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Before repealing the property tax, look under the hood • North Dakota Monitor [1]

['Jared Walczak', 'Christopher Ferguson', 'Debora Dragseth', 'Dave Jenkins', 'More From Author', 'October', '.Wp-Block-Co-Authors-Plus-Coauthors.Is-Layout-Flow', 'Class', 'Wp-Block-Co-Authors-Plus', 'Display Inline']

Date: 2024-10-02

Imagine never again receiving a property tax bill. That’s the alluring prospect being offered to North Dakota voters when they go to the polls this November. It sounds good — really good. But when a deal sounds this good, sometimes it’s worth looking under the hood. If voters do that with Measure 4, they might not like what they see.

Or, in this case, what they don’t see, since Measure 4 repeals the property tax — which raises over $1.5 billion for local governments each year—without an inkling of a plan to replace it, other than obligating the state to do so.

That’s a problem, since $1.5 billion a year is about what the state generates from income and sales taxes combined. If voters are being asked to charge state legislators with raising the equivalent of a doubling of the current income and sales tax, shouldn’t they get to know what the plan is first?

For all their unpopularity, property taxes work. In fact, studies repeatedly show that they do far less harm to the economy than any other major tax. Shifting $1.5 billion in revenue generation away from the property tax and into income, sales, or any other alternative tax will make North Dakota less competitive—driving away jobs, reducing incomes, and hurting in-state investment. Besides, are North Dakotans ready for 12% sales taxes (doubling the state rate, plus existing local rates) and a 5% income tax, if that’s the choice?

But Measure 4 isn’t just bad for the state’s economy. It’s also a death blow to any growing community.

If local governments are forced to jettison their property taxes, the state government is supposed to backfill the lost revenue based on the amount of property tax revenue each locality generated in the final year of the tax. This amount is not adjusted for inflation or population growth.

That means that if a community grows, its revenue gets stretched thin, but if its population craters, there’s more to spend on each household. And without an inflation adjustment, the real value of the state transfer shrinks every year even if the population doesn’t budge. How do you budget under such perverse conditions? Easy: you do everything in your power to drive people away.

Job creators become the enemy, because they might attract new people to the area, further carving up the pie. New housing is a crisis. Having North Dakotans leave the state after college becomes a “good” thing. The only way to thrive is to shrink.

Now, technically, Measure 4 doesn’t ban property taxes—just those on assessed value. The state could always authorize a worse property tax, like one based on square footage. That’s an awful way to tax property, but perhaps not the worst: in the 18th century, houses were sometimes taxed based on the number of windows, which led some people to board up their windows.

Since the measure would continue to obligate the state to backfill the revenue, any such replacement would probably have to be a state-level tax. Otherwise, localities would raise their replacement revenue and the state would have to keep transferring $1.5 billion a year. A state-imposed tax on square footage, anyone?

If that seems absurd, it probably is. But it’s no more absurd than eliminating the primary source of local tax revenue on a wing and a prayer.

State lawmakers can and should do more to keep property taxes in check. Measure 4 making the ballot sent that measure loud and clear. But it’s one thing to send a message, and another altogether to jettison the property tax with no clear replacement at hand, especially when any plausible alternative is more economically harmful than the tax being replaced.

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[1] Url: https://northdakotamonitor.com/2024/10/02/before-repealing-the-property-tax-look-under-the-hood/

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