The Property Tax Imperative: Part I

Talk of cutting taxes is heating up in Wisconsin. And not surprisingly so; it is, after all, an election year, and the season is hither to buy votes.

The AP reports:

The ideas vary widely — everything from a narrow sales tax holiday to outright eliminating the state income tax. Whether anything can be done next year, and to what degree, will likely be dictated by how rosy updated tax collection estimates are when released in mid-January.

The ongoing conversation – and the move to reform taxes in this tax-heavy state – is welcome, but income tax shouldn’t be the target of tax reform in Wisconsin, our reliance on property taxes should be.

While any tax reform and all tax cuts are a good thing, income taxes were already addressed in the most recent state budget in a deal that simplified the state tax code and reduced rates on most income earners. Property taxes have also been looked at, but only halfheartedly. Mr. Walker’s hasty $100 million property tax cut had its winners and losers because of how it was implemented.

These tax reforms were a good first and second step, but many of the problems Wisconsin is facing are caused by a reliance on punitive property taxes. In order to create an environment of opportunity in the future, property taxes must be fixed and our reliance on them to nourish so many government coffers eased significantly.

One example is the small town of Cashton in Western Wisconsin. The Wisconsin Taxpayers Alliance pointed out how government can really pile it on:

Cashton is a small village in Monroe County.  It is located within the Western Wisconsin Technical College district.  The county is borrowing to build a new justice center, and accompanying debt service helped push the county levy up 16.8% for 2013-14.  At the same time, voters in the technical college district recently approved an $80 million building referendum, resulting in the tech levy climbing 9.0% .  And, due partly to a reduction in state school aids, the Cashton School District levy is increasing 16.4%.  There is little question that residents in this village will see significant property tax increases this year.

Cashton is a small town in a rural area. It’s also struggling as are many small, old towns are in rural Wisconsin. Astronomical hikes in property taxes are short sighted and only short-change these regions’ future opportunities.

In nearby La Crosse County, raising the county sales tax by just a few percent from its current half percent could fund the entire county government and eliminate the county portion of the property tax. County taxpayers would see a one-third reduction in their property tax bill and year-to-year volatility and geographic fluctuations in property values wouldn’t be a factor. Most importantly, consumption would be taxed, not home ownership.

In a city like La Crosse, which suffers greatly from blight as dilapidated properties get converted to rentals and high property taxes drive people to neighboring burbs, incentivizing home ownership would be a boon the city’s browning neighborhoods.

Giving counties the option of abolishing their property tax in favor of a sales tax would be a good step forward, especially for counties with a lot of tourist and business traffic, which would foot a lot of the bill for the government’s operations.

It’s not impossible that a race to the top would begin among counties where eliminating their property taxes is a feasible option. If a neighboring county cuts property taxes by one-third, that option might look attractive for another.

If money exists in the state budget for another income tax cut – or eliminating it altogether, which is what’s being discussed – then money exists for lowering the property tax burden in a more substantial way than the $100 million cut that Mr. Walker pushed through earlier this year.

If legislative Republicans are serious about making Wisconsin a more competitive state for prospective businesses and a more attractive state for families, college graduates, and retirees alike, a state with a stable and sane method of collecting taxes, property taxes must be substantially lowered.

This is just one option for eliminating large chunks of the property taxes that drive residents away from Wisconsin. Other ideas exist for lowering the property tax burden in Wisconsin. And inasmuch as its fiscally possible, that’s the area of taxation that’s most imperative for reform.

About the writer: Chris Rochester has worked in communications and finance for a state Senate and congressional campaign, consulted on numerous Assembly and local races, and has held leadership roles in his local Republican Party. He's communications director for the MacIver Institute. Commentary here is strictly his own.