The Tale of American Property Taxes: A Tale of Two Extremes

Imagine packing your bags, leaving your hometown in New Jersey, and moving to Alabama for retirement. You sell your $400,000 house and buy a similar one in your new neighborhood, expecting to save some money. However, when you get the tax bill, you are astounded. Your annual property tax has plummeted from $8,797 to just $646. This is not fiction. It’s a reality for many Americans, dramatically underscored in a recent analysis by the Tax Foundation.

Geography of Property Taxes

Property taxes in the United States, a major source of revenue for state and local governments, are anything but uniform. They vary significantly depending on where you live. The Tax Foundation’s analysis reveals that New Jersey residents pay the highest median property tax of $8,797, while Alabama residents pay the lowest at $646. Property taxes account for a staggering 32.2% of state and local revenues in the U.S., typically funding schools, roads, police departments, fire departments, and emergency medical services.

These variations are attributed to differences in home prices and property tax rates, which range from an average effective rate of 0.32% in Hawaii to 2.23% in New Jersey. States that emphasize local governance at the county and municipal level, such as New Jersey, New York, and Illinois, tend to have higher property tax bills. This is because local governments have more control over setting property tax rates and can therefore levy higher taxes to fund local services.

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