Supporters of market value assessment believe that the value of your home is a fair way to measure your ability to pay. The Fair Tax Commissions report of the Property Tax Working Group, who had a one-time access to income information at the household level, concluded that this was random at best. They also concluded taxes based on MVA’s or CVA’s was regressive.
The supporters of Market Value Assessment or CVA continue to push for the updating of assessments to a new base year preferably going to annual updates. (In a later post I will talk about how this obfuscates the reality of tax shifts from one area to another.)
The Debate:
Market Value Assessment (MVA) or Current Value Assessment (CVA) often centers on the tension between "asset wealth" and "liquid income." While property taxes are a primary revenue source for municipalities, the link between the value of one's home and their actual bank account is frequently tenuous. Based on the findings from the Fair Tax Commission, here is a breakdown of the rationale for questioning the fairness of these systems.
1. The "Wealth vs. Income" Gap:
The core criticism is that property taxes measure unrealized wealth rather than actual cash flow.
A -The Asset Rich, Cash Poor:
Seniors on fixed incomes or long-term residents in gentrifying neighbourhoods may live in high-value homes but lack the monthly income to cover rising tax bills.
Seniors on fixed incomes or long-term residents in gentrifying neighbourhoods may live in high-value homes but lack the monthly income to cover rising tax bills.
B - The "Random" Correlation: As the Commission noted, a household's income level does not consistently scale with their home’s market value. Two families living in identical $800,000 homes may have vastly different financial realities—one earning $200,000/year and the other $55,000/year.
2. Regressive Nature of Property Taxes:
A tax is considered regressive if it takes a larger percentage of income from low-income earners than from high-income earners.
A - Housing as a Necessity: Lower-income households often spend a much higher proportion of their total income on housing (whether through taxes or passed-down rent) than wealthy households.
B - Caps on Luxury: In many markets, the value of modest homes rises at a faster percentage rate than luxury estates, meaning the tax burden can shift disproportionately onto the middle and lower classes during market booms.
3. Market Volatility vs. Service Stability: The "Fairness" argument is often undercut by the fact that property values fluctuate based on external market forces that have nothing to do with municipal services.
Speculative Bubbles:
If a neighborhood becomes "trendy," property values spike. The
homeowner hasn't received better road maintenance or more police protection, yet their "fee" for those services increases simply because of a speculative market.
If a neighborhood becomes "trendy," property values spike. The
homeowner hasn't received better road maintenance or more police protection, yet their "fee" for those services increases simply because of a speculative market.
The "Zero-Sum" Game:
Since municipalities use a tax ratio (calculating the budget first, then dividing it by total assessment), a homeowner might see a tax increase even if their home value stays flat, simply because other areas of the city saw a value decrease.
Since municipalities use a tax ratio (calculating the budget first, then dividing it by total assessment), a homeowner might see a tax increase even if their home value stays flat, simply because other areas of the city saw a value decrease.
Summary - Fair vs. Unfair Perspectives:
Argument for MVA (Proponents)
A -Wealth Proxy: Real estate is a visible sign of wealth and a fair "base" for taxation.
B - Simplicity: Property is easy to find and value compared to hidden offshore income.
C - Benefit Principle: Higher-value areas often utilize more infrastructure/services.
Argument Against MVA (Critics)
A - Liquidity Issue: You cannot pay taxes with "bricks and mortar" without selling the home.
B - Inaccuracy: Assessments are often lagging or based on "comparable" sales that don't reflect a specific home.
C - Regressive Burden: Hits seniors and low-income families hardest as a percentage of their earnings.
D - Tax Shifting: Market values change from location to location
causing shifting of the tax burden from one area to another.
causing shifting of the tax burden from one area to another.
Why the "Random" Finding is Significant: The Fair Tax Commission's access to household-level income data was a "smoking gun" because it proved that property value is a poor predictor of ability to pay. If the correlation is "random at best," then the tax functions more like a lottery based on when and where you bought your home, rather than a calculated contribution based on your means.
Posts on property tax and assessment are my opinion based on my involvement as a taxpayer interested and involved in the process. They are for general information to provide a starting point for you to answer your questions about them. AI assistance was used in creating this post #YourVoiceMatters
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