Monday, December 13, 2010

Dutchess County Taxes in 2002 and 2011

In this first of two posts, I show how property taxes of Dutchess County government today (well, next month) compare with those of a decade ago.  Briefly, they're equally as steep as a decade ago, but the charges are twice as high because we're twice as wealthy.  In a subsequent post, I'll detail the path taken by Dutchess County property tax throughout the last decade.

In order to pay for the services it provides, Dutchess County government charges every taxable property in the county.  This charge appears on your January property tax bill, along with charges for other local governments (town, fire, etc.).  By New York State law, the county charge is a fraction of the current market value of your property, and is the same fraction for every taxable property in the county.  Every year, the fractional amount changes.  But every year, the market value of your property changes too.  So the amount you pay each year changes, because of changes in both the fractional amount set for that year and your market value for that year.

Fraction Is Tax Rate

Although the fraction charged could be expressed as a decimal value or as a percentage, it is traditionally measured as a tax rate in dollars per thousand dollars of market value.  For example the 2011 Dutchess County tax rate is $3.07 per thousand dollars of market value.  This is the same as the fraction 0.00307, or as 0.307 percent.  For a taxable property with market value of $100,000 for the 2011 tax year, the county tax is $3.07 x $100,000 / $1,000, or $307.  If you used the fraction or percent representation, you'd get the same result.  That's because $3.07 = 0.00307 x $1,000.

The Tax Rate Is What Matters

As I have argued elsewhere, the tax rate — not the amount of your tax — is the most meaningful measure of how steeply you're being taxed.  That's because the tax rate takes into account the fact that market values change.  Follow me here:  If your neighbor's property is worth $200,000, you'd expect her to pay twice as much tax as you at $100,000.  This is fair and reasonable because your neighbor is twice as wealthy as you, as measured by the market value of her property.  Now suppose your own property is worth $100,000 in 2002, but appreciates to $200,000 in 2011.  If nothing else changes, that is, if the tax rate is the same in 2011 as in 2002, then you'd expect to pay double the tax in 2011 as in 2002.  After all, you're twice as wealthy as you were then.

Market Appreciation Is Like Getting a Second  House

Think of it this way:  Suppose you owned a $100,000 house in 2002.  Somewhere along the way, somebody just gave you a second house of equal value.  For free.  No mortgage.  Now you own two $100,000 houses instead of just one.  Great deal, right?  Only problem is that you need to pay property taxes on both houses.  So your property taxes have doubled.  Of course, nobody actually gave you a second house; it's just that your current house is worth twice as much as before.  But you really are twice as wealthy, as you'd realize if you go to sell your $100,000 house and find that you can get $200,000 for it. 

Yes, I know, you might not be planning to sell, and you can't really afford the double taxes — the “free” house you were “given”.  Unfortunately, there's no way to decline your market appreciation.  And consider that you probably wouldn't “decline” to take the extra $100,000 you'd get for selling your house.

This Is Real

Folks, the above dynamic is not a hypothetical example.  It is pretty close to what's been happening.  Property values in Dutchess County have nearly doubled in the decade from 2002 to 2011.  And the tax rate in 2002 was $3.02, just a few pennies less than the 2011 tax rate of $3.07.  So the typical property owner in Dutchess County may be paying twice as much county tax as ten years ago.  But that's because the typical property owner is twice as wealthy, as measured by the market value of the property.

Well, this analysis is a little oversimplified.  It doesn't take into account the significant increase in Dutchess County market value caused by new development and property improvements.  So the typical property owner isn't quite twice as wealthy in 2011 as in 2002.  But close enough to establish the general idea.

What Has Been the Trend?

Since Dutchess County's market value for 2011 is double that of 2002, does that mean we've seen a steady increase in market value during the decade?  No, it does not.  Since Dutchess County's 2011 tax rate is about the same as in 2002, does that mean that the tax rate has been constant for the entire decade in between?  No, it does not. Both inferences are incorrect.  In a subsequent post, I'll show the trends in property tax for Dutchess County government in the last decade.

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