Publisher's Note: The bad math of a tax cap
By Jody Reese
Manchester and a smattering of other towns around the state will be voting on a tax cap this November. Tax caps sound good because they promise to keep spending and thus taxes low. Most caps would cap spending at a 3 percent or so increase each year, while most government costs rise at about 5 percent each year.
So what’s wrong with cutting spending by 2 percent?
The math could work something like this: my taxes are about $4,000 a year, my home is valued at $237,000 in Manchester. I can expect my home value to increase 2 percent a year over the long haul — or $4,740 a year.
A 5-percent annual increase in my property taxes is a $200 increase in my taxes for this coming year. If the tax cap were to limit that increase to 3 percent or $120, I’d save $80 this year.
But if crime rises or the schools further deteriorate and people don’t want to live in the town because of cuts in the city services and my home value only goes up 1 percent a year, I’d lose $2,370 per year in appreciated value. That $80 in tax savings would cost me $2,370 a year — not a very good deal.
It’s not popular to say, but you’ve got to spend money on municipal services to encourage people to live in your town and want to buy your home. Where’s the real bargain for home owners? Is $80 a year worth the risk?