Operating Budgets and Accounting, Essay Example

Criticisms of the Property Tax System

Property Taxes

Property taxes are levied by most municipalities and are based on the fair market value of property or realty. Schools and other bodies are often taxed separately and some municipalities tax business property as well. Rates vary widely and are based on assessed values, which are undertaken by a separate assessment authority.  (Property Taxes, 2012)  Rates can also be based on quantity of property and use of the property.  In addition, where jurisdictional boundaries overlap, some property is taxed several times.  To address these issues, many states have equalization boards that try to limit this variation between municipalities and states often impose measures.

One criticism of the property tax system is that property taxes are raising the cost of home ownership to the point where people on lower incomes are excluded from the market, due to their reduced disposable income.  This could be alleviated by creating a different tax profile by taxing consumption such as value added tax, so that those spend their disposable income contribute to local government revenues.  An example of this is a gas tax which adds a few cents to each gallon of gas to pay for infrastructure investments such as new highways, bridges etc.

Another criticism is that property taxes contribute to urban sprawl – the development of land for construction of high value single-family dwellings will usually produce more revenue than high-density housing.  However, the cost of providing services (utilities, schools, medical centers, fire, police, public transportation and other infrastructure) to large subdivisions is proportionately greater than providing those same services to areas of high-density housing.  Local planning rules can alleviate this problem and constrain development of urban sprawl.

Property taxes are also said to be ‘regressive’ in that they are a fixed tax on those with more property assets such as pensioners or farmers (in drought years), but with lower incomes.

Tax Expenditures and Their Affects on Taxpayers

Tax expenditures can be described as losses of revenue obtained through tax provisions that promote certain social goals or behaviours without incurring direct expenditures.  They are beneficial to taxpayers but will reduce the amount of tax revenue.

Tax provisions are generally targeted to achieve the following objectives: assessing income accurately, distributing financial benefits and costs based on a person’s ability to pay, and promoting social activities or behaviors that society considers desirable. Tax expenditures are not ‘structural’ features of the income tax, and are not required for the accurate measurement of income.

They are incorporated into the tax code and take the form of a variety of exemptions, exclusions, deductions, non-refundable credits, preferential rates, ordeferrals. These provisions reduce the income tax liabilities of individuals or businesses, e.g. charitable donations, or greenhouse gas credits.

These types of expenses are similar to direct expenditures despite the fact as appearing like tax breaks. They provide benefitsto many other types of individuals and comprisebetween a quarter to a third of all subsidies to taxpayers. (Tax Policy Centre, 2012)

Like governmental entitlement programson the spending side of public budgets, most tax expenditures do not have to go through a direct budget appropriations process each year.

References

Property Taxes. (2012, October 8). Retrieved from Tax Foundation: http://taxfoundation.org/tax-topics/property-taxes

Tax Policy Centre. (2012, 10 8). Tax Expenditures: What are they and how are they satructured. Retrieved from Tax Policy Centre: http://www.taxpolicycenter.org/briefing-book/background/shelters/expenditures.cfm