To the Editor:
A crisis is always a tough time. Businesses struggle to cover their costs with decreased revenue. Households mourn over lowered salaries. Governments try to find resources for emerging needs. Indeed, governments find themselves under significant pressure, although it may not seem so. For example, during a pandemic, they had to cover much more expenses related to public health.
Increased governmental expenditures lead to the fact the fears of enhanced taxes will come true. There is an opinion that property taxes are the ones that are going to be increased. If this will become a reality, every business, including Moshes Law, is going to cover higher bills.
The Role of Taxes
What do we usually tend to know about property taxes? Typically, we seek answers to the following questions:
What property taxes can I deduct?
Can property taxes be paid online?
Where to file for a property tax refund?
Frankly speaking, it’s pretty easy to find the answers. First of all, you can deduct state and local property taxes from your federal income tax. Secondly, yes, you can use online banking when paying your taxes. And, thirdly, you should consult an appropriate local governmental office. For example, in Minnesota, you can do this both online and offline. However, all these are just a small part of the national tax system. It’s vital to understand how property taxes work and what their role is.
Let’s start from the beginning. All types of taxes are, basically, the governmental income that citizens are paying for the sake of the country’s well-being. They are regulated by law. The tax law meaning is an area of legal study, where public authorities implement rules and procedures to assess and collect taxes.
In other words, it’s a set of rules that regulate all taxation processes. So, if you want to know how property taxes work in New York, you should turn to NYC tax laws.
Taxes in Crisis
In times of crises, like what we are experiencing at the moment, governments rely on taxes more than before. They become the source of governmental support, as hard times require more funds to aid citizens in need. For instance, during COVID-19, the expenditures on the public health sector significantly increased.
All these highlight the importance of taxes. Therefore, instead of considering what property taxes pay for and whatnot, we all should do our best to pay them all in full. They are a guarantee that tomorrow we are going to wake up in an operating country, where doctors save patients, teachers study with our children, and the police monitor our safety.
However, what should a government do when taxes drastically decrease within almost a couple of weeks? That’s what the whole world faced in the first quarter of the year. Coronavirus stopped business operations, increased the level of unemployment, and locked us at home. It means that the national budget got far less money from income, sales, and numerous business taxes. In such a situation, it’s not unreasonable to wonder, “Can property taxes be lowered or not?”
According to Teryn Zmuda, chief economist with the National Association of Counties, more than 60 percent of countries rely on property taxes as a source of around 30 percent of their revenue. In other words, property taxes ensure that public schools, emergency services, and public health, road maintenance and libraries, water and sewer operations, and trash pickup keep receiving budgeting.
What is going to happen to us if citizens postpone or stop covering property taxes at all? First things first, let’s clarify how property taxes are paid. Typically, they are paid once annually or several times a year in a few installments. It means that the government receives a big sum of money at once. If it doesn’t, the local budget will severely suffer.
Increased Property Taxes Are a Real Opportunity
We have already mentioned that COVID-19-related expenditures have significantly undermined state budgets. Alongside this, there have been problems with funding. Here are some figures to prove this:
Both local and state governments were left out of the $484 billion COVID-19 relief bill signed by President Donald Trump.
A $13.3 billion shortfall in revenue is the reality that New York faced.
All these lead us to the fact that state budgets are now in quite a challenging situation. On the one side, the expenditures have been higher than planned, as no one could have predicted the pandemic outbreak. On the other side, the additional funding doesn’t seem to be a real opportunity.
The senior vice president for state fiscal policy at the Center on Budget and Policy Priorities, Nick Johnson, said that they hope for some financial aid. However, in case there will be no, or it won’t be able to cover the gaps, states will have to find a balance themselves.
How will they seek the balance? There are two ways: significantly cut spending or increase taxes. Till now, it’s not clear which path the state and local authorities will take. Yet, when answering the question, “Will property taxes go up after the crises?” more and more experts reply positively.
This can affect all property tax examples, from commercial to private real estate. In fact, the initial steps have already been undertaken in California. There, Proposition 15 has been worked out, which will apply a different assessment regime if approved on the November 2020 ballot.
The different assessment regime implies that both commercial and industrial properties are to be assessed on the fair market value, instead of the purchase price. However, not everyone would be subject to the Proposition 15 regime. Those whose real estate in California is worth less than $3 million will keep being under Proposition 13’s protection.
It’s obvious that value reassessment is only the beginning. Property taxes are considered to be the most stable during a recession. Therefore, we can claim that the answer to “will property taxes go up in 2021?” is yes. However, it’s still not clear whether it will be solely related to the commercial and industrial real estate or residential property will be included in the list.
What Is Happening Now: Governments Show Empathy
While the future doesn’t seem so bright, currently, governments are on their good side — they implement supportive measures. Households and businesses have found themselves in a complicated situation. They also experience financial losses; therefore, trouble with taxes is the last thing they need.
Local and state authorities chose the supportive path. What we are trying to say is that they show empathy and prolong the deadline for paying property taxes. Here are recent property tax examples that took place this spring, when governments extended the deadline:
Taxpayers from Florida could cover the bills till April 15, instead of March 31.
King County (Washington State) allowed more time up to June 1.
West Virginia approved a one-month extension.
San Francisco residents had time not till April but till May 4 to cover the taxes.
It’s vital to note that the practice has become popular worldwide. Many countries have allowed taxpayers more time to make the payment due to the coronavirus outbreak. Besides this, special measures have been implemented to support representatives of industries that suffered most of all. In particular, this involves the hospitality sphere and restaurants.
While such measures are helpful in hard times, they are putting a national budget under more pressure. Such extensions are beneficial for businesses and households, yet harmful for public activities that are funded by taxes.
What Does History Teach Us?
Unfortunately, the COVID-19 crisis isn’t the only one that affected the well-being of all industries. We are speaking about the national recession in 2008-2009. During this time, tax decline reached the steepest record — 11 percent. It equals $87 billion, which weren’t received due to lowered wages, a decline in economic activity, and lost jobs.
Together with this, more and more people needed state services more than ever. It’s quite a similar situation, isn’t it? As a result, the majority of states had to decrease spending and opt for a balanced approach, which involves revenue.
However, authorities realized a long time ago that cutting expenditures isn’t as effective as raising new revenue, even in the short term. The latter drives more economic benefits. That’s why, during the 2008-2009 recession, many have taken this path and increased taxes. In particular, there were implemented the following measures:
eliminated tax exemptions;
broadened tax bases;
increased rates; and
increased number of fees.
Although not all of them have been implemented in all the states, the main trends are clear. It’s much easier for governments to quickly compensate for the financial gaps, even if citizens will have to share the burden.
As can be seen, we are to expend the raise in property taxes. However, it doesn’t mean that other types of taxes are going to remain the same. The implications of COVID-19 aren’t clear yet. Therefore, it’s hard to predict the scope of the financial gap in the national budget.
Yuriy Moshes
Moshes Law
Oct. 6, 2020