Who Actually Pays Property Taxes?

It’s not a new question. In fact, In a recent article, Governing calls it a question that has been “at the heart of public finance” for more than 50 years. As local governments grapple with attracting residents and maintaining affordable housing, officials cannot ignore exploring how their property taxes impact their populations – and who, actually, is paying them.

From Governing:

There are two ways to think about who pays. One is the “statutory incidence,” or who is required to remit a tax to the government. The other is the “economic incidence,” or who pays a tax because they’re unable to avoid it. The former is easy to measure. The latter is not. …

Middle- and upper-income people are more likely to own property and pay property taxes, so the statutory incidence is inherently less regressive. But if we care about economic incidence, the reality is unclear at best. In fact, for more than 50 years public finance experts have argued over who actually pays the property tax.

One school of thought says it’s really a tax on wealth. But higher property taxes might work against affordability by reducing the demand for housing and discouraging density. …

Another view says local property taxes are what you pay for the services your local government delivers. …. If that’s true, then property taxes are neither progressive nor regressive. Everyone pays a proportional amount for a proportional share of benefits.

Yet another view says the property tax is a tax on the service called housing. In that case, the property tax is like the sales tax. Since lower-income people cannot escape paying for housing (usually as renters) then property owners can send much of the property tax burden down the income ladder.

Read the article here.