The property tax cap has a direct effect on a localities budget, and their subsequent ability to provide public services. Property tax caps are a balancing act between the individual land owner and the community itself. Given a stable budget, if property taxes are too high the locality or community will increase their revenue and have a surplus of cash.
Although the community thrives, the individual landowner will suffer financially from increased real property taxes. If the equation was reversed, and property taxes were capped or limited, the individual land owner will benefit by increasing his/her disposable income, and the locality will suffer due to a loss of revenue. In order to provide public services such as schools, law enforcement, or municipal services a community needs to tax its citizens.
The majority of revenue that a locality operates with is established through administering property taxes. Property tax caps limit the amount a locality can tax land, which in turn, limits the amount of revenue a community can operate under.
Property tax caps direct the flow of cash between landowner and community. The importance between the flow of cash between landowner and community is exemplified through the availability or effectiveness of public services. Public services, or goods like roads, schools, and law enforcement offered by the community are necessary to sustain a healthy society. These public services are funded through a variety of local taxes, but the majority of revenue comes from real property tax.
If a property tax cap is present in the community or state, the localities revenue is limited and they must budget accordingly in regards to providing public services. Property tax caps require a community to be frugal with their spending. The property tax cap effects all services, including salaries for local government employees, such as teachers, firemen, or police officers. The salaries for these employees increase every year due to numerous economic factors, the most important of which being inflation.
Subsequently, costs also rise for equipment or manpower needed to build or maintain roads, highways, and parks. As costs and salaries both rise there is more stress put on property taxes and their caps. Salaries between jurisdictions must remain competitive, but are effected by property tax caps and the amount of property tax levied on landowners.
The property tax cap’s largest effect on a community revolves around an individuals disposable income and a business’ operating costs. The property tax cap is thought to increase an individuals disposable income by decreasing his/her yearly property tax payments. The more money an individual has available the more consumer goods and services he/she can purchase. Because of the additional funds available, the property tax cap is thought to increase spending and consumer consumption.
The property tax is also thought to have a positive effect on businesses. Generally businesses or organizations operate on large pieces of land. The property taxes associated with business can be astronomical. With a property tax cap present a business can cut its cost in the form of decreased property taxes. Fewer costs allow the business to produce more products, or hire more employees. This both, decreases unemployment, and enables the business to meet the growing demand present due to the increased amount of disposable income.
Property tax caps in theory are thought to bolster a community’s economy. The effects of property tax caps, however, does not guarantee positive externalities like increased disposable income or more efficient production for business. There are numerous economical and sociological factors that can alter the effect that property tax caps have on a community.