NCPA - National Center for Policy Analysis


April 29, 2008

Arizona is one of a growing list of states and big cities looking to raise taxes on homes to close budget gaps in 2008 and 2009.  Lawmakers mulling other revenue-raisers to close budget deficits need to know that these may also exacerbate the housing decline, says the Wall Street Journal.

For example:

  • From 1980-90, the 10 states that increased their state and local tax burdens the most suffered a 12 percent decline in prices versus a 48 percent increase in housing values for states that reduced their tax burden the most, says Richard Vedder of Ohio University.
  • A permanent $200 a year increase in the property tax could reduce the sales value of the home by between $1,200 and $1,800, according to review by the Center for Business and Economic Research.

State and city governments lived well during the housing boom.  From 2000-07 property tax collections climbed by 62 percent, two-and-a-half times faster than per capita incomes, according to Census Bureau data.  Homeowners tolerated the tax hikes as long as the equity in their homes was rising. But voters may not be so forgiving when values tumble and assessments lag behind this fall in prices, says the Journal:

  • One early sign of voter discontent came last year in Indiana, where 21 incumbent mayors lost re-election bids due to anger over taxes.
  • Arizona, Florida, Georgia and Nevada -- four states where property taxes soared during the boom -- citizen revolts are also brewing.
  • Property tax relief could be the sleeper issue of 2008.

Source: Editorial, "Property Tax Revolt," Wall Street Journal, April 26, 2008.

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