Heads, They Win; Tails, We Lose

State and local politicians have rigged the property tax system so they always come out ahead. When home values are rising (even if incomes are flat), they automatically collect more revenue. Sometimes they even decide to reduce the tax rate, though rarely if ever by enough to compensate for the rise in home values. But when home values are falling, that's almost always an excuse to impose a higher tax rate so that the bureaucrats don't have to worry about tightening their belts (that's a role reserved for us peons). The Tax Foundation has a new report showing that politicians collected more than 4 percent more money from property taxes even though home values dropped by 16 percent.

The recession that began in December 2007 was precipitated by a financial crisis which in turn was triggered by the popping of a real estate bubble, particularly in residential property. And indeed, property values did decline dramatically. The Case-Shiller index, a popular measure of residential home values, shows a drop of almost 16 percent in home values across the country between 2007 and 2008. As property values fell, one might expect property tax collections to have fallen commensurately, but in most cases they did not. Data on state and local taxes from the U.S. Census Bureau show that most states' property owners paid more in FY 2008 (July 1, 2007, through June 30, 2008) than they had the year before (see Table 1). Nationwide, property tax collections increased by more than 4 percent.

America's Best Governor Wants to Starve the Beast

Chris Christie of New Jersey has done a remarkable job so far, but his biggest battles are still ahead of him. A key fight is whether the state will impose a cap on property taxes. As the Wall Street Journal opines, this reform has worked very well in Massachusetts and is critical to curtailiing the greed of government employee unions in the Garden State.

The Governor wants to cap annual property tax increases at 2.5%, on the model of the successful cap that Massachusetts imposed in 1980. Over the next 27 years, property taxes in the Bay State rose 22% compared to 68% nationwide and 102% in New Jersey. The cap is crucial to preventing local Garden State school districts, which are dominated by teachers unions, from raising taxes and thus defeating whatever spending restraint Mr. Christie can impose on Trenton. The unions know this, which is why they've spent some $7 million in TV ads portraying Mr. Christie as the scourge of police, firefighters and children. The Governor's approval rating has held up well despite the onslaught, which may reflect that voters understand the state's new fiscal reality. New Jersey's property taxes and its overall state and local tax burden are the nation's highest, and the state hasn't created a single net new private job in a decade. Democrats who run the state legislature have counter-offered with a 2.9% cap, but with so many spending exceptions that it's more fig leaf than cap. Their bill would allow lawmakers to raise property taxes above the cap to pay for pensions, health care and utility costs and, here's the kicker, even in order to promote the health, safety or welfare of the municipality. ...This showdown is worth watching because Mr. Christie has shown admirable political grit so far, and success in New Jersey would bolster the nerve of other reform governors. One temptation for Mr. Christie would be to settle for too little reform when his political capital is at its highest, which was Arnold Schwarzenegger's original mistake in California. ...Mr. Christie's best reform opportunity is now, and taxpayers everywhere should hope he succeeds.