How Property Taxes Should Be Calculated

How Property Taxes Should Be CalculatedProperty taxes are going to be around for the foreseeable future. I am not going to discuss what property taxes pay for as it differs from city to city and state to state. What I’d like to discuss is how they are calculated and why it should be changed.

A typical formula used around the country is tax your property a percentage of the value of your home based on what the county assessor thinks it is worth. Lets say your local county government has a property tax of 1% and your home was assessed at $300k. You would pay $300k x 1%= $3000 a year in property taxes.

Im sure there are people out there who pay much more than that for houses worth less but lets roll with this. This is a great system when property values are going up because as your property value goes up the amount of money you pay in property taxes goes up. The county government does not look bad because they did not have to raise the percent to bring in more money, it was the market that did it.

For the most part, people do not complain about paying a little more in property taxes because the value of the property has gone up. Everybody likes hearing this news. Even to hear that it went up 10% in value in one year is pretty amazing. Our $300k example would result in a new value of $330k and new property taxes of $3300. Not bad knowing you could sell the house for $30k more and only had to shell out $300 more a year in property taxes.

Property values went up 30% to 200% during the refi boom of 2002-2006. This was just ridiculous. New cities were created because of all of the home building going on. This resulted in a lot of new revenue for these cities to bring in to fund their police and fire departments. Let alone the Parks & Recreation, new government and school buildings, and more spending. This system seemed to be good for everybody because with the rising cost of real estate most people still felt ahead.

Not So Fast

And then the housing bubble hit and home prices started dropping 12% every quarter erasing all of the equity gains each homeowner had. Foreclosures started popping up and people walked away from their homes.

With homes being foreclosed, the county government is losing out on the revenue it gets from the property taxes it collected. Now the county is in a bind because they assumed property values were going to keep on rising just like they were doing over the recorded history of real estate prices.

Since they were spending all of the extra surplus money they received to go out and buy stuff many county governments are now in debt and have no way to pay it back unless they make major changes. These major changes are doing things like laying off teachers, firefighters, police officers, county assessors (bad karma), road repair workers, etc.

Homeowners that were not complaining about paying a little more in taxes because of the previous values of their homes are now trying to fight the county and city governments because the county assessor is not lowering what they think your property is worth.

Even though you can go up and down your street and see homes selling for far less than what you were assessed at. What a city assessor and an appraiser look at are similar and different in a number of ways. The appraiser is getting paid either way. The county assessor needs the property tax revenue to stay the same so he can still have his job.

Now the county needs to raise more revenue than what it was bringing in during the refi boom to make up for all of the homes in foreclosure and rising prices on things like gasoline to fuel all of the government vehicles, pay salaries, utility bills, etc.

Would you believe that some counties are trying to raise property taxes on your declining property value? There argument is that you do want Police and Fire Departments, right? You do want a school around the corner for your kids, right? You want your kids to get picked up by a bus so you do not have to be late driving your kid to school, right? Looks like there is nothing you can do but play by the rules that do nothing but stick it to you.

What we need is a simple solution. And this is what I suggest.

Pay Property Taxes Based On How Much Property You Own

If I own 1 acre and you own 2 than you should pay twice as much in property taxes. Thats it.

And yes, it could be that simple.

Is there some Ford factory taking up 1000 acres in the city? Then they pay 1000 times more in property taxes than me and my 1 acre.

Could my remodeled house on the 1 acre piece of land with a backyard chipping green, pool, and tennis court be sold for twice as much as your house with the 2 acre piece of land thats never been remodeled and just has grass in the backyard? Yes. Doesn’t matter. You’re still paying twice as much in property taxes.


No More Bubbles – By going this route, cities and counties are not tying themselves into whats happening in the real estate market. Nor should they. The current way its done is great when things are going up but bad when things are going down. Do we really want to pay elected officials to run property tax tribunals listening to homeowners complain about how high their taxes are even though values plummeted?

Less Laws – Occasionally laws get passed which prohibit property taxes being raised or lowered (no one ever thought they would go down) which puts strain on the budget. By charging based on land own you wouldn’t need these laws.

Less Government Spending – You could eliminate the city assessors office and their budget completely. At a minimum the Treasurer’s office would absorb it but with a third of the work.

Ideal Scenario

The citizens (or elected officials) of the county approve an annual budget. They take this amount and divide by the number of acres (lots, etc) and come up with a per acre (lot, etc) amount. And you pay your amount based on the amount of land you own. Thats it.

In this scenario you could get rid of the city assessors office completely because why would you need them to asses anything anymore. How much money does that reduce from the county budget?

And why should the government be concerned whats on top of the land to begin with? Outside of trying to tax as much as possible it doesn’t make sense.

How many times have you seen homes that share a similar lay out and plot of land but one home owner takes better care of their home and has updated it with the new kitchen cabinets, granite counter tops, etc?

In the counties eyes the house that is better taken care of should pay more than the house that does not have all of the extras. But isn’t that really a shame. The people that put extra money in their house for new appliances or a new kitchen or bathroom should not be penalized.

The other house is probably being lived in by somebodys grandparents that have lived a certain way for the past 45 years and have not upgraded anything in the past 20 years. If it ain’t broke, don’t fix it.

The house is probably clean and spotless, but just old in style. But they both own the same land. Do not penalize the people that upgrade and make them pay more just because. They should be getting the money they put into it when they sell the house for more than grandma and grandpa next door.


Calculating property taxes could be so much easier. They are called “property taxes” and not “value taxes”, right? So why would we want to tax each other based up what a couple of people think the value of your home is worth?

And how do they exactly know what the value of your home is worth when they never go inside? They are not appraisers.

I am sure there is some good reason why things like State Equalized Value (SEV) came into existence but it should also go out of existence. Same thing with “mills” when a millage vote comes around.

Pass an annual budget. Divide by the amount of acres exist in the city. Tax by the acre. Send out the property tax bill. Thats it.

After that way of calculating for property taxes is adopted, then you can get into the nitty gritty of what you want your property taxes to pay for.

About the Author: Brad Gibala

Shreds Gnar. Hall & Oates Fan. Practicing Libertarian. Beachbody Coach. Detroit-ish. Contact - Start Here - About - Recommends

1 Comment

  1. Well now the S&P is indicating that 8 out of the 20 metropolitan areas (that they measure increases and decreases in property value) are going up in value right now…..which i’m a little confused on. And no Brad I didn’t think of this myself……we talked about it in my meeting today.

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