Property taxes: leave me alone!

I’m sure it’s just a coincidence that Montana homeowners’ property tax bills are being released just weeks before the election. Coincidence or not, it’s a good reminder for taxpayers to take a closer look at who wants their vote.

We don’t need to be reminded that last year’s property tax bills were a real eye-opener and this year’s will provide more of that kind of wake-up call. This is despite the governor’s generosity in offering a $675 rebate on property taxes paid in 2022 and another rebate this year for taxes paid in 2023, which coincidentally comes just months before the election. There are few coincidences in politics.

The problem with property taxes is that they are tied to wealth rather than ability to pay. Wealth is what you own that has value, but to fully enjoy it, you often have to turn it into money, that is, sell it.

Wealth is also measured by livestock owned, stocks and bonds, and anything else of value. But the only wealth that is taxed is real estate and other “tangible” assets. Since “intangible” assets like stocks and bonds are not taxed—they used to be in some countries—the rich hold trillions of dollars of intangible assets that are tax-free except for the income they generate.

Additionally, homeowners are taxed on the total assessed value of their home, not their equity in the home, which is their actual wealth and may be much less than the assessed value.

The fact that wealth taxes are not tied to ability to pay does not mean that this is the right way to go about it. There is a basic rule of thumb in financial matters that a family’s mortgage payments should not exceed 30% of its income. If this percentage is exceeded, it will likely lead to financial hardship. It therefore follows that a family’s housing taxes should also not exceed a certain percentage of family income.

This is how the Montana Senior Homeowner/Renter Tax Credit works. A person’s maximum property tax liability is calculated as a percentage of family income, and the amount of property tax a family pays above that amount is refunded to the family.

Tenants are treated the same way. As with any other pass-through cost, landlords include property taxes in the rent schedule. If landlords get a tax break, they are unlikely to pass it on to tenants and, at the very least, they should be required to inform their tenants of the state’s renter tax credit program.

The problem of high property tax bills will continue to be a concern because the 2023 session of the Legislature did nothing to address the problem except buy time — at $675 a pop.

Democratic lawmakers have put forward some interesting proposals. I would venture to predict that they will not pass for two reasons: first, they are understandable, and second, they are Democratic proposals in a Republican-controlled government. They propose a $50,000 exemption on the value of a home that will not be taxed and an expanded tax credit for low-income renters.

The main recommendation recently issued by the Governor’s Property Tax Task Force is to lower the tax rate (assessed value X tax rate = assessed value) on residential properties to 1.1% from the current 1.35% of assessed value.

On November 17, 2022, a memo from the Montana Department of Revenue stated that reducing the tax rate to 0.94% would keep assessed values ​​at the same level as the previous cycle, but that option was rejected by the legislature. But now, two years later, is reducing the rate a good idea?

Sen. Greg Hertz, R-Polson, chairman of the Senate Taxation Committee, is also a member of the task force. He said of the potential outcome of the upcoming session: “Unfortunately, there are always a lot more lobbyists here in Helena during the session than there are local taxpayers… I would really encourage local taxpayers to get involved in the legislative session.”

Local taxpayers elect legislators to represent their interests. They shouldn’t have to travel to Helena to fight lobbyists. That’s what a legislator is for.

Montana Viewpoint has been published in weekly newspapers and online throughout Montana for over 25 years. Jim Elliott served 16 years in the Montana Legislature as a State Representative and State Senator. He lives on his ranch in Trout Creek.