Property taxes are not the enemy

A version of this column originally appeared in Michigan Advance.

What do your neighborhood elementary school, a fire truck and a library have in common? They are all supported by property taxes — one of the main ways we pay for services provided by our local governments and schools. However, property taxes have come under attack as unfair or too high, most recently by way of a package of bills being considered by the Michigan House Government Operations Committee. While paying that tax twice a year may feel heavy for a lot of folks, completely dismantling a community’s ability to provide essential services is not the answer. Instead, Michigan should expand options for local governments to ensure they meet their residents’ needs and target relief to those who need it most.

The property tax is a powerful tool that pays for the necessities of life and things we all value, like good schools, public safety, community parks and water drainage systems. Property taxes are a stable and consistent form of revenue for local governments that are less distortionary than most other taxes. Research shows that property taxes are more conducive to economic growth than income taxes, and they are more equitable than sales taxes. Property taxes, when spent correctly, can make communities safer and more prosperous and raise a homeowner’s net worth in return. This is why taxing property is one of the most traditional forms of raising revenue: it works! 

In addition to the stability and consistency of property taxes, Michiganders as a whole are not overburdened by them. Property tax revenue, after adjusting for inflation, has increased slightly since 2004 and has just now recovered from the Great Recession. In 2024 dollars, Michigan communities raised an equivalent of $21 billion in 2007 and raised $20.5 billion in 2024. So property tax revenue hasn’t moved much in the last 20 years despite property values climbing. As a percentage of total personal income, property tax revenue fell from 4.7% in 1993 to approximately 3% today. Though some communities are disproportionately affected by high property tax rates, namely Highland Park and Detroit, Michiganders as a whole are not really paying more in property taxes, despite an increasingly loud narrative that we are. 

The stagnant tax revenue exists because over the years, Michigan voters and lawmakers have made great efforts to control the growth in property taxes: the Headlee Amendment in 1978 and Proposition A in 1994. While restricting tax increases may seem appealing to homeowners, research consistently shows that limitations on property tax growth don’t achieve their goals and result in an inadequate and inequitable tax system. They disincentivize the construction of new and affordable homes, and create confusing, opaque rules that most homeowners don’t understand until it’s too late. The Headlee Amendment and Prop A have led to distortions in the housing market, rewarding long-term homeowners and hurting new, often younger homeowners. 

At the same time, state laws limit local governments’ abilities to levy other revenue options, making them largely reliant on property taxes. Limiting local governments to one sole source of revenue further harms them because it doesn’t take into account differences between communities. So it isn’t the property tax that leads to these understandable frustrations; rather, it’s Michigan placing guardrails around local tax autonomy.

Big cuts to property taxes are not the answer. Broad property tax cuts unfairly benefit white, wealthy homeowners with high-value homes and vacation properties. In addition, lawmakers who cut property taxes often resort to far more regressive measures, like fees, fines and sales taxes to make up the difference. These replacements to the property tax unfairly fall on Michiganders with low incomes as well as communities with a high population of Black and Brown Michiganders. A recent analysis from the Tax Foundation finds that attempts to replace the property tax exacerbate differences between communities, especially where communities are unable to fully backfill any revenue loss. None of these options will address the core issue, which is a lack of local tax autonomy. In fact, they may make it worse because communities will have less control over their budgets.

The real solution lies in expanding and diversifying revenue options for local governments while targeting relief to homeowners and renters who are disproportionately affected by the property tax, such as improving the Homestead Property Tax Credit. That way, we can pay our fair share for the vibrant communities we deserve.