"Currently, property taxation is justified as the primary way we fund essential public services. We should consider whether this justification is enough to outweigh the fundamental right to own property without government intrusion."
Did you recently get your property tax bill in the mail? I did. I’m lucky enough that I can probably manage what I owe, but for many Montanans, the pain of property taxation is getting unbearable.
I’ve written before about how, fundamentally, property taxes are driven by government spending. All government spending must eventually be paid for by the taxpayer, whether in the form of higher taxes, “non-tax” special property assessments and fees, or some other more creative burden. Our local governments and schools consume the lion’s share of property taxes.
However, setting aside the causes of taxation, let’s talk about why property taxes are inherently unethical as a form of taxation.
Ever heard the phrase “land rich, cash poor”? That could describe many Montana property owners, especially those in agriculture. Owning valuable land does not mean that you enjoy the benefits of a high liquid income. But property taxes don’t recognize a taxpayer’s ability to pay, they instead are linked to a property’s value which can fluctuate significantly based on location, market trends, and even the whims of assessors.
When property values skyrocket like we’ve seen recently in high growth cities like Missoula or Bozeman, a property owner may suddenly be taxed as if they received a windfall of cash despite no change in income. Low-income homeowners, retirees on a fixed income, and small businesses operating on razor thin margins are disproportionately burdened by property tax hikes. Elderly residents who have lived in the same home for decades face being taxed out of their homes.
Governments can mitigate valuation increases by reducing how much they choose to tax and spend, but that doesn’t change the underlying inequity of the property tax system.
Most households can claim the equity in their primary home as the most valuable “asset” they own. However, the vast majority of people never realize the actual “profit” from this asset because they need to continue to live in their home. For most people, owning a home is a basic life necessity, not an investment.
But our tax system treats property like some perverse investment asset, taxing the unrealized capital gains on the value of the shelter over our heads. This contradicts basic principles of fairness.
Article II, Section 3 of Montana’s Constitution lists the right to own and use property as a fundamental right of all people. Property taxation infringes on this right by denying Montanans the ability to truly own their property.
Under a property tax regime, the government essentially claims a partial ownership stake in your property and demands rent in perpetuity, regardless of your ability to pay. No other tax forces annual payments on the same item. Income taxes apply to income earned in a specific period. Sales taxes are tied to specific transactions. Tariffs hit imports at purchase. Yet property taxes persist year after year. And if you fall behind on taxes (rent), the government can take your home away. This undermines the very essence of property ownership.
Currently, property taxation is justified as the primary way we fund essential public services. We should consider whether this justification is enough to outweigh the fundamental right to own property without government intrusion.
There are clearly serious ethical concerns with property taxation. I support efforts to reduce property taxes, and I also support efforts to limit new government spending. However, I do think it’s time to consider the merit of our system of property taxation itself.
This column originally appeared in Lee Newspapers.
