“Fair” property taxes

Chronic under-assessments with little basis in reality, a confusing multiplier system that penalizes some and confuses all, and a sky-high but phantom tax rate — sound familiar? The property tax system in Philadelphia looks a lot like that in Chicago, except they’ve got it easy — lower overall rates and no mind-bending system of playing favorites among land uses with obscure, completely arbitrary “multiplier values.”

Yet the fix that civic groups and an independent tax reform commission have proposed is an actual, fair fix: fair revaluation back to market values, a lower overall tax rate, limited buffer mechanisms, and a shift toward land-value taxation. Indeed, one civic group actively rejects the assessment-cap system that has so many fans in the Illinois legislature:

Assessments must keep pace with changes in value or the system will become even more unfair. Rate reductions or tax deferments are better tools to help homeowners.

Unfortunately, TRAC has made it known that they think the “ultimate solution” to the “property tax problem” (really more the property _value_ problem) is a Prop 13-style abolition of periodic assessments, in favor of fixed-at-sale assessments. This is a volley in the coming generational war: older, established, often wealthy property owners want to slice their own tax payments sharply. The unspoken other half of that equation: deep cuts in government services (schools’ primary funding in Illinois comes from property taxes), coupled with dramatically higher taxes on the young, new arrivals, and anyone unfortunate enough not to have been owned the right place at the right time. The racial overtones: wealth, especially property wealth, is far more racially concentrated in White hands than even income — especially since African American and Latino neighborhoods pay “the segregation tax” of lower property values — while public services in entrepot states like California and Illinois disproportionately benefit non-white children, in particular.

Meanwhile, as any Californian can attest, Prop 13 hasn’t slowed gentrification in the least. Of course, gentrification without the tax bills — maybe that’s what TRAC wants, after all. One generation after Prop 13, some original homeowners have tax bills one-tenth of their younger neighbors’. Dan Z in the Bay Area (from email discussion) argues that Prop 13 merely enhances the monopolistic, anti-density tendencies of entrenched homeowners:

By freezing the assessed value of their homes and thus freezing their property tax rates, Prop 13 creates an odd situation where long time homeowners feel all of the benefits of a housing shortage without feeling any of the pain… Outrageous home value appreciation gives long-time homeowners magnificent equity wealth without hurting them on a day-to-day basis with higher property taxes. I can’t help but wonder: if their property taxes were skyrocketing, maybe they wouldn’t be so hostile to new housing which would bring prices under control… Insulating people from the negative consequences of their actions (in this case fighting new housing) tends to cause them to act very selfishly and strangely.

Warren Buffett tried to speak up about how obscenely silly Prop 13 is by pointing out that he pays $2,264 a year in tax on his $4 million vacation house in Laguna Beach — less than I pay on my condo, and less, Buffett pointed out, than a working, “non-billionaire” family living in a $300,000 house in the Central Valley exurbs. That family “faces real estate taxes materially higher than those borne by this nonresident billionaire on his $4 million house in Laguna. This family, because of Prop 13, has been selected to subsidize me.” Even more disgusting: since commercial property owners can pay for legal help to create tax loopholes and prevent revaluation, the commercial properties that in Cook County pay the lion’s share of the property tax burden will be able to shove their taxes back onto homeowners under such a system.

An article by Lee Green in the LA Times Magazine last year (17 April 2005) paints this picture:

Many of the best and the brightest in economics, law, public finance, public policy, planning and tax theory believe that Proposition 13 — born out of homeowners’ anger over rocketing property taxes and government indifference — has caused or contributed to some of the state’s most pressing problems. Granted, it didn’t unleash the economic Armageddon prophesied by its opponents, and we certainly can’t hold it responsible for the state’s current fiscal fiasco, which owes its existence to executive and legislative mismanagement several magnitudes greater than anything Proposition 13 could conjure. Still, the measure’s untoward consequences — from the disempowerment of local government to the decimation of a once-proud educational system, unequal taxes on equal properties and yawning tax loopholes for business — demand a rigorous reexamination of Proposition 13 and its legacy. In tax lingo, a reassessment.

Lay all of the above over Illinois’ severe structural deficit — an antiquated state and local tax system critically wounded by the crises of the Nixon-Reagan years (deindustrialization leading to slower and narrower growth, metropolitan fragmentation and stratification, the elimination of federal aid) — and it’s a recipe to eviscerate a government that’s levying a tax burden that’s actually quite middling by national standards.

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