Martin Harris

Martin Harris lives in Brandon, VT. He is an architect, and a property rights and education advocate.

A long time ago, in a far-away galaxy--oops, that wasn't a different galaxy, it was Massachusetts before it became known as Taxachusetts-some of the locals objected to a new tax imposed by their royal government. It wasn't much as such things go--a few pennies on the pound, or well under one percent of Fair Market Value-but the locals responded ungraciously by dumping the tea in the harbor. In this violation of the future Clean Waters Act they were incited to feats of carton-tossing by one Sam Adams, who went on to an illustrious career recognized, long after his death, by the marketing of an adult beverage bearing his name. Sam was something of a sloganeer as well, suggesting to the uppity tax-protestors (their conduct was lamented by their betters in government, who worried that perhaps they had failed to educate the ungrateful rabble into understanding all the wonderful things they, the natural leadership, were trying to do for their children) that they explain their underlying principle as "No Taxation Without Representation."

That turned out to be a catchy phrase, even if one of the words has five syllables, something carefully avoided in modern political/philosophical debate, where monosyllabics like "Bush Lied." "Stop the Hate," and "Tax You, Fund Me" push the outer limits of proficiency-in-comprehension.

That NTWR, it turned out, has its own Achilles Heel (a little Greek-mythology lingo, there) as described by Plato, who taught that democracies would last only until the majority figured out how to vote themselves benefits at the expense of the minority. Part of the lesson (the ain't-it-fun-to-sell-tax-breaks-for-votes part) was gleefully embraced two millennia later under Vermont's legislative Golden Dome, where politicians created Act 60 and then son-of-60, Act 68, wherein a new "principle" was established: you can vote for tax increases and, even at a median family income twice the state average, not have to pay for them. The "income-sensitivity" provisions of 60 and 68 (no more than 2.5 percent of income may go for property taxes) insures that a majority of property-tax-payers/voters would be immunized from their own education-spending-increase decisions by shucking off "extra" costs onto such attractive political-minority targets as non-voting business and non-resident property owners, and, of course, deservedly-attackable resident rich people, whose votes are too few to matter anyway.

The tea-tossers went on to perpetrate actual physical violence against their taxing betters, and even though we're told that wars never solve anything, it all ended up with Taxation With Representation, which actually worked (in terms of levies against property like tea or real estate) fairly well as long as 1.) the taxers showed restraint in taxing because 2.) the spenders showed restraint in spending and 3.) the majority voters didn't stoop to shoving off their own spending wishes on a minority of others to pay for and, of course 4.) that property values correlated predictably with income and ability-to-pay. Now, all of those once-accepted rules-of-the-game have been discarded.

There was, once, a fifth rule: that property-appraisals were revenue (tax)-neutral in that, with spending held level, a higher appraisal would merely convert, arithmetically, to a lower tax rate. That, too, is history in Vermont but not the other 49 states. Here, thanks to 60 and 68, a higher appraisal converts to a higher tax unless a few pennies are shaved off the official rate by a magnanimous legislature when they get around to it. Because the voting majority benefits, no remedy short of tea-tossing and its follow-up seems likely.

Which leaves a fairly inadequate substitute argument: No Taxation Without Realization. This modern-day NTWR would require that unrealized paper gains in property value (and these have been substantial as real estate has boomed in recent years) not be taxable. California has been on this form of NTWR since the mid-70s, and it works. The Golden State has (like Vermont but not as severe) a middle-class flight problem, but the underlying cause is different. People flee California not because of property taxes but because of earthquake fears and other considerations not mentionable in a family newspaper. People (particularly in the 25-44 and the 65-plus age cohorts) are fleeing Vermont, Census data show, and one of the major reasons for such out-migration is a steadily increasing property tax burden. The younger folks are leaving because they find housing unaffordable against prevailing wage rates here; the better-off older folks are leaving as more of the tax burden is shifted to them.

Terms like in- and out-migration, as used by demographers, refer to the numbers of people who move into or out of a given state or country; they don't refer to motives. A phrase like "voting with their feet" does, suggesting that in-migrants (think of the hippie influx to Vermont in the 1960s) respond to something they find attractive enough to move into, and out-migrants do just the opposite. It's interesting that politically "blue" states (using the color coding for liberal = blue and conservative = red invented by USA Today editors for reporting on the November 2000 elections) almost invariably show higher rates of out-migration--citizen flight, if you will--than red states, and it's commonly speculated, in Vermont, for example, that the present out-migration of some population sectors is caused by such issues as "affordability," which is now, suddenly, deemed a "crisis" by the same political class which has systematically caused it with their legislative actions ever since the hippies began their in-migration forty years ago. In 1960, before present trends began, the record shows Vermont was spending $344 per pupil in its public schools, compared to a national average of $350; now Vermont spends at least $11,500--some reports say $12,500--against a national average in the upper $8000 range. That spending level is all tax money, primarily the property tax, and, at one of the highest per-capita level in the nation--some reports say the highest--education spending is now commonly recognized as a critical part of the "affordability" problem.

With Vermont showing the smallest average class size in the nation, and at or near the top in pupil-teacher ratio and pupil-staff ratio, and staffing the single largest expense by far in school budgets, it's not an exercise in advanced math to show that staffing decisions over the past forty years have driven tax burdens to levels now being called a "crisis." Sure enough, politicians respond with rhetoric. "We need to attack the property tax issue head on," says Vermont House Speaker Gaye Symington.

