FREE NEWSLETTER
Go to main Forum page »
Taxes have been a regular topic on HD and why not, they are critical for both our personal finances and running our society. To say people have different views about taxes is a major understatement.
One of the current hot issues is property taxes. Movements are afoot to stop property taxes- at least for those “retired,” over age 65 or who have no mortgage. The logic of any of that escapes me.
However, the level of support among seniors seems quite high and to my way of thinking a bit selfish and shortsighted. The reasoning given for support is seniors are on a fixed income, taxes keep increasing, surviving spouses can’t afford to stay in their home of decades and my favorite – seniors already paid their dues and should not pay more.
That gets us to core of HD-prudent long-term financial planning, anticipating the future, income streams, accruing adequate resources, including for survivors. But the thing is, too many people don’t get it or ignore those responsibilities.
Following is my itemized property tax bill for the current year.
County tax $2663.04
Country open space tax $120
District school tax $4976.65
Regional school tax $3566.80
Local municipal tax $ 2488.33
Municipal open space tax $ 90.38
Total $13,905
Keep in mind this is for a condo, one unit in a building with twelve units. There are nine buildings in total on about 16 acres. Even though we don’t directly own the land, our portion is assessed at $195,000.
As you can see, over 60% of the bill is for schools. That allocation is typical. NJ schools are ranked #3 in the nation. Is there a direct correlation between between high taxes and schools? There is some relationship. States that spend more (NJ, NY, CT, MA, VT) consistently rank in the top 5–10 on most outcome measures. States that spend the least (MS, OK, AZ, ID, UT) tend to rank in the bottom quartile, but there are other factors so it is not a perfect correlation.
Property taxes have been used to fund schools since the 1840s. The reason property taxes are used by municipalities is because they are stable and predictable and relatively easy to adjust. Sales and income taxes are more variable and less reliable because they are subject to economic conditions and changes in the incomes of the people living in and moving in and out of the community. It is hard for a school system and municipality to manage fixed costs with variable tax income. Some localities think by relying more on state revenue the local tax burden can be eased. Critics note that doing so can also subvert local control over school spending, something typically highly valued.
The majority of states have one or more programs to ease the property tax burden on those in need, most programs age based. The rallying cry that seniors should not lose their homes is a red herring. That rarely happens. In fact, 0.05% of homeowners of any age actually lose a home for unpaid taxes and even then they keep all the equity after the tax bill is paid.
So, why shouldn’t every homeowner pay property taxes with shared relief for those truly in need?
The use the sad stories of a few seniors to justify a deduction for all seniors which is just wrong given that many seniors are very well off financially. Any deductions should include an income/asset limit.
But wow, NJ taxes are high!!! No wonder so many seniors leave the state.
The problem with schools is that they are a never ending money pit. Does anyone review the school system for excessive spending? The incentives are all to spend more. If cuts come, they hit the teachers first, to create public sympathy, rather than administrative positions/other.
I love the idea of no property taxes. What other thing do we buy once yet pay taxes on it again and again forever? Talk about a good way to discourage home ownership. There’s got to be a better way to fund schools and other government programs rather than burdening homeowners year after year.
We pay property taxes again and again because they fund recurring expenses. The cost of police and fire protection, street lights, garbage removal, sewers, court systems, jails, road maintenance, schools, etc., doesn’t end because we paid property taxes this year. They need to be paid this year, next year and in the future. If I buy a new television or washing machine I pay the sales tax once and that’s it – until I need a new one.
Absolutely, and I don’t understand why people don’t get that. Plus the majority of those taxes are for teachers.
At the same time ask people if teachers are underpaid and survey after survey says people agree teachers deserve higher paid.
Where do they think the added expense will come from?
Well, you buy a car and pay gasoline taxes to run it and tolls to drive it on public roads, plus registration fees each year to use it.
Everyone, renter or homeowner pays property taxes one way or another and they would pay any alternative, but property taxes are far more stable.
I doubt it discourages home ownership, that have been used to fund schools since around 1840.
VATs? That could work, but would be a vastly greater burden on the poorer of us than on the wealthiest. I’m for graduated taxes (greater percentage of the tax burden is paid by the wealthiest), so I like the idea of property tax, even graduated property tax. Anything you come up with will have logical reasons for and against, will have constituencies for and against. We don’t have to re-invent the wheel here; we can see how things are done in other societies and learn from their successes and mistakes.
VATs are variable based on economic conditions affecting spending thus not stable income. Property taxes fund more than buildings and services. They fund people’s salaries, pensions, pay for bonds all of which require steady cash flow.
California has a few options to help seniors with property tax payments. The Property Tax Postponement Program allows low income seniors to defer property tax payments. The taxes accrue and are paid when the home is sold. The Base Year Value Transfer allows homeowners age 55 and older to sell their primary residence and transfer the original property’s lower assessed value (base year value) to a replacement home anywhere in California. We bought our house 30 years ago so it would prevent a huge tax increase if we wanted to move.
Do you think it is fair that your neighbors pay twice the amount of the property tax but with a lot smaller house than yours, just because they move into this neighborhood 25 years later than you? Have both of you used the same public services?
I live in Ca. and was a home owner when Prop 13 was passed. Like most homeowners of that time, I rejoiced at the prospect of a lower property tax bill. Had we known then what the long term consequences of Prop 13 would be, we might have had a different reaction.
