Economists love property taxes, but no one else does

Wednesday, April 17th, 2019

Economists love property taxes, but no one else does:

When the value of land rises, it’s generally not because of something the landowner has done. The resulting rents and other monetary gains, Adam Smith wrote in 1776, “are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own.”

This made the landowner, Smith continued in The Wealth of Nations, an excellent target for taxation.


Income taxes and Social Security contributions are withheld from paychecks before the recipients get their hands on the money. Sales taxes (and value-added taxes outside the U.S.) are remitted by merchants and other business. It’s only with property taxes that a regular person gets a bill and has to pay it.

There’s clearly something to that, although for many homeowners property taxes are bundled into mortgage payments and thus a bit less obviously visible. Still, I can think of at least two other reasons for property taxes’ unpopularity that are actually side effects of what economists like about them. To wit:

  1. Property tax bills can rise without property owners doing anything, and
  2. Rising tax bills can push property owners (homeowners in particular) to make economic decisions they might prefer to avoid.

People can adjust their spending, and often their income. But they can’t help it if, say, house prices go up 80 percent in just three years — as they did in California from 1975 to 1978. Well, actually, they could help it, by going to the polls in June 1978 and approving Proposition 13, a set of restrictions on property tax rates and assessments that have shaped the state’s economy and government ever since.


Also, taxing property is in general more problematic politically than it was back when Henry George’s ideas were in vogue in the late 1800s and early 1900s — because homeowners have gone from a minority of the U.S. population to a majority with an especially high propensity to vote.


  1. Wilson says:

    If they wanted to target unearned gains or the potential for development they could tax rent and sales, property tax is appealing because a tax on shelter can be extracted from everyone alive while not bothering the elite much who don’t need to hold property that doesn’t make them richer.

  2. Kirk says:

    Couple of points…

    One, the percentage of voters who own homes wasn’t significantly different back in the “old days”, because back then, only property owners had the right to vote… Only for a relatively short period was there a time when most voters didn’t also own some form of property. And, no matter what, if you’re renting or owning… You’re still paying property tax; the only real difference is that instead of making the check out to the state, you’re making it out to the landlord.

    Whoever wrote this article was an idiot.

    Additionally, the real intent of the Prop 13 legislation was supposed to be “reining in government”. Cutting the tax base was the lazy man’s way to do it, and what they should have done was to actually go after the real problem–The politicians. However, the electorate was too lazy and entirely too willing to be bribed with what they thought was “other people’s money”, so Prop 13′s real effect was about nil. Although, as the politicians did their little childish tantrums about having their toys taken away, they did a lot of damage to the infrastructure in California, both physical and non-physical. I can remember California from childhood, with excellent freeways, good schools, and an abundance of “nice things” for the public. Now? It’s a dystopic nightmare of ill-maintained roads, unusable parks, and a public commons covered in feces.

    Californians got the California they deserved, TBH. I have no pity and no sympathy for them. I only wish that they could be penned up in their own filth, away from the other Western states like Oregon, Washington, and Colorado–All of which the pernicious migrants from California seem hell-bent on taking down the same socialist path. They don’t learn, they don’t modify their behavior, and they ruin everywhere they live, like so many locusts.

    Of course, native Californians will make the point that the majority of the nutters came to them from the East coast, particularly the Northeastern New England states. How true that is, I don’t know, but the ones like Feinstein and Pelosi did start out back east, so maybe the natives have a point…

  3. Graham says:

    I would have assumed they meant “property owner” as in owns home/land or both, typically a house or condo [a property without land, but with equity] as residence, whether or not any additional properties are owned on top of that, and by custom without regard to the presence of a mortgage. A fairly traditional standard.

    By that standard, as a renter of an apartment, I own no property. Yes, my rent to the landlord is covering his property tax for my unit. But I’m paying him rent, he is paying property tax for which my rent is corresponding income. When I buy groceries, I am covering costs all the way up the supply chain, it doesn’t make me the immediate customer of the trucking companies or the agribusinesses.

    If you meant that property tax, as so many taxes, does impose second or third order costs on people who aren’t directly paying them, and they should thus think clearly before insisting such things cover more of the tax burden, then I agree with that. Tenants are fools to ignore the impact of property taxes.

    At any rate, in Canada we had manhood suffrage from before 1867 Confederation, at a time when plenty of people, and most working class in the cities, owned no property. I’m not sure when we got a plurality of upper working class “middle class” homeowners, but I think it was mainly a feature, as in the US, of the postwar economic boom. Like mass higher education. If the US had manhood suffrage before that, then there must have been the better part of a century when plenty of American men could vote who owned no land, even allowing for the fact that there were more rural people then, where the poor were more likely to ‘own’ some plot than urbanites were to own a house.

    Then if you look at a place like Britain, it shifts perspective again. Britain kept reducing the property quals but it didn’t have unrestricted manhood suffrage until the end of WW1. It likely didn’t have even a plurality of homeowners until Thatcher’s time, so that’s generations of voters who owned no land/home.

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