WHAT'S WRONG

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WASHINGTON'S PROPERTY TAX SYSTEM?

Over reliance on property taxes is igniting a taxpayer revolt (Gregoire, Dems Dash for Cover in Revolt Against Property Taxes, David Ammons, AP 11/18/07). Washingtonians are being crushed by the burden of ever-escalating property taxes ("Because taxing people out of their homes is horrendous tax policy, we need change," Taxes Make Owning a Home a Hardship, The Columbian 12/06/07). In the tradition of our forefathers, Property Owners for Predictable Tax Now is invoking the original tax revolt strategy by holding a Property Tax Tea Party on the first day of Legislative session, January 14 at 11 a.m. on the Olympia Capitol steps.

Washington state's broken property tax system is draconian. The Legislature has denied the people a voice on property taxes for forty years. It's time our legislators listened to the voters to repair it.

Many issues are driving the revolt.

Nearly 50 bills were introduced to address Washington's broken property tax system during last year's Legislative session. Not one made it to the ballot.

Washington's constitution mandates a budget-based Ad Valorem system which adversely affects those least able to increase their earnings to support appreciating property values: seniors, the disabled, and veterans living on fixed incomes, as well as low-income families.

The Ad Valorem system offers no predictability, making it impossible to budget for the future and retire.

Contrary to venerated values, the current system penalizes pride in ownership. The more care invested in a residence, the higher its value and the more taxes due.

A history of increasing percentages of property taxes earmarked for education has resulted in a growing animosity for school levy taxation.

The state constitution mandates the state fully fund education. However, the Legislature has shifted that responsibility onto property owners. Currently half of residents' property tax bills go to education. The recent passage of the Simple Majority School Levy Amendment (EHJR 4204), changing the requirements for school levy passage from a super to a simple majority directly leads to property tax increases, assuring the Legislature the ability to continue abrogating its responsibility.

Washington's education system is doing no better than other government run programs such as Social Security, Medicare and Medicaid. According to the Evergreen Freedom Foundation, Flunked, The Movie, Washington has a high drop out rate and poor showings in math, science, and reading. Property owners question why ever-increasing taxes have not garnered improvement.

The Legislature recently passed another deferment. Deferments are problematic, both for the bureaucracy and individuals. Deferrals require monitoring of taxpayers' incomes to administrate. Deferrals place a lien on properties, therefore, homeowners rarely take advantage of them. An assessor will confirm, although there have been many opportunities for such deferrals, families object to passing on this burden to their heirs.

According to Paul Guppy, Vice President of Research at the Washington Policy Center, deferrals have strings attached:

Deferrals are not a tax cut.

All deferred taxes, plus interest (i.e. 7%), must be paid when the home is sold.

Heirs may be forced to sell the home to pay back taxes; home-based family businesses could be lost. It might be unconstitutional. The state constitution forbids giving public credit to private citizens. Because the tax deferral must be paid back with interest, the supreme court could rule that it is an illegal loan. Homeowners with several years of tax deferral on their house would be in for a nasty shock if a decision like that were handed down one day.

The income eligibility is not indexed to inflation, so its value will erode away over time.

A median income family's household income could rise to the point where it is no longer eligible for the tax deferral.

In addition to deferrals, there are approximately 200 exemptions to Washington's property tax system. While exemptions serve an important purpose, they spread the exempted portion of the tax burden onto all other property owners.

Renters may be under the impression that property taxes do not affect them. Although renters do not write a check to the county assessor, they pay property taxes in the form of rent increases.

Affordable housing becomes a misnomer when spiking property taxes increase monthly budgets.

The most draconian element of property taxes: taxing on unrealized gains. Property owners are taxed yearly on unavailable "profits" if they desire to stay in their homes. A stock purchased at $10/share which rises to $100/share will not be taxed on the profit by the IRS until the stock is sold. Property owners are taxed on 100% of fair market value every single year - a crushing burden to families who only wish to live in their piece of the American Dream for the remainder of their days.

This state will be losing a substantial tax base in the coming years due to aging Baby Boomers whose sheer numbers and inability to handle rising property taxes could very well increase the surplus product in the housing market.

Aging Baby Boomers will add substantial costs to emergency services.

State spending is out of control. The constitutionally mandated budget-based Ad Valorem system has allowed the Legislature to increase spending. The Wall Street Journal writes "Property-Tax Frustration Builds, States, Cities Revise Strategy As Homeowners Protest Rising Levies" (12/18/07). According to Paul Guppy, the Vice President for Research at the Washington Policy Center, "State spending is up 32 percent over four years. State officials do not need every dollar we send them. By easing the tax burden, our representatives would show respect for taxpayers and become more accountable for the way they treat the people's money."

It is time to rethink over reliance on property taxes to fund services.

Property owners are realizing the urgency of reforming Washington's property tax system.