Property taxes are destructive because it discourages ownership and investment by making you pay repeatedly for buying something. Retiree's on fixed incomes often struggle to come up with the lump sums due for property taxes twice a year. Imposing a tax on ownership lowers the tax base (number of people taxed and amount able to be collected) considerably while leaving decision making in large part to those who have no stake in the matter. What do non-property owners care if someone else’s property taxes go sky high if they pay nothing? Those that are saving to buy a house, particularly on lower incomes, are further discouraged from buying because high property taxes are a deterrent.
Businesses have a lot at risk and the last thing they need is high property taxes. If you want to discourage investment in your community, you heavily tax businesses. Why take the risk of starting a business where taxes are going to prevent you from a meaningful profit? An investor could let their money sit in the bank or go somewhere where the business climate is more welcoming. Property taxes, particularly excessive ones, significantly reduce investments. This in turn prevents the creation of jobs that provide income taxes, indirect jobs, and an increased tax base.
A recent study by RuralPulseTM found that more than 50% of rural Minnesotans believe that their communities do not do enough to attract new businesses. Fifteen percent have considered leaving their community for a different locale within the past two years. About half of them say it would be to pursue job opportunities.
A small community like Floodwood has a small market and any tax is difficult; let alone a huge, burdensome one. Savanna Portage Inc. paid $23,100 in taxes for 2103 or 5.5% of its assessed value of $416,800. Larry's Bait and Service paid $3,387.62 in taxes on $72,700 or 4.6%. Floodwood Gas Co. Inc.: Lots 1 & 2; $23,900 value, paid $1144.08 or 4.7%.
Property taxes are nothing more than “rent” on property you already pay for in the form of monthly mortgage payments. It is one of the most discriminating, damaging taxes found in the U.S. Generally, the government encourages investment in certain areas by providing incentives, but in the most cherished investment (home ownership), it is providing an unmistakable disincentive.
Minnesota is a tax progressive state, meaning that higher value properties pay a higher percentage of its market value. This places a higher burden on the higher market value properties, as well as investment properties. Minnesota ranks in the higher areas for nearly all property taxes (residential homestead, apartments, commercial, and industrial) and at best just below the highest rank. If you want more investment, you don't offer the disincentive of higher taxes, you offer lower ones. Many commercial and industrial companies can and will move somewhere else to operate at a lower cost - particularly when they are close to border states offering lower operating costs. With their moves comes the loss of jobs, income taxes, indirect jobs, and people (smaller tax base).
What makes more sense is if each local government submitted its budget request for the next year to its respective county, who in turn, would submit its collective budget (for itself and its cities and towns) to the state. The state would know the budget of the state and be able to set one "flat" income tax to go along with its sales tax. Each community gets a portion according to its needs rather than its number of properties.
The property tax should be abolished altogether for individuals and commercial property while maintaining a low rate on industries with values exceeding $1 million and a simple flat tax on state income. When I say “flat tax,” I mean the same percentage for every person regardless of whether you make $20,000 or a million. Let no one escape his or her share of taxes, thus forcing the participation of all in the affairs of the government.
Many fear that the flat tax would be too much, but forget that a huge population of wage earners pays no tax. Rather than disguising the "real" tax being paid by Americans, the government imposes separate income taxes, property taxes, sales taxes, license fees, etc. If they were "ALL" included in one flat tax, everyone would know exactly how costly the government was to operate. They would start asking questions about the "pork" added to nearly every bill, as it would end up costing them money. Nothing is free, and until people feel the pain of poor decision making equally, politicians will manipulate their vote.
The truth is that everyone should care about property taxes, even those that don't pay them. More people would invest in their homes and investment properties, stirring economic activity for contractors (electrical, carpenters, plumbing, etc.) and indirect jobs (sales, supplies, manufacturing, etc.). Local economies would benefit from the increased activity in their area. More economic activity drives wages as labor becomes more and more scarce - just like North Dakota is experiencing with the Bakken Boom!