US Local Governments Have Become More Reliant On Property Taxes

by Mike Godfrey, Tax-News.com, Washington

25 August 2004

Property taxes as a share of state and local tax revenues have risen dramatically since the economic downturn in 2001, according to an analysis prepared for the Wall Street Journal.

The study, prepared for the Journal by assistant vice president and economist at the Federal Reserve Bank of Boston, Robert Tannenwald, using data from the federal Bureau of Economic Analysis, shows that property taxes represented a 28.2% share of state and local revenue in the first quarter of 2004, up from 25.5% in the first quarter of 2001.

In the meantime, the figures show income taxes fell to 19.4% of state and local revenue collections from 22.4%, whilst sales taxes rose only slightly to 32.2% from 31.4%.

Experts attribute this rise in dependence on property taxes to the local authorities’ keenness to cash in on soaring house prices as the economic slowdown bit into other sources of tax revenue.

Some economists also believe that states have been reluctant to raise income or sales taxes for fear of political retribution.

"The local property tax is one tax the local (authorities) can use to offset declines in state money," William Fischel, a professor of economics at Dartmouth College, observed in the Journal report.

Overall, between 2001 and 2003, property taxes increased by an average of 10% across the country, Deloitte & Touche LLP's Property Tax Services Group has estimated.

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