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Understanding Property Taxes in the Current Economic Climate
Property taxes are the financial backbone of local governments, typically supplying roughly 70% of all local tax collections across the United States. In West Michigan, this revenue directly funds our schools, local police, fire departments, and parks—services that define our community quality of life.
However, as many West Michigan homeowners have seen, property values have surged—growing an estimated 55.9% nationally from January 2020 to mid-2025. This rapid appreciation has created a contentious situation where many homeowners face the reality of higher property tax bills, even if local governments keep tax rates flat. When property values increase faster than income and general inflation, the burden on the average homeowner feels disproportionate.
Why Excise Taxes Can’t Substitute for Property Taxes
The temptation exists to look for politically popular alternatives to property taxes. One recurring proposal is replacing property taxes with excise taxes—fees levied on specific items like cigarettes, alcohol, or fuel.
However, substituting property taxes with excise taxes is fiscally unsustainable, especially at the local level:
Inadequate Revenue: Excise taxes make up only a tiny fraction of local revenue. For perspective, the state of Nebraska's entire collection from excise taxes in 2024 amounted to only $575 million, a figure dwarfed by the $5.3 billion generated by property taxes. Excise taxes simply cannot generate the reliable revenue necessary to fund essential local services in Kent, Ottawa, or Kalamazoo counties.
Volatile Tax Base: Excise tax revenues are notoriously unstable. As consumption patterns change (e.g., fewer people smoke, or gas prices fluctuate), so too does the revenue stream. Property taxes, in contrast, offer a far more consistent revenue base essential for long-term planning for police, fire, and school budgets.
The Problem with Relying on Sales Taxes
Another popular proposition is to replace property taxes with increased sales taxes. While appealing at first glance, this approach is often criticized for its regressive nature, disproportionately affecting our most vulnerable neighbors.
Data shows that while middle-income earners pay an average of 4.8% of their income in sales taxes, the lowest 20% of income earners shoulder an even heavier burden, paying approximately 7%. This means lower-income families are dedicating a significantly larger share of their earnings to sales taxes than wealthier households, who benefit from lower effective rates.
Historically, shifts towards sales taxes were often initiated as a mechanism to reduce the tax burden on wealthy property owners, inadvertently perpetuating a more unequal system by penalizing lower-income and renting households.
Future Implications for West Michigan Communities
As Michigan lawmakers debate tax structure changes heading into 2026, the implications for our local communities are clear:
Stability is Vital: Property taxes remain one of the least volatile and most reliable funding mechanisms for core public services.
Transparency is Essential: Any proposed replacement strategy must be transparent about who ultimately bears the cost. Lawmakers must ensure that reform does not simply transfer the financial burden to those least able to bear it—like renters or low-income families—while simultaneously destabilizing funding for critical services.
Thoughtful tax reform requires a comprehensive evaluation of our entire tax structure, focusing on a system that serves all West Michigan residents equitably and reliably funds the essential services we all rely on.
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