School property taxes under fire.

• Author: Gold, Steven D.
• Position: Counterpoint

When Michigan voters recently approved a plan to substitute sales taxes and other state taxes for the local property tax, it gained national attention. The New York Times called it "the most dramatic change in the way public schools are financed in a century."(1) Many predicted that it would start a wave of similar actions in other states. Far-reaching proposals to replace the property tax for schools have been considered this year in South Carolina, Vermont and Wisconsin. Proposals to raise state taxes to cut the school property tax also have been floated in Idaho, Illinois and South Dakota.

Not so fast. Michigan's property tax was far higher than those of most other states. It was out of step. As a result of its tax cut, it has fallen into line. Michigan is not a leader. It is a follower.

Interest in property tax relief is understandable. The property tax is the main tax used by local school districts, accounting for 98 percent of their tax revenue. When schools are poorly financed or resources are unevenly distributed, it is natural for people to blame the property tax.

But that criticism is off the mark. The problem of big inequalities between rich and poor school districts is caused by reliance on local taxes, not dependence on the property tax per se. If local income or sales taxes were substituted for property taxes, inequalities in local tax bases would be even greater. The solution to disparities is to increase state aid.(2)

National Fluctuations

Agitation for property tax relief is not new. In the 1970s, many states took major strides to reduce property taxes by substituting state taxes. They were successful. After peaking in 1972 at 4.74 percent of personal income, property taxes fell to 3.24 percent of personal income in 1982, as Exhibit 1 shows. School property taxes mirrored the national trend, declining from 2.02 percent to 1.36 percent between 1972 and 1982.(3)

Then the tide reversed. By 1991 (the last year for which statistics are available), property taxes were back up to 3.61 percent of personal income, and school property taxes had risen to 1.50 percent of personal income. They have continued to creep higher since then.

So, is the trend for the property tax up or down? It depends on the time period considered. If one goes back to 1950 or even 1970, the property tax is in retreat. But in just the period since 1982, the property tax is going up, not down.(4)

School Taxes in 1991

The need for property tax relief is not the same in all states. Property tax levels vary widely across the country. As Exhibit 2 shows, the state with the highest school property tax in 1991 was Vermont, where it took 3.58 percent of personal income. The next highest were Oregon, Michigan, Nebraska, New...