Paul’s pocketbooks.
Property taxes illustrate the problem with “wealth taxes” more generally. They seek to raise cash based on an assessment of the notional value of assets, but your access to cash is not always congruent with your access to assets.