16 August 2009

What Property Tax Assessment Can Learn From Horse Racing . . .

Bruce Schneier has an intersting post regarding self-enforcing protocols. This paragraph caught my eye (after being pointed out in the first comment to this Freakonomics post)
Here’s a self-enforcing protocol for determining property tax: the homeowner decides the value of the property and calculates the resultant tax, and the government can either accept the tax or buy the home for that price. Sounds unrealistic, but the Greek government implemented exactly that system for the taxation of antiquities. It was the easiest way to motivate people to accurately report the value of antiquities.

This wouldn't work for property taxes cause the government really doesn't want to buy up everyone's property (at least you hope they wouldn't, though in these Hope and Change-y times...) so the disincentive to under-assess wouldn't be strong enough to counterbalance the incentive to lower your own property tax.

What's this have to do with horse racing? Simple, make property like a claiming race. In a claiming race, all the horses are available for purchase at a set price range (say $40,000-50,000). This is done to make sure that the horses in a given field are of approximately similar quality so that better horses don't try to pad their stats by challenging inferior mounts.

By combining the two, you could have a workable self-enforcing protocol for property tax assessment. First, allow property owners to assess their own property on a regular basis (say, every four years or so). Second, make a set factor of that assessment a claiming price (or 'buy it now' price for eBay fans) for that property. I think something like 1.3x the assessed value as a claiming price would work for buyers, sellers, and tax collectors. Third, make the claiming period limited, and give property owners a chance to reassess upward if their market is suddenly hot but they don't want to sell just yet. Given that these assessments would most likely be higher than the systems in place (and cheaper to administrate given that you're using the owners themselves to do the heavy lifting), communities could charge a much lower (but more fairly distributed) rate.

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