Truth in Taxing

Before 1968, consumers had very little protection in credit transactions. Lenders often used misleading figures to describe loan offers, so that it was impossible for most consumers to know whether a loan offer was good, bad, or indifferent, or to compare different loan offers. Lenders were not required to clearly disclose the cost of a loan. The truth in lending act, which became a federal law in 1968, changed all that. Now, lenders are required by law to disclose the annual percentage rate, or APR. The APR gives a standard measure of the cost of a loan, and allows direct comparison among loan offers.

In a sense, property taxpayers live in a pre-1968 world. Government officials often use misleading figures to describe property taxes, so that it is impossible for most property taxpayers to know whether a proposed property tax is good, bad, or indifferent, or to compare property taxes from one year to the next, or among municipal jurisdictions.

Truth in Taxing

Property taxpayers need something like truth in lending. I call it truth in taxing. And just as truth in lending has the APR, a standard measure of how much a loan costs you, truth in taxing has the tax rate as a standard measure of how steeply your wealth, measured by the market value of your property, is being taxed. For example, a tax rate of $2.00 per thousand dollars of market value means that you get to pay $2.00 for every $1,000 of market value of your property. If your property is worth $100,000 in the market (as determined by the tax assessor), then your tax is $200. If your property tax rate last year was $2.00 per thousand dollars of market value, and this year it's $2.20 per thousand dollars of market value, then your tax rate has increased $0.20, or 10 percent. Truth-in-taxing means that changes in property taxes are expressed as percentage changes in the tax rate. Other measures of changes such as changes in the tax levy or changes in the the average tax bill may be of some interest (no pun intended), but do not directly disclose how heavily a property owner's wealth is taxed. Only the tax rate expresses directly how heavily a property owner's wealth is taxed, and only changes in the tax rate measure how much more heavily (or less heavily) that wealth is taxed.

Your Property Tax Bill Implements Truth-in-Taxing

Under New York State law, property tax bills are required to display truth-in-taxing information, or at least come pretty close to displaying it. This fact indicates to me that New York State law recognizes the utility of the truth-in-taxing concept. Tax bills are required to display:

• The tax rate for each taxing purpose (such as town tax, county tax, fire tax, etc.). Unfortunately, the tax rate is given in dollars per thousand dollars of assessed value, rather than of market value. More on this below.
• The market value of your property.
• The equalization rate, confusingly called the uniform percentage of value on your bill.
  

When the equalization rate is 100 percent, all assessed value numbers are the same as market value numbers. For example, tax rates per thousand dollars of assessed value are numerically equal to tax rates per thousand dollars of market value. In this case, your tax bill directly displays the tax rates determining how steeply your wealth is taxed.

When the equalization rate is not 100 percent, one can convert tax rate in dollars per thousand dollars of assessed valuation to dollars per thousand dollars of market value simply by multiplying the former by the equalization rate.

Who Should Be Responsible for Truth-in-Taxing Disclosures?

I'm not suggesting that truth in taxing should be a law, as truth in lending is. I'm just suggesting that truth-in-taxing is a convenient label for disclosures which clearly state the meaning of property taxes for taxpayers. It would be asking too much of government officials to focus their press releases on truth-in-taxing. They simply have too strong a conflicting interest in obscuring this information, especially in a declining real estate market. But news sources intending to inform the public about property tax matters, rather than to promote a partisan view, would do well to focus on tax rate as the key component of truth-in-taxing. More on this in a subsequent post.