Does she propose to address staffing levels? No. Edu-crats are part of her voter base. She proposes to address school district configuration (the previous label, reorganization, is apparently now unfashionable), the turnover of superintendents, the cost impact of unfunded federal mandates. Included in that last item is the notion that a federal requirement for higher student proficiency levels is an unfunded mandate, and that Washington shouldn't expect or demand teacher productivity levels for which it won't pay extra. Schools shouldn't be expected to produce student proficiency, edu-crats say.

Her chosen tactic, tax-level concern-pretense, reflects a majority voter preference, reflected by continuing voter approval of escalating school budgets; the minority can accept it or leave. So much for the spending side of the "crisis." On the taxing side there's equally little hope, because her political colleagues have put in place a system whereby increases in property appraisals automatically translate into increased tax collections rather than rate reductions. But there is one straw to grasp at: the idea that taxing property at its speculative worth (including unrealized paper gains) shouldn't be done by an honest government. After all, shares of stock, another form of property, aren't even taxed (except in Florida) until they're sold. That's the basic principle of No Taxation Without Realization: starting in 1978 with a voter/taxpayer initiative called Proposition 13, California has been doing just that with property taxes, accepting the last purchase price (rather than an appraiser's estimate) to serve as the basis for the taxable value until the next sale, which establishes a new taxable value. It's too bad that there's practically no chance of a Proposition 13 adoption in Vermont, because, unlike such fig leaves as administrator-turnover studies, it might actually reduce collections and thereby constrain spending. Those seemingly noble goals are, however, precisely what the voting majority, many of whom derive paychecks from government spending, in education and out of it, doesn't want. It's going to be interesting to see how far this self-serving style of politics can go before some other, as yet unanticipated, economic or political consequence, arises to correct it. Recent straws-in-the-wind suggest that a correction process may already have started: they are responses to the unpleasant truth of tax increases leading, ultimately, to property confiscation by government.

Some students of the Constitution claim that the Founders' intent was that property ownership in the new United States be allodial rather than feudal, meaning, among other things, that it wasn't subject to a quitrent payment to the local baron and couldn't be confiscated for non-payment of such debts as taxes. It hasn't worked out that way, with the result that, as the property tax has become the main source of funding for public education, and as those charges have increased dramatically in recent years (even though student test scores haven't) more and more property owners now find the situation unaffordable. Indeed, Vermont politicians now speak glibly of an "affordability crisis" as something they've suddenly discovered rather than a tax-and-spend pattern they've been systematically enlarging here for the last forty years.

Since the barons of government here have the feudal privilege of confiscating property for non-payment of taxes by the land-owning peasantry, it's not a theoretical problem, and taxpayers' restlessness has caused the political class to attempt to respond in different ways. One is a pretense of concern, illustrated by the House Speaker's proposal to "address property taxes head-on" by calling for a study of superintendent turnover. Another is to smile with amusement and a not-so-veiled threat of legal and, ultimately, physical force, should towns like Killington pursue their declared path to secession from Vermont. A third has been Acts 60 and 68, a tweaking of the property tax so that a majority of payers can shuck off the full impact of their spending-approval votes on a hapless minority. For obvious political reasons, there's been a total refusal to concede the extraordinary cost of a public school system which employs teaching and non-teaching staff at the highest per-pupil levels in the nation; after all, they're the job-holder beneficiaries and they vote. There's also been a systematic refusal to recognize a sort of supply-side solution: the capping of property tax levels as a means to constrain spending growth. The template has been visible, and successful, for 28 years in California, where the property tax system provides that taxes don't go up just because theoretical appraised values go up; a homeowner's Fair Market Value would be the basis for his property tax (with, at most a 2 percent annual inflation adjustment) as long as he owns it. When he sells, a new FMV is established by the new sale price. It's been challenged, legally, again and again by politicians and edu-crats, but has won every court case. Most recently, a part of the old Prop. 13, requiring all new property levies to pass with 2/3 voter approval, was again challenged by the tax-and-spend groups. Taxpayers responded with a new initiative: Prop. 218, The Right to Vote on Taxes Act. It too has been upheld by courts there. California's decisions reflect two principles, the lesser of which is the 2/3 voter-majority requirement for any levies against property. The more important is the No Taxation Without Realization principle, which states that paper gains--unrealized value estimates that may reflect nothing more than a temporary housing price bubble--shouldn't be taxable until they've actually been realized via a property sale. NTWR has a side benefit as well: it rewards homeowners who don't sell and flee to lower-tax states. You'd think politicians and educators would be in favor of encouraging long-term residency, but you'd be wrong: Here in Vermont, for example, I've frequently heard them suggest to tax-complainers that they sell and leave, so that a new owner would pay all they want, for the sake of the children, of course.

A closing thought: in California, when real estate values drop, taxes don't. Only a new FMV from a new sale establishes a new tax bill. In Vermont, when values drop (as is now quite likely) will the "system" be as quick to re-appraise downward as it has been to re-appraise upward? Here a cut in FMV would, if recognized under present rules, produce a cut in school income. Historical fact: in 1992, housing values did turn downward, but the system chose not to notice. "Our schools can't afford a cut," they said. So much for the pretense of true FMV property taxation here. And so much for the pretense of concern over the accelerating out-migration of such cohorts as the age 25-44 families-with-children group, a phenomenon which explains fairly substantial year-to-year shrinkage in school-enrollment numbers. Here, the new reality is a pay-to-stay policy, and if, you can't easily afford it, we don't want you around. *

"If men of wisdom and knowledge, of moderation and temperance, of patience, fortitude and perseverance, of sobriety and true republican simplicity of manners, of zeal for the honor of the Supreme Being . . . are chosen to fill the seats of government, we may expect that our affairs will rest on a solid and permanent foundation." --Samuel Adams