It’s called the property tax, and solution is a property tax cap
by Joe Gervais
Kamala Harris has been criticized for her plan to tax unrealized gains of the wealthiest Americans. Critics outline unintended consequences of the policy, including forced liquidation of assets to raise the funds that are needed to pay the tax bill.
Vermonters have been subject to a similar tax of unrealized gains, but rather than the wealthy, the impact is greatest on long term homeowners, particularly retirees. As I’ve been canvassing, many homeowners are concerned about the ever-increasing property tax bills, but have not seen the underlying reality that this tax is an ever-increasing tax on unrealized gains.
Unlike capital gains taxes, property tax is not a one-time tax, but is an annuity that needs to be paid year after year on the unrealized gain. This reality became clear at a recent education forum, where a participant asked, “Isn’t the property tax system a tax on unrealized gains?”
My brother lives in California. Back in the early 1990’s, he and my sister bought a house for about $190,000, and he still lives in that house with his wife and son. Today, on Zillow, that house is valued at over $1.35 million.
Does my brother have the income to be paying property tax on that $1.1M gain year after year? Probably not. Fortunately, he does not have to, as California enacted Proposition 13 back in the 1970’s, which caps appreciation of property values at 2% per year. Last year, his property tax assessment was $329,063, with appreciation most years at the 2% cap.
With the influx of new residents since Covid, Vermont has seen a significant jump in property values. Along with that, we are seeing a significant jump in property tax bills, as towns have been reappraising and resetting tax rates. Manchester residents have seen a roughly 50% jump in tax bills in the two years since reappraisal.
When towns aren’t quick enough to reappraise to meet the state treasury’s needs, a tool called the Common Level of Appraisal is used by the Department of Taxes.
“The common level of appraisal (CLA) adjusts the locally assessed property values to the estimated fair market value. The CLA ensures that each town is treated equally and uniformly – regardless of when they last appraised. The CLA is unique in each town and is calculated annually by the Department of Taxes.”
Today we are seeing the unintended consequences of this taxation of unrealized gains on our homes and camps, with an unprecedented number of homeowners placing no longer affordable properties on the market since receiving their property taxes bills. Is this Vermont’s goal, to force Vermonters out of the state?
In revamping the education funding system, the next legislature needs to look seriously at ending this taxation of unrealized gains, and enacting a property tax cap system, such as California’s Prop 13. Vermont is one of only a handful of states without any caps on the annual increases of property values and corresponding property taxes.
John Klar rightfully pointed out in comments on my Substack page that this doesn’t fix the spending problem in the schools. We don’t have an education revenue problem. We have a spending problem. Spending driven by special interests is the big elephant in the room.
A property tax / property assessment cap is a piece of the overall solution. Done right, it provides protection for long term property owners in the state not seeing their tax burden climb as others drive up the pricing of property in the state.
The author, an Arlington resident, is the Republican nominee for Vermont Senate for Bennington District.