Property taxes: Give me a break!

I’m sure it is just a coincidence that Montana homeowners’ property tax bills come out just a couple of weeks before the election. Coincidence or not, it’s a good reminder for taxpayers to take a closer look at the person who wants their vote.

We need no reminders that last year’s property tax bills were a real eye opener, and that this year’s will present more of the same awakening. That’s in spite of the Governor’s largess in offering a $675 property tax rebate for taxes paid in 2022 and another offered this year for taxes paid in 2023, which, also coincidentally, is offered to us just a couple of months before the election. There are few coincidences in politics.

The problem with property taxes is that they relate to wealth rather than ability to pay. Wealth is what you own that has a value, but in order to enjoy that wealth fully it often has to be turned into money, that is, sold.

Wealth is also measured as cattle owned, stocks and bonds, and anything else that has a value. But the only wealth that is taxed is real estate and other “tangible” property. Because “intangible” property such as stocks and bonds is not taxed – they once were in some places – the wealthy hold trillions of dollars of intangible property tax-free except for the income that it yields.

Furthermore, homeowners are taxed on the full appraised value of their home, not on their equity in the home which is their actual wealth and may be much, much less than the appraised value.

Because taxes levied on wealth are not connected to ability to pay doesn’t mean it’s the right way to do it. There is a basic financial rule of thumb that a family’s mortgage payments should not exceed 30% of their income. If it is over that it will likely impose a financial hardship. It follows, then, that the taxes on a family’s home should also not exceed a certain percentage of the family income.

That’s the way Montana’s Elderly Homeowner/Renter Credit works. A person’s maximum property tax obligation is calculated as a percentage of family income and the amount of property tax paid by a family over that amount is refunded to the family.

Renters are treated similarly. Like any other pass-through costs, landlords include property taxes in the rent schedule. If landlords are given a tax break it is unlikely they will pass it through to the renters and at the very least, they ought to be obliged to inform their renters of the Renter Tax Credit program offered by the state.

The issue of high property tax bills will still be with us because the 2023 session of the Legislature didn’t do anything to address the issue except buy time – at $675 a pop.

Democratic legislators have offered a couple of proposals of merit. I will venture a prediction that they won’t go anywhere for two reasons; one, they are understandable and, two they are Democratic proposals in a Republican controlled government. They offer a homestead exemption of $50,000 of the value of a home which will be untaxed and an expanded tax credit for low-income renters.

The main recommendation issued recently by the Governor’s Property Tax Task Force is to lower the tax rate [appraised value X tax rate = taxable value] on residential property to 1.1%; it currently stands at 1.35% of appraised value.

On Nov. 17, 2022, a Montana Department of Revenue memo stated that lowering the tax rate to .94% would keep taxable values the same as the previous cycle, yet that possibility was rejected by the Legislature. But now, two years later reducing the rate is a good idea?

Senator Greg Hertz, R-Polson, the chair of Senate Taxation, is also a member of the Task Force. He had this to say about the potential outcome of the next session: “Unfortunately, there’s always a lot more lobbyists up here in Helena when the session’s going on than there are local taxpayers … I would really encourage local taxpayers to get involved in the legislative session,”

Local taxpayers elect legislators to represent their interests. They shouldn’t have to travel to Helena to do battle with lobbyists. That’s what a legislator is for.

Montana Viewpoint has appeared in weekly and online newspapers across Montana for more than 25 years. Jim Elliott served 16 years in the Montana Legislature as a state representative and state senator. He lives on his ranch in Trout Creek.