What if there were a tax for essential services that was implemented differently across the state, based on which borough you lived in? Then imagine that any borough could vote its way out of paying this tax, and the state would pick up its tab. You would be crazy to think this was a good idea, but your borough has probably already implemented it.

This tax is called a “real property tax,” and while some Alaskans pay it, many have voted not to, and the state picks up the bill for some of their essential services, like police protection and school funding. In addition to being unequally applied around the state, there is an even worse aspect of the real property tax. The longer you own your home, the more you are penalized by it.

The majority of the 19 boroughs in Alaska have some form of real property tax, but five of the largest boroughs do not. Those five boroughs amount to 56% of the land area in our state. Alaska is the only state in the U.S. where the majority of the land in the state is not subject to any property tax. For communities located in those five boroughs, residents pay no property taxes.

While some form of taxation is required to pay for local services, there are big disagreements about the best way to do this. The two biggest revenue sources for local governments are sales and property taxes. The tax rates for some large Alaskan cities can be seen in Table 1.

Municipalities around the state have attempted to strike the right balance between sales and property taxes, but there is a wide disparity in opinions on what is best. While sales tax is a voluntary tax, paid only when items are purchased, the same is not true of property tax. If an individual owns a home in a municipality, they are hostage to whatever their local borough and city choose to tax their homes. If the community votes to raise mill rates to pay for some new budget expenditure, houses are not portable, so homeowners must pay for this decision. If the mill rates are raised too high, the homeowner might even lose their home if they can’t afford to pay the taxes anymore.

Another big downside to property taxes is that they, too, are regressive in their own way. When a house purchase is made, the homeowner knows what they will pay to the local city or borough for property taxes. Unfortunately, inflation causes the assessed value of homes to trend upward with time, resulting in ever-increasing property taxes for the owner. For elderly individuals, forced to live on a fixed income, the local municipality takes ever more of it by raising the taxes on the home they have owned for many years. In some cases, this makes their lifelong home unaffordable in old age.

This injustice has been recognized, and some individuals have proposed changing how property taxes are collected. They have suggested a “fair” tax, where the home’s assessed value for taxation purposes does not change over time, ensuring the homeowner has predictability in what they will be paying, and isn’t priced out of their own home by taxes. There are merits to this suggestion, and you can read more about fair tax here.

California has been doing something similar for quite a while. They passed Proposition 13 back in 1978, which stated that homes could only be reassessed for tax purposes when they were sold, and the annual rise in property assessments was strictly limited. This is a great deal for homeowners who stay in their homes for prolonged periods of time. The downside is that it penalizes individuals who have to move frequently for employment, buying a new home every few years. It has also created the inequity where two equivalent homes in the same neighborhood might pay significantly different property taxes based on how long their owners have lived there.

Given the inherent problems with equitably applying property taxes, Florida’s Gov. Ron DeSantis has proposed a radical solution. He has suggested getting rid of property taxes altogether. In Florida, just as in Alaska, property taxes are not used to fund state government; they are only imposed and used for funding by local communities. Florida has some of the same property tax inequities that Alaska has, and as a solution, Governor DeSantis has proposed eliminating property taxes and requiring municipalities to pay for services from other revenue sources, such as sales taxes and user fees. What he has proposed involves a fundamental shift in taxation philosophy from a tax on ownership to a tax on consumption.

Governor DeSantis has stated that it should not be possible for someone who owns their home to lose it to a local government just because the homeowner can’t pay their taxes, further saying that if the government can take your home from you for back taxes, you don’t really own it; you are just a serf renting it from the state. His new proposal has quite a bit of support, and if it passes in Florida, expect to see similar legislation pushed in other states.

The bottom line is that paying a property tax is like getting robbed, and the robber pretending you owed him the money. There has to be a more equitable way for Alaskans to fund essential services without the disparities that exist now.

The views expressed here are those of Greg Sarber. Read more Sarber posts at his Seward’s Folly substack.

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