As a warning to any state that is contemplating legislation that will reduce or eliminate property taxes: Don’t. If California can be viewed as any sort of example, cutting property taxes does not mean that your legislatures will reduce spending. It simply means they will find other ways in which to replace the revenues lost to a property tax cut. Over the years, a myriad of other new or increased taxes and fees have largely replaced the loss of property tax revenue. And, a whole new industry of advisors and lobbyists has been created to: 1) find ways to take advantages of the tax reduction rules, and 2) to modify the original legislation to make it even more favorable to certain classes of property owners.
As a senior, I’d love to eliminate my property tax bill, but as the old saying goes: there’s no free lunch. Given that states must run their budgets on at least a break even basis, eliminating a large chunk of state revenue will in most cases require that the lost revenue will have to be replaced by other means.
I live in CA also. The problem before Prop 13 was passed was that every time local governments needed money they raised it by increasing property taxes. Prop 13 took things too far the other way.
The county we lived in offered a Senior Homestead Exemption for property taxes. This reduced the tax due if age and income limits were met. I never used it, or ran the calculations. I was of the opinion the taxes were essential to providing certain services. Particularly as the state (Illinois) continually reduced revenue sharing with communities.
NJ has three major programs for property tax relief, one will give back up to $6500 next year for incomes up to $500,000. That’s nuts as far as I am concerned. Another program allows seniors to freeze their taxes so the state picks up future increases.
Then there a few special deductions. I get $250 a year off for being a veteran.
It’s like prescriptions and college, few people pay the retail price but somebody is paying the cost of the free stuff.
We live in Passaic County, NJ, in a township with a very good elementary school sysytem and a fair secondary school system. My youngest graduated high school in 2017.
I have no problem funding our local school systems via property taxes. If property taxes are waived for a certain group others have to pick up the slack. We all benefit by having educated citizens. Presumably, we all have utilized the public school systems either for ourselves, our kids or both. With limited exceptions, I feel we all should share the costs.
Absolutely!
We live in essex county, nj, w high taxes and great schools. Have no kids and are both seniors. Just redid our =2000 sqft 3 bedroom house and got accessed 8k/yr more bringing us to 20k/yr. Sometimes feels like the schools and towns behave like drunken sailors but also believe the children of this town are getting a great start in life and that’s paying it forward.
Most of the smaller houses, like ours, get knocked down when seniors move to build MacMansions with even more taxes (45k). Hopefully they plan well for the future but suspect some come just for the time their kids are in school and then they flee.
It all feels unsustainable, but maybe thats because we are on a fixed income. We are lucky in that our state has many income based programs to help with state taxes. Think treasuries vs. Interest/dividends.
Having my tax dollars go to private schools would set my hair in fire.
Sorry so long, a subject I have some passion for
I have lived on that county for 82 years. Are you saying your actual tax bill increased in one step by $8,000 or the assessed value increased because of improvements you made? A tax bill jump of $8,000 doesn’t even sound legal under NJ law that caps annual increase percentage at 2%
The house is still a 1959 3 bedroom split ~2000 sqft. Just all redone and with a second garage and expanded rooms above. Have you looked at real-estate in your old neighborhood? Might shock you.
Yep, they reaccessed the house to market value, ahead of the 10 year reaccessment. They then have a factor that brings the house inline with the town accessment from 2020. After all this math magic, our bill went up 8k. Now our new accessment can’t increase more than 2%.
Honestly, fixing up our house, including replacing a 45 yr old GE a/c unit, they don’t make them like they used to, made financial sense even given the taxes. No ranches here, almost at any price, and I did not want to commit to lots of far driving. Can actually walk to basics here for as long as I can do that.
Its all pretty nuts
Well, you added significantly to the value of your home and at some point you will realize that added value. If you hadn’t made the improvements your taxes would not have increased.
I live only a few blocks from our 1929 home of 40 years so I am aware of the changes in taxes. Taxes are now $15,000.
I am also aware of what the taxes pay for- mostly teachers and their benefits.
I think we all need to contribute to educating the generations behind us, even if we are retired. I see it more as a moral obligation. We have lived in areas where schools are supported by both property and income taxes. Some places we lived in had consolidated schools for a large area, some had smaller schools that were not consolidated. We paid more taxes to live in a better school system when we were raising our kids. It is just what we did. We haven’t had kids in public or private school since ‘08 (except college), but we still feel a responsibility to educate the kids in our town. Our country needs an educated society and it is up to all of us to kick in on it. Chris
I agree.
In my mind there’s one answer to your question, but a few different funding dilemmas.
First the answer; the public school districts have to be funded by everyone, with a few carve outs for legit situations.
Funding dilemma; districts with low property values don’t generate enough taxes to meet the needs of the schools. State funding can help provide those districts with tools needed to help students.
Funding dilemma; in Ohio, a student choice program lets public school money follow a student who wishes to attend a private school. These dollars come right out of the public school district budget. I don’t think this is fair to the public schools or taxpayers. (My grand-kids all go to private schools).
Seems to me that generates a death spiral for public schools.
Don’t forget regardless of property values the rates can be adjusted. I had the opposite situation where the property was reassessed higher but the tax bill didn’t increase because the tax rate was lowered so the taxes were neutral, but future rate increases were more fairly distributed. In fact, the amount revenue increase from property taxes is sometimes limited to a certain percentage.