NEW YORK(CNN/Money) -
Roy Downing is angry. Taxes on his Lodi, N.J., home hit $8,000 in 2004, up from $6,000 the year before.
"That's quite a shot in one year," says Downing, chairman of the American Reform Party, which seeks to reduce government spending. "Then, it went up again, $300, this year."
New Jersey homeowners pay the highest property taxes in the country, according to the Tax Foundation, an evaluation based on the latest available Census Bureau figures from 2002. But you don't have to live there to have suffered a big boost in property taxes.
(Click here for state-tax rankings.)
Nationwide, property tax collections rose 7 percent in 2004, to more than $324 billion. Over the past five years, they've climbed 36.6 percent, about 6.4 percent a year.
The technical term for property tax is "millage," from mille, or one thousandth. That should strike most Americans as funny, considering that they're paying annual property taxes of between 1 percent and 2 percent, exceeding one thousandth by a factor of ten or more.
Pete Sepp, VP of communications for the National Taxpayers Union, says property taxes have been the fastest growing tax category the past few years, based, as they are, on home values, which have soared.
He also says public opinion polls find them, "The single most vexing and unfair tax we pay." (Click here for that story.)
Not only have they risen with the great surge in property values, but localities are also "assessing property much more aggressively," according to property tax expert Myron Orfield, of the University of Minnesota. He says property taxes are up nearly everywhere in America.
In most towns outside big cities, Orfield points out, 70 percent or more of property taxes go to pay education costs.
Still, real estate price increases have left many wealthy municipalities, "hip-deep in property tax revenue," according to Bill Ahern of the Tax Foundation, which attempts to educate taxpayers about taxes of all kinds.
Fairfax County, Virginia (population: more than 1 million) had a 23 percent increase in house prices in 2004 so tax bills could have ballooned by that amount.
"Officials offered to take four percentage points off that," said Ahern for a rate of 19 percent. "But irate taxpayers wanted a much larger concession." They finally compromised, on knocking off 12 percentage points.
Those hardest hit
Property tax rises are a dark side of the housing bubble.
"Unlike income, or even sales taxes, property taxes are not accurate indicators of your cash at hand," said Ahern. They can go up faster than income.
They can have especially heavy impact on seniors. Many retirees bought homes decades ago when assessed valuations were modest and taxes manageable. After home prices soared, homeowners may have larger net worths, but no more spending money to pay higher taxes on their more valuable homes.
Downing claims taxes have forced many of his friends and neighbors out of his middle-class town. The issue has become a political hot potato in the state, which will elect a governor this November.
On Tuesday, candidate Douglas R. Forrester won the Republican nomination, in large part on his platform of lowering property taxes.
Impact on schools
There can be, however, a downside to lowering property taxes.
In California, proposition 13 came into effect nearly 30 years ago. This referendum set the tax rate at no more than 1 percent of the house base value (the sale price of a house) and banned increases of more than 2 percent a year.
Taxes on a $300,000 home would come to no more than $3,000 initially and could rise only $60 after the first year, a maximum of $121.20 the next, and so on. Big jumps only occur when homes are sold.
For many wealthy California towns, a small percentage of tax on multi-million dollar homes can raise a lot of money, keeping taxes for many individuals reasonable. But for poorer communities, these limits leave local governments strapped for cash. Result: California has some of the country's lowest spending school districts, which may have contributed to a decline in education.
According to the San Jose Mercury News, California now ranks 35th in expenditures per student among the 50 states, 50th out of 51(including the District of Columbia) in computer access, and last in librarians. The test scores of fourth grade students came in 47th.
Other states have not followed California's lead. Some have set limits on tax increases, but they are usually ineffectively large.
Louisiana, for example, prohibits increases of more than 15 percent, according to Sepp. Even adhering strictly to that limit, taxes could double in five years.
That's not exactly millage.
What can you do?
Money magazine offers tips for coping with rising property taxes. Below are some of them. Read the full story here.
- Challenge your assessment: Property taxes are calculated using assessed valuations, yet few homeowners attempt to get their assessments lowered. Those that do are successful about 75 percent of the time. Assessor mistakes could include overestimating the home's size or number of rooms, not taking into account needed repairs, and poor choice of comparable property sales.
- Check whether your state offers discounts: Many places reduce property taxes for senior citizens, low-income residents, veterans, or the disabled.
- Take your case to the voters: Citizens like Howard Jarvis, who led the fight for Prop 13 in California, made a difference, maybe you can too. If you feel strongly that property taxes are out of control, join a tax reform group and lobby for change.
For more tips on easing property tax woes, click here.
For a story about the most tax-friendly states, click here.