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Students of the property tax have been telling us of its demise for decades. In one very important sense they have been correct: the property tax has steadily diminished as a percent of personal income and total state and local government taxes. By 1977, property taxes accounted for only about one-third of total state-local government taxes (see Table 1). It may seem a paradox, given this decline, that so many of the most important fiscal issues of the 1970s revolved around property taxes. Proposition 13 and school finance reform come quickly to mind, and the fiscal problems of New York City and Cleveland were in no small measure due to the inadequacies of property tax financing. This policy concern with the property tax is, of course, not a paradox at all. It still is the most important local government revenue source and has increased substantially in real per capita terms.

What of the property tax in the 1980s? Yet in projecting the performance of the property tax, one should look less at the tax itself than at the environment in which it is levied. Perhaps more than any other State and Local government tax, the property tax grows because of discretionary rate and base changes hence its future importance will be largely shaped by the political and economic environment in which it operates. The very modest goal of this paper is to suggest the nature of some of the political and economic pressures which will effect the future financing role of the property tax.

The view here is that a further decline in the relative importance of the property tax as a State and Local government financing source is inevitable. Over the longrun, the slow and unstable growth in the national economy, slower growth in the state-local sector, a trend toward financial centralization and continued shifts in the regional distribution of population and economic activity in the United States will limit the growth in property taxation.


(c) Lincoln Institute of Land Policy, 1979. Posted by permission.

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