We Should Tax Consumption, Not Property : Michigan is the latest state to come to terms with this unjust way of raising revenue.

To hearty applause at the California Education Summit, Bill Lockyer (D-Hayward), president pro tem of the state Senate, suggested that Proposition 13 be “re-examined”--meaning property taxes should be increased, especially for schools.

One month later, at a special election in Michigan, 70% of the voters ended property-tax funding for schools, increasing the sales tax and cigarette tax as a substitute.

These diametrically opposed positions leave an important question unanswered: Whither the property tax?

Historically, property taxes were a levy on productive land. Those who worked the land gave part of their bounty to the feudal lord protecting them. Today, in most states, residents are taxed on an arbitrary value of the property. For residential property owners, the property tax is nothing more than a tax to be paid out of their incomes--but not based on their incomes. As home values increase and earning power remains flat, the onerous aspects of the property tax become obvious.

In recent years, pressure increased on the property tax nationwide because of spiraling education costs.

Michigan is not alone in trying to peel schools from property-tax support. Wisconsin has passed legislation to limit a school district’s reliance on property taxes. Officials in South Carolina, Vermont, New Hampshire and Rhode Island are looking into similar plans.

California acknowledged the school funding problem earlier than most. The sales tax was established in this state to support schools during the Depression. Property values were low and the people who lived in those properties were broke. They couldn’t afford to pay. Sales tax, a tax on consumption indicating the buyer had resources to pay, supplemented the property tax in school financing.

Four decades later, the California Supreme Court’s Serrano decision of the early 1970s recognized that schools relying on local property taxes for revenue would end up with unequal funding. Richer communities, like Beverly Hills, could offer many more dollars to educate their students than poorer communities. In Michigan, under property-tax financing, the poorest districts spent $3,200 per student, the richest $10,000.

California not only leads the nation in recognizing the inadequacies of property-tax funding of schools; California voters also recognized the punitive effects of unrestricted property taxes on home ownership. For taxpayers, property taxes are a poor measure of ability to pay, while forcing the taxpayer to use his or her home as collateral against the possibility of not being able to pay the taxes.

While Proposition 13 tried to provide safeguards for the property-tax payer, Proposition 13 itself is just a step on the evolutionary path of curtailing and perhaps eventually eliminating the property tax.

Not many years ago, British Prime Minister Margaret Thatcher attempted to get rid of the property tax entirely. Eliminating the property tax received favorable response, but that plan failed when her substitute flat fee, called a poll tax, was protested out of existence.

While actions in the United States have not reached that point yet, clearly, the trend is toward diminished importance of the property tax. At most, the tax will end up as a tax on property-related services.

In the meantime, look for Michigan’s alternative of consumption taxes to gain wider acceptance. It deals successfully with a pragmatic political problem. Because of the surging education costs placed on the property-tax bill, many senior homeowners are resistant to school tax increases that threaten their homeownership. The consumption tax removes the threat to homeowners while requiring all to help pay the education bill.

In some states, there may be a movement toward a split property-tax roll, in which commercial property would be taxed at a different rate or assessment schedule than residential property.

The education Establishment has been pushing the business community to get behind greater education funding. If business signs on and falls into the trap of supporting increased property taxes across the board, more than just the changes they propose will end up on the table. It is conceivable that taxpayers would support a split-roll plan that would not only squeeze more property taxes out of business, but offer property-tax cuts to some homeowners as well.

As to the question, whither the property tax? there can be only one answer: Wither the property tax!