Tuesday, January 12, 2010

Fun With Numbers

Political candidates love to talk about taxes -- cutting them, reducing them, slashing them -- when they are running for office. The incumbents, faced with the fact that they rarely, if ever, can deliver on such promises while in office, hedge it by saying that they have not raised taxes.

Such is the case here, where those in power crowed about not raising property taxes over the past few years. Why, then, did our taxes go up? Well, thanks to the housing market boom of a few years ago, the value of our houses increased. And since our taxes are based on the assessed value of the property, we paid more.

Okay, so now we come to 2010, when the the housing market bust has knocked down the value of the property back down. Our property taxes should go down, right? Not so fast! Check out the letter that accompanied the notice advising that our property assessment had been reduced.

Won't my property taxes go down if my assessment goes down?
Not necessarily. To demonstrate the relationship between assessments and taxes, consider the make-believe hamlet of Seagull Village, which is a community of two homes. Each resident owns a house valued at $100,000. Seagull Village's property tax levy is $2,000 which is the amount needed to covers its expenses. Since each resident owns 50% of the total property value, they each pay 50% of the levy giving them each a tax bill of $1,000.
If the property values in Seagull Village go down 10%, then each property is assessed at $90,000. The amount they pay in taxes, however, remains the same because the tax levy amount has not changed, even though the assessment has declined. Each resident still owns 50% of the total property in Seagull Village and must pay 50% of the $2,000 tax levy, which is $1,000.

Okay, got it? They just raised the tax rate. A $1,000 tax on $100,000 is a rate of 1%. That same thousand dollars on a $90,000 property is a rate 1.11%.
Of course, in this particular year, they will pat themselves on the back and say, "Your taxes have not gone up!"

The letter goes on to say:
Even if the properties' assessments increase to $110,000 each, the taxes stay exactly the same. They each still own 50% of the property and Seagull Village still needs to collect $2,000, therefore they will continue to see a $1,000 property tax bill.

Yeah, right! Can anyone name an occasion when the total amount of money being spent by the federal, state, or any local government has voluntarily gone down? I can't.
If property values go up, they'll collect additional taxes based on those higher assessments... and then crow about how they haven't raised the rates!

And the letter ends with:
An increase or decrease in the assessment of an individual property is not an indicator of whether the tax bill for a property will go up, down or remain the same.

That's true. Regardless of what happens to your property value, your taxes are going to go up... one way or the other.

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