The Case for Eliminating Property Taxes: What This State’s Vote Means for True Homeownership

On November 5, North Dakota will vote on Measure 4, a ballot measure that could make it the first state to eliminate property taxes. This decision isn’t just a local concern; it’s a critical moment that could shape the future of property tax reform nationwide.

If successful, the measure will challenge the notion that property taxes are a permanent fixture, forcing us to reconsider the tax model that has held American homeowners in a perpetual cycle of payments to the government.

While Measure 4 opens a path toward exploring tax systems that foster true homeownership and economic freedom, there’s a significant caution. Without first eliminating personal income taxes and establishing a clear, structured plan to replace funding for essential government services, North Dakota could face fiscal and economic headwinds.

Property Taxes: An Endless Burden on Homeowners
Property taxes impose a recurring burden on homeowners, functioning as an annual wealth tax that rises yearly, driven by local government assessments and tax rates. Even once a mortgage is paid off, homeowners must continue to pay these taxes, making them permanent renters from the government. This system is particularly harmful to retirees, fixed-income earners, and families trying to keep up with rising housing costs.

Property taxes create a compounding burden in Texas and elsewhere due to rising property values assessed by government appraisers and rates set by various taxing entities. This “double impact” on property taxes drives many taxpayers to the edge financially, even if they’ve lived in their homes for decades.

The reality is that property taxes are an economic anchor, tying property owners to the whims of government budgets and leaving little flexibility to opt out of escalating taxes. Appraisal limits, like those in California’s Proposition 13, attempt to keep assessments under control. Still, they result in an inequitable “lock-in” effect that penalizes new buyers with higher rates and discourages turnover. This system has also increased housing prices, making it harder for new buyers to enter the market while reducing the motivation for existing homeowners to downsize or relocate.

Why Eliminate Income Taxes First?
The best starting point for states looking to reform their tax systems is elimination of the income tax. Income taxes directly tax labor and productivity, discouraging work and reducing individual take-home pay.

States that have avoided income taxes — like Texas, Florida, and Tennessee — have seen impressive economic growth and strong net migration rates due to their lower tax burdens and other factors. Florida and Tennessee, though not Texas, have managed to keep property taxes more reasonable by practicing better local spending restraint and avoiding the need to offset forgone income taxes with higher local taxes. This approach fully incentivizes labor and draws businesses and families seeking a more favorable tax environment.

Once income taxes are removed, states can focus on property taxes, which burden homeownership by taxing unrealized gains on property values, acting much like a wealth tax. Without income taxes, states can adopt more consumption-based models, particularly a flat final sales tax, that avoids taxing wealth or earnings directly and ties tax burdens to individuals’ activity in market. This sequence of reform — income tax elimination followed by property tax reduction — can lay a solid foundation for sustainable growth and homeowner stability.

How North Dakota and Texas Can Lead on Property Tax Reform
North Dakota has an opportunity to demonstrate that a state can operate without property taxes, but success requires spending control and careful planning.

Although critics argue that the estimated $3.15 billion biennial revenue from property taxes funds vital services, North Dakota’s $11 billion reserve fund, and strong oil-driven revenue give it unique fiscal flexibility. The state would benefit, however, from placing spending limits tied to population growth and inflation, similar to Colorado’s Taxpayer Bill of Rights (TABOR), to ensure that budget growth does not erode tax relief.

Texas, too, provides a relevant case study. Over the past decade, Texas lawmakers have allocated funds to reduce school district maintenance and operations (M&O) property taxes, but excessive state and local government spending has minimized the relief’s impact. Despite a $32.7 billion surplus last year, only $12.7 billion was used for property tax relief, with most of the rest going toward increasing state spending, which increased by a record 32 percent. The result was minimal total property tax reduction because other local taxing entities raised their property taxes substantially.

Without strict state and local spending caps, even substantial surplus funds can fail to yield lasting tax relief.

The Cautionary Note for North Dakota’s Measure 4
While North Dakota’s vote on Measure 4 is a bold step, it comes with potential pitfalls.

With a well-defined replacement plan for the revenue currently generated by property taxes, the state could avoid fiscal challenges that offset the intended benefits of property tax elimination. Measure 4 leaves it up to the state legislature to devise a revenue strategy. Essential services could suffer budget shortfalls, forcing the state into difficult cuts or prompting alternative tax increases.

Furthermore, the absence of a strategic plan could lead to ad hoc fiscal decisions, causing instability for residents and uncertainty in budgeting. To make property tax elimination feasible, North Dakota must adopt firm spending controls to match any revenue replacement strategy. By securing the proper fiscal framework, the state could avoid potential pitfalls and ensure that this ambitious tax reform strengthens, rather than destabilizes, its economic foundation.

Addressing Both State and Local Property Taxes
The most effective approach is to address property taxes at the state and local levels.

States should take the lead in eliminating school district property taxes, which often constitute a major portion of the overall property tax burden. In Texas, for example, school district taxes are “local” in name only, as state-level finance formulas heavily influence them. Once these are phased out at the state level, local governments should then work toward eliminating other types of property taxes, using surpluses and revenue growth to reduce rates to zero gradually.

By creating a model that addresses school district property taxes through state policy and the rest through local adjustments, states avoid funneling taxpayer dollars to local governments to subsidize shortfalls. Prioritizing true local control prevents the inefficient redistribution of funds from state coffers to local budgets.

Shifting to a Consumption-Based Tax Model
Replacing property taxes with a consumption-based tax, such as a broad-based final sales tax, would align the tax system more closely with individual spending power. Unlike property taxes, levied regardless of a homeowner’s choices, sales taxes are paid when residents choose to spend. This method introduces flexibility for taxpayers, who can control their tax contributions more directly rather than bearing a constant, unavoidable tax burden on their homes.

North Dakota could adopt a broader sales tax base or modest rate adjustments to offset lost property tax revenue while maintaining competitive tax rates. Tennessee and Florida offer strong examples of how states without income taxes have kept overall property tax burdens relatively low through spending restraints and controlled local budgets.

This piece originally was published by the American Institute for Economic Research.