Property Taxes Continue to Soar
2000-03
Anti-tax sentiment in Washington state is widespread and justified. Even though Initiative 695 provided immediate and sizable tax relief for Washington citizens, the state remains among the highest-taxed in the nation. It is unsurprising that attention has now turned to property taxes, which have steadily increased since 1980. Substantial property tax relief is long overdue.
The Tax Foundation, a national tax research organization, annually releases a comparison of state and local tax burdens. According to this estimate, Washington’s state and local tax burden in 1999 ranked 8th highest in the nation, whether measured per capita ($3,671) or as a proportion of personal income ($121 per $1,000).
Even after Initiative 695’s elimination of the Motor Vehicle Excise Tax (MVET), Washington’s tax burden remains high. To estimate the immediate impact of Initiative 695, it is useful to refigure Washington’s 1999 Tax Foundation ranking with MVET revenue deducted. With an average savings of $142 per person due to MVET repeal, Washington’s state and local taxes drop to $3,529 per capita and $116 per $1,000 of personal income. These figures correspond to the 11th and 9th highest tax burdens, respectively. Even with the relief afforded by Initiative 695, Washington residents remain overtaxed. The property tax is an ideal choice for future tax cuts.
In 1999, property tax levies in Washington state totaled $5.1 billion. Of that total, local school district levies accounted for $1.6 billion; the state property tax levy totaled $1.3 billion; county property taxes equaled $923 million; city levies amounted to $666 million; and other local levies totaled another $611 million. For the owner of a $150,000 home, annual property taxes amount to about $2,000.
The property tax has been an important component of Washington’s tax structure since statehood in 1889. A series of Depression-era reforms substantially reduced property taxes, which at the time were the primary revenue source for state and local governments.
By the early 1970s, property taxes had once again proven overly burdensome. Thus, a second wave of property tax reforms hit at that time. In 1971, the Legislature established a “106 percent limit” on local regular levies (first effective for 1974) limiting the growth in property tax collections to 6 percent each year, regardless of how fast assessed value grew. The 106 percent limit was extended to the state property tax levy in 1979. Voters also approved a 1 percent constitutional limit on regular property tax levies in 1972, which prohibits the aggregate of regular levies from exceeding 1 percent of the current market value of any individual property.
Following the reforms of the 1970s, the growth in property taxes halted temporarily. Property taxes, measured in constant dollars, were actually reduced by $204 per capita between 1972 and 1980. Since 1980, however, per capita property taxes have resumed their steep, upward climb, increasing by 85 percent in real terms from 1980 to 1999. (See Figure 1, which reveals these two trends.) It bears emphasizing that the data in Figure 1 are measured in constant 1999 dollars. The 85 percent increase is in addition to inflation.
Sources: Washington Institute Foundation calculations using data from Department of Revenue, Office of Financial Management and Office of the Forecast Council.
Responding to the growing tax burden on homeowners, 64 percent of voters embraced property tax relief in 1997 by approving Referendum 47. In addition to making permanent a temporary 4.7 percent reduction in the state levy rate, Referendum 47 reduced the limit on collections to the lesser of 106 percent or 100 percent plus inflation. Local governments can exceed the inflation limit—up to the 106 percent limit—only if a supermajority of elected officials declares a “substantial need” for higher tax collections.
Referendum 47 has resulted in significant property tax relief, though not as much as intended. Many local governments have routinely declared a “substantial need” to increase collections well above inflation. Only 11 counties, in fact, have held increases to the rate of inflation or less for both 1998 and 1999. These 11 counties are home to less than 25 percent of Washington state’s population.
In part because of local governments’ routine declarations of “substantial need,” Washington’s property tax burden continues to grow. In 1999, combined state and local property taxes totaled $883 per capita, up from $476 per person in 1980, after adjusting for inflation. Local governments’ continuing lack of restraint, which led to Referendum 47, has caused property taxes to increase faster than many taxpayers are able to pay.
Washington residents are among the highest-taxed in the country. Their state and local tax burden ranked 8th highest in the nation in 1999, and Initiative 695’s tax cut has only slightly improved Washington taxpayers’ standing. More tax relief is warranted. An ideal target is the property tax, which has increased far faster than inflation and population growth. If the Legislature ignores the property tax problem, voters will have added incentive—and justification—to embrace one or more of the several proposed initiatives aimed at cutting property taxes.